Are you heading back to work after retiring? Here’s how to navigate Medicare coverage

Personal Finance

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Signing up for Medicare at age 65 doesn’t have to be a forever thing.

If you’re among the retirees who are “unretiring” to rejoin the workforce and you are on Medicare, you may have a choice of whether to keep that health-care coverage or drop it until you need to re-enroll. If you go this route, however, there are a lot of rules and deadlines to know — and getting it wrong could cost you down the road.

While workers at companies with fewer than 20 employees generally must be on Medicare once they reach age 65 to avoid paying extra later, people at larger companies may have choices.

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The general rule for Medicare is that unless you have qualifying insurance elsewhere, you need to sign up at age 65 or face late-enrollment penalties when you do enroll. You get a seven-month window that starts three months before your 65th birthday month and ends three months after it.

Basic Medicare consists of Part A (hospital coverage) and Part B (outpatient care). Some beneficiaries pair that with a standalone Part D prescription drug plan and/or a Medigap policy (which covers some costs that come with basic Medicare). Others choose to get their Parts A and B benefits delivered through an Advantage Plan (Part C), which usually includes Part D.

Part A comes with no premium as long as you have a 10-year history of contributing to the program through payroll taxes. For 2022, Part B comes with a standard monthly premium of $170.10 and Part D premiums will average $33 (higher earners pay more for both).

If you are considering dropping Medicare in favor of a large-group plan at a new employer (or your spouse is), be aware of a few potential snags.

For starters, if the work-based coverage comes with a health savings account, you cannot contribute to it if you remain on any part of Medicare, including just Part A.

Also, make sure that your employer plan would be considered “creditable” coverage for Part D. Your insurance company should provide you with that information.

“Those HSA plans might be okay for Part B but not Part D,” said Elizabeth Gavino, founder of Lewin & Gavino and an independent broker and general agent for Medicare plans.

Additionally, if you have Medigap, you’d have to drop that, as well. And those policies have their own rules for enrolling, which means you might face medical underwriting if you reapply down the road.

There also are deadlines to be aware of when you eventually do lose your coverage and want to switch to Medicare, and, often, requirements for proof that you had qualifying coverage.

Once you stop working, you get an eight-month window to enroll or re-enroll. You could face a late-enrollment penalty if you miss it. For each full year that you should have been enrolled but were not, you’ll pay 10% of the monthly Part B standard premium.

To sign up for Part D — whether as a standalone plan or through an Advantage Plan — you get two months of your workplace plan ending, unless you had delayed signing up for both Parts A and B. If you miss that window, you could face a late enrollment penalty. That amount is 1% of the base premium for each full month that you could have had coverage but didn’t.

Likewise, if you want an Advantage Plan, you only get two months from when your work coverage ends. If you miss that, you’d have to wait until the next enrollment period.

For those who may cycle in and out of the workforce and therefore in and out of workplace insurance: Each time you lose the coverage, the eight-month window restarts, according to the Centers for Medicare & Medicaid Services.

In other words, if you go to another employer that offers qualifying coverage before that timeframe runs out, you’re in the clear. The next time you drop it, that window restarts. However, remember that for drug coverage, it’s two months.

As for providing proof of coverage: Once you no longer have it through work, the insurer should mail you a letter showing the dates you were covered in its plan.

“A lot of people miss that by mistake and throw it out,” said Danielle Roberts, co-founder of insurance firm Boomer Benefits. “It’s important to keep that, especially for Part D.”

She said that if you don’t provide the proof after it’s requested, those late-enrollment penalties could appear.

“It’s not as simple as just calling to change it,” Roberts said. “You have to go through an appeals process, and in the meantime you’re paying the penalty.”

For Parts A and/or B signup, you need to provide the Social Security Administration with a form from your employer that certifies you were covered, Roberts said.

“The employer is testifying that you’ve had access to large-group coverage,” she said.

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