Phil Moeller: Medicare options when working past 65
Written by Phil Moeller, UnitedHealthcare contributor, Medicare and Retirement expert
Working past 65 or even into one’s 70s is increasingly common,1 so let’s take a look at how this may affect your health insurance – particularly the decision about whether to keep your employer health plan, enroll in Medicare, or perhaps do both. First off, UnitedHealthcare has a useful Medicare Made Clear information page that explains basic rules and considerations when it comes to working past age 65.
As Medicare Made Clear® notes, employer-sponsored health insurance plans covering 20 or more people must offer continuing coverage to employees who turn 65, including eligible family members. They cannot be dropped from an employer’s plan.
However, people who work for employers with fewer than 20 people do not have such guarantees. Generally, they will need to enroll in Medicare during their seven-month initial enrollment period that begins three months before their 65th birthday month. Medicare covers only individuals and not families, so they also will want to make coverage arrangements for family members, as needed.
While employees with access to large employer-sponsored plans are not required to enroll in Medicare, they may do so if they wish. Historically, employee plans were often so comprehensive and affordable that enrolling in Medicare was not typically necessary. As health care costs have continued to rise, some employers have needed to adjusted their plan designs, resulting in changes to covered benefits and a greater share of costs shifting to employees. For those with high deductibles, it can be a smart financial move to get Medicare, in addition to their employer coverage or in place of it.
Medicare consists of four parts: Part A covers hospital and nursing home care; Part B covers doctors, outpatient care, and certain medical equipment; Part C is the technical name for private Medicare Advantage plans; and Part D covers private prescription drug plans.
Credible drug coverage and Part A considerations
There is a noteworthy wrinkle about Medicare-eligible employees who decide to keep their employer health plan: the plan’s drug coverage must be deemed “credible” by your employer. Credible means that the plan’s prescription drug coverage is at least as good as a typical Medicare Part D prescription drug plan. You are entitled to request a formal statement from your employer that certifies your prescription drug plan is credible.
If coverage is not credible, you must enroll in a Part D plan in addition to your employer coverage or risk future late penalties. If you decide not to enroll in Medicare, you do not have to get Part B, the optional Medicare coverage that covers medical expenses not covered by Part A, or pay the monthly premium for Part B.
People who keep their employer plan should consider enrolling in Part A of Medicare anyway when they turn 65. Anyone who’s worked long enough to earn Social Security benefits qualifies for premium-free Part A, which covers hospital fees, nursing home, and hospice care. Enrolling in Part A can make sense, as it can help with hospital bills not fully covered by employer plans.
Health Savings Accounts (HSAs)
If you are about to turn 65 or have turned 65 and plan to keep working, and are contributing to a health savings account (HSA), make sure you don’t run afoul of applicable Medicare rules.
HSAs are a terrific way to put aside money for current or future medical expenses. Money placed in HSAs is exempt from income taxes, and employers often contribute to these accounts as well. There is no time requirement for spending funds in an HSA. Account balances can be parked in investment accounts. Lastly, money for approved medical expenses also is untaxed. But there are some general rules about HSAs that are important to keep in mind.2
Be aware that people who sign up for Medicare Part A are not eligible to continue tax-free contributions to an HSA. But they are able to maintain existing account balances and spend them later. Also, Social Security rules require anyone claiming benefits to also enroll in Part A of Medicare when they turn 65.3 This can end their ability to make new HSA contributions.
Making the decision to keep working is important to many people who are eligible to retire. Working can be very rewarding not only financially but also by providing purpose and maintaining a sense of community. When making the choice to continue to work, be sure to also be aware of your health care options so you can enjoy working without worrying about health care coverage or unexpected costs.
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Author bio
Philip Moeller is the principal author of the Get What’s Yours series of books about Social Security, Medicare, and health care. Read his Substack newsletter and connect with him on LinkedIn.