Working past 65: when you can safely delay Part B

More people work past 65 every year, and the Medicare rules that apply to them are simple in outline and vicious in the details. Here is the outline, then the details.

The number that decides everything

Ask your HR department one question: how many employees does the company have?

Twenty or more. The group health plan is the primary payer and Medicare is secondary. You may delay Part B for as long as that coverage lasts without incurring a late enrollment penalty, and you will get an eight-month Special Enrollment Period when it ends. Most people still take premium-free Part A, because it costs nothing and pays second on hospital claims.

Fewer than twenty. Medicare is the primary payer and the group plan is secondary. If you have not enrolled in Part B, there is no primary payer at all — and the group plan may pay only what it would have paid as the secondary payer, leaving you with the share Medicare would have covered. Delaying Part B in this situation is close to uninsured.

The count includes part-time employees and is measured across the prior and current calendar year. It is not a judgement call. Get it in writing.

The eight-month clock, and where it starts

When the employment or the group coverage ends — whichever comes first — you get eight months to enrol in Part B without penalty.

Two things trip people up here.

The first is that the clock starts on the earlier of those two events. If you retire in March but your coverage runs through June, the clock started in April.

The second is COBRA.

COBRA is not employer coverage

For Part B purposes, COBRA continuation coverage does not count as active employer coverage. It does not extend your Special Enrollment Period, and it does not protect you from the late enrollment penalty.

The failure mode is always the same: someone retires, elects 18 months of COBRA, treats it as employer coverage, and enrols in Part B when COBRA ends. By then the eight-month window has been shut for ten months. They enrol during the next General Enrollment Period, coverage starts months later, and they pay a Part B late penalty of 10% for each full 12-month period they went without — added to their premium for as long as they have Part B.

The same is true of retiree health coverage, which also does not count as active employer coverage.

If you are on COBRA now and over 65, stop reading and check your dates.

Part D has a different clock

Employer drug coverage is usually creditable, and your plan is required to tell you so in writing each year. Keep the notice.

But the Part D Special Enrollment Period after employer coverage ends is two months, not eight. If you go 63 days or more without creditable drug coverage, the Part D late penalty starts accruing at 1% of the national base beneficiary premium for every full month — permanently.

Two months is not very long. Diary it.

The HSA problem

You cannot contribute to a Health Savings Account in any month you are enrolled in any part of Medicare, including premium-free Part A.

Worse: when you enrol in Part A after 65, coverage can be backdated up to six months. Contributions made during those backdated months become excess contributions and are taxable.

The practical rule is to stop HSA contributions at least six months before you intend to enrol in Medicare. Your employer’s benefits team will usually not raise this. Raise it yourself.

What to do, in order

1. Confirm the employee count with HR, in writing.
2. If it is 20 or more, decide whether premium-free Part A is worth taking. It usually is.
3. If it is fewer than 20, enrol in Part B during your Initial Enrollment Period.
4. Stop HSA contributions six months before you enrol in anything.
5. Diary the month your employment or coverage ends. Eight months for Part B, two for Part D.
6. Do not treat COBRA or retiree coverage as active employer coverage. It is not.

None of this is difficult. All of it is expensive to get wrong, and none of it comes with a reminder in the post.