Older Americans benefit from a couple of key programs that provide essential services. Many people focus most on Social Security, which pays out monthly checks that you can use to cover your living expenses. However, Medicare might well be the more important of the two, as it covers a big chunk of the rising medical expenses that many folks end up having to pay as they get older.
Most people sign up for Medicare when they turn 65. Indeed, if you're already receiving Social Security benefits, the Social Security Administration will automatically enroll you for Medicare Parts A and B at your 65th birthday.
However, if you're still working -- or if you have qualifying health coverage from your spouse's job -- then you might not actually need Medicare right at 65. Let's take a closer look at the rules that cover Medicare in these situations to make sure that you don't run afoul of any requirements or incur unnecessary penalties on your Medicare premiums.
Why missing age 65 can be a problem
The first question you might have is why it matters when you sign up for Medicare. The answer is that being late to sign up can incur penalties.
Medicare expects most people to sign up at age 65. If you don't, then you'll potentially face a late enrollment penalty on your Part B premium. That penalty is 10% of your monthly premium per year or part of a year that you're late signing up, and it applies to your premium payments for the rest of your life. With standard Part B monthly premiums of $170.10 in 2022, the penalty could cost you more than $200 per year at current rates.
How work-based coverage fits with Medicare
However, Medicare acknowledges that some people work or have health coverage through a spouse's work plan even after age 65. To accommodate that without penalizing older workers, Medicare's rules establish how those workplace health plans interact with government coverage.
The first question to ask involves the nature of the health insurance you have. If you're self-employed, or if your insurance isn't available to everyone at your workplace, then it might not qualify as group health plan coverage under IRS regulations. If that's the case, you'll need to sign up for Medicare at 65 to avoid penalties. In addition, those who are covered under COBRA also potentially have to pay a penalty if they don't sign up for Medicare when they turn 65.
Next, those who have qualifying group health plan coverage have to look at the number of employees at their company. For employers with fewer than 20 employees, Medicare is the primary insurer, with your job-based insurance kicking in for any uncovered costs. In that case, your job-based insurance might not cover costs if you don't sign up for Medicare at 65.
Conversely, for those working for an employer with 20 or more employees, the job-based health insurance is the primary payer, with Medicare covering any remaining expenses. If you choose not to sign up for Medicare in this situation, you will not pay a late enrollment penalty for Part B as long as you add Medicare coverage promptly when your job-based coverage ends.
Lastly, some employers don't mandate particular insurance providers but rather offer a stipend to purchase your own health coverage. Typically, Medicare won't interact with that insurance, and the private health insurer in some cases will have rules that reduce or eliminate their reimbursement of healthcare costs for those eligible to sign up for Medicare.
Prescription drugs and Medicare
In addition, older workers should look at their job-based insurance to see if it includes creditable drug coverage. You're eligible to sign up for a Medicare Part D drug plan when you sign up for either Medicare Part A hospital coverage or Part B medical coverage.
If you don't have creditable drug coverage, then to avoid Part D late enrollment penalties, you'll need to sign up for Part D or join a Medicare Advantage plan with drug coverage within three months after you become eligible. The penalty is 1% per month that you could have signed up but didn't.
If you do have creditable drug coverage, then you won't face penalties as long as it lasts. However, if you lose that coverage, you'll need to join a Medicare-based drug plan within two months. No penalties will apply as long as you don't go more than 63 days without creditable drug coverage.
Get the facts
The best thing to do for anyone 65 or older who's still working and gets health insurance coverage from their job or a spouse's workplace is to contact the health insurance company and find out how their coverage works with Medicare. That way, you won't make a Medicare decision you'll come to regret.