When employees are on the path to retirement, they rely on the HR department to tell them everything they need to know about transitioning from employer coverage to Medicare. However, because of all the moving pieces in Medicare, it’s hard for an HR department to give the best advice.
Once the information is broken down into bite-size pieces, helping an employee transition from employer coverage to Medicare isn’t all that difficult. Note that employees retiring at 65 have different Medicare enrollment periods than those who retire before or after 65.
Employees retiring at 65
Employees who are leaving group coverage at 65 will need to apply for Medicare Part A and Part B during their Initial Enrollment Periods. An employee’s Initial Enrollment Period is before and after his 65th birthday month. Let’s use Joe’s birthday as an example. If Joe turns 65 in May, his Initial Enrollment Period will start February 1st and will end on August 31st.
If an employee applies for Part A and Part B during the first three months of his Initial Enrollment Period, his Part A and Part B will start on the 1st of his birthday month. His coverage will start later if he applies on or after the 1st of his birthday month.
Applying for other parts of Medicare (Part D, Medigap, and Medicare Advantage)
Unlike Part A and Part B, Part D, Medigap, and Medicare Advantage plans are sold and managed by private insurance carriers. Although HR departments don’t need to know the details of every plan. However, it’s good to know the enrollment periods for each type of plan.
First, the employee needs to decide whether he wants a Medigap plan or Medicare Advantage plan. If he chooses a Medigap plan, he will also need to enroll in Part D. However, if he chooses a Medicare Advantage plan, he typically won’t need a separate Part D plan, as most Medicare Advantage plans include Part D coverage for prescription drugs.
The enrollment period for Part D and Medicare Advantage is identical to the Medicare Initial Enrollment Period in this case. The enrollment period for Medigap starts the day the employee’s Part B starts, the 1st of his birthday month in most cases. This one-time Open Enrollment window continues for six months.
Employees retiring after 65
More seniors are choosing to work past 65 than ever before. Working past 65 changes things for Medicare enrollment. If an employee chooses to work past 65, he may be able to delay Medicare; it depends on the size of the employer.
Working past 65 for a large employer
If an employer has 20 or more employees, workers who continue to work and hold the group health coverage can delay Medicare enrollment until retirement. Because a large employer’s group health plan is creditable coverage for Medicare, employees can delay Medicare without incurring late penalties.
However, these employees likely have earned premium-free Part A. If they’d like, they can enroll in Part A at 65, so they have extra hospital coverage. However, employees enrolled in a health savings account shouldn’t enroll in any part of Medicare. If an employee is enrolled in a health savings account and enrolls in any part of Medicare, he can no longer contribute money to an HSA.
Once the employee is ready to retire, he will have special enrollment periods for each part of Medicare. The employee can apply for Part A and Part B while still working so Medicare starts right after his group coverage ends and there is no lapse in coverage. However, the employee has eight months from the day he loses employer coverage to enroll in Part A and Part B. If the employee fails to enroll in Part B during this time, he will incur a late penalty for each year he doesn't enroll in Part B.
The employer needs to provide the employee with a letter of creditable coverage proving to the Social Security Administration he had creditable coverage while delaying Medicare enrollment.
Special Election Periods for Part D and Medicare Advantage
The one-time Medigap Open Enrollment window still applies in this case. The window will start on the employee's Part B effective date. However, the enrollment window for Part D and Medicare Advantage is different. In this case, the employee will have 63 days, two months roughly, from the day he loses employer coverage to enroll in a Part D or Medicare Advantage plan.
More on health savings accounts and Medicare
Anytime someone applies for Part A after 65, his Part A coverage is backdated. The Social Security Administration backdates Part A to either the 1st of the beneficiary’s 65th birthday month or six months prior, whichever is the shorter amount of time.
Therefore, if an employee delays Part A enrollment so he can continue to contribute to a health savings account, he should stop all contributions six months prior to enrolling in Part A to avoid IRS penalties.
Non-creditable coverage for Medicare
Small employer coverage, COBRA, and retiree insurance are all examples of non-creditable coverage for Medicare. If the employee has any of these types of coverage, he will need to apply for Medicare during his Initial Enrollment Period to avoid late penalties. Note that the drug coverage from a small employer group plan may be creditable coverage for Part D. If it is, the employee can delay Part D until retirement.
Medicare is an extremely convoluted program. The Social Security Administration has a wealth of information available to the public. However, keep in mind that Social Security employees don’t always have the best Medicare knowledge. When in doubt, contact a Medicare expert for more in-depth information.
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