65 and Still Working: Should You Enroll in Medicare?

Dear Carrie,

I'm planning to continue to work past age 65, and wondering if I should stick with my employer's health insurance or move over to Medicare. How do I decide?

—A Reader

Dear Reader,

This is becoming a common question as more and more people decide to work past age 65. In fact, according to the Bureau of Labor Statistics, in 2020, 26.6 percent of people aged 65-74 remained in the workforce—and those numbers are projected to continue to grow. This can be seen as a positive since it means we're redefining aging. At the same time, though, adequate health insurance remains essential.

So it's an important question—and the answer largely depends on the size of your employer, as well as the cost and coverage of your current plan as compared to Medicare. You’ll need to familiarize yourself with the pertinent Medicare regulations and deadlines to ensure the most seamless transition—whether that happens at age 65 or later.

Also realize that once you file for Social Security, you're automatically enrolled in Medicare Parts A and B when you turn 65. However, you have the option to opt out of Part B, which you may want to do if you (or your spouse) are covered by an employer plan. 

If you haven’t filed for Social Security, you can choose to enroll in just Medicare Part A or both Parts A and B (your Initial Enrollment Period is three months before you turn 65 until three months after your 65^th birthday). Alternatively, you can postpone enrolling until you stop working. Let’s take a look at some Medicare basics as well as some of the factors that can help you decide.

Medicare Part A—an easy choice

Medicare Part A provides hospital insurance. It covers in-patient hospital stays, care in a skilled nursing facility, hospice care and some home care. Most people benefit by enrolling in Medicare Part A at age 65, whether or not they continue to work. There are no premiums, and enrolling now will help you avoid gaps in coverage down the road.

Medicare Part B—it depends on the size of your employer

Medicare Part B covers doctors' services, outpatient care, medical supplies and preventive services. The primary consideration in deciding if you need Part B is how many employees work at your company.

• If your company has 20 or more employees, your company would remain your primary insurer and you can delay enrolling in Part B without worrying about a late-enrollment penalty or lapse of coverage. When you leave your job, you then have eight months to sign up for Part B under a Special Enrollment Period.
• If your company has fewer than 20 employees, Medicare is considered your primary insurer, whether you've enrolled in Medicare or not. Your company plan is the secondary, which means that your employer plan won't pay for anything that's assumed to be covered by Medicare. If you don't sign up for Part B as soon as you're eligible, you may have to pay a penalty, and there could be a delay in coverage.

Medicare Part C (Medicare Advantage)—an alternative to Original Medicare

When you enroll in Medicare, you have the option to choose a Medicare Advantage plan as an alternative to Original Medicare, which includes Medicare A and B. Medicare Advantage is a type of Medicare health plan offered by a private company that provides all Part A and B benefits.

On the plus side, a Medicare Advantage plan also usually provides Part D (prescription drug) benefits as well as sometimes providing extras like vision and dental at a lower total cost. On the minus side, you generally have to choose doctors within a particular medical network and get a referral to see a specialist. Another caveat: in some cases, joining a Medicare Advantage plan could cause you to lose your employer plan. Be sure to check with your benefits administrator.

Medicare Part D—drug coverage has to be "creditable"

Part D covers prescription drugs. If your employer plan offers what Medicare calls "creditable" (as good as or better than the coverage provided by Medicare’s prescription drug benefit) coverage, you may be able to delay enrolling in a Part D plan. If you don't have this type of coverage and don't enroll as soon as you're eligible, there's a late enrollment penalty if you go more than 63 days without prescription drug coverage.

Some important considerations before making your choice

If you work for a large company, compare your employer coverage and costs with Medicare. Be sure to look carefully at premiums for Parts B and D (both have high-income premium surcharges) as well as the cost of a Medigap policy that would cover whatever Original Medicare doesn't (you should not purchase Medigap if you choose Medicare Advantage). If you're happy with your current plan, you may well be better off staying with that and delaying Medicare enrollment until you retire.

Another thing to be aware of is that once you enroll in Medicare (even if it's just Part A), you’re no longer eligible to contribute to a health savings account (HSA). Therefore, if you want to continue to boost pre-tax savings with an HSA, you may want to postpone. In fact, to avoid an IRS penalty, you must stop contributions to an HSA 6 months prior to enrolling in Medicare Part A or claiming Social Security (SS) benefits after age 65.

If you work for a small company, you should probably sign up for Parts A, B, and D as soon as you're eligible. In this case, you most likely won't need a Medigap policy under Original Medicare, since your employer coverage will pick up costs not covered by Medicare. Check with your employer to see the impact of enrolling in Medicare Advantage.  

A word about spousal benefits

If you're married and your spouse is covered by your employer plan, you'll have to consider what choices your spouse would have if you switch to Medicare. These may include COBRA, purchasing individual coverage in the private market, or through a government exchange at www.healthcare.gov. 

To me, your ultimate decision comes down to a cost/benefit analysis. Medicare.gov does a good job of explaining different scenarios for those eligible for Medicare while still employed. Check that out and also talk to your employer's benefits administrator. For assistance on who pays for what when you have employer coverage and Medicare, contact the Medicare Benefits Coordination & Recovery Center (BCRC) at 1-855-798-2627.  You can also contact Medicare.gov/contacts or your State Health Insurance Assistance Program (SHIP) at www.shiptacenter.org for more help with questions on Medicare.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.