I'm Still Working at 65. Do I Need to Enroll in Medicare?
Not Necessarily.
If you're still working at 65 and have health insurance through your employer, you may not need to enroll in every part of Medicare right away. You do however, need to answer the question: Can you safely keep the coverage you already have?
In our first article in this series, Before You Choose Medicare, Start With These Three Questions, we talked about why Medicare decisions should begin with your retirement plans rather than with insurance products. This is a good example of why: two people can both be 65, both still working, and both covered by an employer health plan, and have very different Medicare decisions to make.
It’s important to recognize that having employer health insurance doesn't automatically mean you can ignore Medicare. What matters first is how that employer coverage coordinates with Medicare.
For someone who is actively working and covered by a group health plan from an employer with 20 or more employees, the employer plan will generally remain the primary payer after age 65. In that situation, you can generally delay Part B while you remain covered through current employment and enroll later during a Special Enrollment Period without a late-enrollment penalty.
If you work for a smaller employer, the answer can be different. Medicare may be expected to pay first once you become eligible, which means simply staying on the employer plan without enrolling in Medicare could create gaps or unexpected costs.
That distinction is important.
The question isn't just “Can I stay on my employer plan?” it's “Can I delay Medicare and have my employer coverage continue to work the way I expect?”
For someone working past 65 in South Carolina, that answer may look very different depending on whether you're covered through a large private employer, a small business, or a public employee plan. As mentioned above, an employer with 20 or more employees, the plan will generally remain the primary payer but if they have fewer than 20 employees Medicare Part B will become the primary payer.
In addition to employer size, COBRA is another area that deserves mention. According to Elaine Floyd, from HorsesMouth.com, depending on COBRA and delaying Medicare is one of the top 10 Medicare mistakes that people make. COBRA is not treated the same as coverage through current employment for Medicare enrollment purposes. If you retire and move to COBRA, Medicare becomes the primary payer. A delay in Medicare enrollment while on COBRA can lead to medical bills not being paid.
After you understand how your existing coverage works with Medicare, we get to the more interesting question.
If I Can Stay on My Employer Plan, Should I?
Maybe.
This is where the answer moves from a Medicare rule to a planning decision. We want to compare what you have today with what Medicare might look like for you. Often, we see that the employer plan is the better option, but it’s always good to compare:
- How much do you pay for your employer plan – premiums, co-pays, prescriptions, etc.?
- How much is your employer paying?
- What would out-of-pocket costs look like under each option?
- How important is access to specific doctors or healthcare systems?
- Do you travel frequently?
- Is your spouse or anyone else relying on your employer coverage?
The plan with the lowest cost and the plan with the best coverage aren't necessarily going to be the same plan and that's where the tradeoffs matter.
For some clients, the employer is subsidizing such a large portion of the premium that staying on the company plan is hard to beat. For others, Medicare may provide a better combination of cost and flexibility.
At some point, this comparison can get into the details of provider networks, prescription formularies, deductibles, and specific plan benefits. That's where we encourage clients to involve someone who specializes in Medicare and private insurance coverage. We are not coverage experts but we do want to make sure the insurance decision fits the retirement you're trying to build.
Higher Income Can Change the Math
There's another factor higher-income employees should keep in mind when comparing the cost of employer coverage to Medicare. Medicare isn't necessarily going to cost everyone the same amount. Higher-income Medicare beneficiaries may have to pay additional amounts for Parts B and D through the Income-Related Monthly Adjustment Amount, better known as IRMAA.
That means a high earner comparing employer coverage with Medicare may reach a very different conclusion than someone paying the standard Medicare premiums. So, when comparing costs it’s important to look beyond which premium looks cheaper and be sure you understand all the less obvious costs as well.
Don't Overlook the HSA
Another less obvious cost can be associated with coverage under a high-deductible health plan that is Health Savings Account(HSA) eligible.
HSAs have an unusual combination of tax benefits. Contributions can be tax deductible or pre-tax, earnings can grow tax-deferred, and withdrawals for qualified medical expenses can be taken tax-free. In addition, HSA contributions can remain invested and be used many years later for healthcare expenses allowing for a lot of tax-free growth. Those tax benefits can make an HSA particularly valuable as you approach retirement.
Once you're enrolled in Medicare, HSA contributions become a thing of the past. In addition, if you enroll in premium-free Part A after age 65 the coverage can be retroactive for up to six months. That means someone working beyond 65 may need to stop HSA contributions six months before applying for Medicare.
The larger point is this:
Enrolling in Medicare can have tax consequences that aren't obvious when you're simply comparing insurance premiums.
For someone who is still working, has strong employer coverage, and is making meaningful HSA contributions, delaying Medicare may provide value well beyond keeping the same health insurance.
A Simple Way to Think About It
If you're working past 65, think about the decision in this order:
- Can I safely delay Medicare? Determine how your employer plan coordinates with Medicare and which coverage is supposed to pay first.
- If I can delay Medicare, should I? Compare the costs, coverage, flexibility, employer subsidy, and what matters most to you.
- What else does this decision affect? Consider your HSA, taxes, IRMAA, spouse's coverage, retirement date, and the rest of your financial plan.
To Summarize
Turning 65 is an important Medicare milestone. It isn't necessarily a retirement deadline.
If you're still working and happy with your employer health coverage, don't assume you need to change it simply because you've reached Medicare eligibility. But don't assume you can ignore Medicare either.
Start by understanding how your current plan coordinates with Medicare. Then, if you have a choice, compare the tradeoffs and decide which coverage better supports the next few years of your life.
That's usually a much better place to start than “where do I sign up?”
Sources
- Medicare.gov — COBRA Coverage. Guidance on how COBRA interacts with Medicare and why it differs from coverage based on current employment.
- Medicare & You. Medicare guidance regarding HSAs, Medicare enrollment, and retroactive Part A coverage.
- IRS Publication 969 — Health Savings Accounts and Other Tax-Favored Health Plans. HSA eligibility, tax treatment, Medicare enrollment, retroactive coverage, and use of HSA funds for certain Medicare premiums.
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