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Should You Enroll in Medicare?

By Dan Caplinger - May 22, 2016 at 11:44AM

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It might sound like a no-brainer, but this key question can be tougher than it might seem.

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Many Americans spend years looking forward to when they can enroll for Medicare for the first time. For nearly everyone who qualifies, applying for Medicare at age 65 is a smart thing to do. However, there are some cases in which it makes sense to think twice before enrolling in Medicare right away. We'll look at those cases below, but first, let's look at why getting into Medicare at your earliest opportunity is usually a smart move.

Why applying for Medicare is usually smart

Medicare provides primary medical coverage for the vast majority of people who are eligible for the program. If you have 10 years of qualifying work on which you paid Medicare payroll taxes, then Part A hospital insurance coverage comes without any premium cost at all, and so it's a no-brainer to get access to that part of Medicare as soon as possible.

On the other hand, Medicare Part B coverage for medical costs, including doctor visits and most other outpatient treatment, isn't free. Premiums for new enrollees in 2016 are $121.80 per month for most people, with higher premium rates applying to single filers making more than $85,000 or joint filers with incomes above $170,000. Nevertheless, given the costs for similar coverage from private insurers, it's hard to do better than what Medicare offers for primary coverage.

When it makes sense to delay Medicare

The most typical situation in which Medicare coverage might not seem necessary involves people who are still covered under an employer group health plan, either because they're still working themselves or because they have a spouse who is working and has family coverage. In that case, you need to know how many employees your employer has. For smaller employers with fewer than 20 employees, Medicare coverage is primary, making it just as important to sign up for Medicare as it would be if you had no coverage at all. However, for larger employers with 20 or more employees, Medicare is secondary to group health plan coverage, and so the benefits of having Medicare aren't as great.

Another situation in which delaying Medicare can be smart involves those who have health savings accounts or HSAs in conjunction with a high deductible health plan or HDHP. This combination allows eligible individuals to take lucrative tax breaks on contributions toward their health costs, and in some cases, employers choose to make their own contributions to the HSA in order to reflect the premium cost savings that an HDHP offers compared to more comprehensive health insurance policies. Once you sign up for Medicare, you're not allowed to make contributions to your HSA, and that can lead to a higher tax bill. Running the numbers to determine whether having HSA contribution access outweighs the loss of potential Medicare coverage is crucial, but it is one potential reason to delay.

Keep potential penalties in mind

Before you make a decision not to enroll in Medicare, you should also be aware of the consequences of delay. If you don't have to pay for Part A, there's no penalty for taking it late. However, for Part B, you'll pay a 10% higher monthly premium for every 12 months you delayed beyond your first eligible Medicare date. That 10% surcharge lasts throughout your lifetime. Similar penalties can apply for those who choose not to take Part D prescription drug coverage.

However, keep in mind that having qualifying group health plan coverage through your or your spouse's employer lets you avoid penalties. Once group health plan eligibility ends, you'll qualify for a special enrollment period that will let you get the Medicare coverage you deserve.

Most people shouldn't hesitate to enroll in Medicare as soon as they can, especially if you're already retired and waiting impatiently for your health coverage to kick in. However, in a few select situations, it can make sense to wait and claim your Medicare coverage at a later date.

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