Medicare vs. employer insurance

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If you are turning 65 this year and working for a company that provides you with health insurance, here are some retirement planning issues that Paula Muschler, operations manager of Allsup Medicare Advisor, suggests you consider before you sign up for Medicare — or decide to delay.

If you have what Medicare considers “credible coverage” through your employer or your spouse’s employer, then you do not risk paying penalties if you are 65 and don’t sign up for Medicare Part B. But when your credible coverage ends, you have an eight-month special enrollment period during which you can sign up for all parts of Medicare and Medicare supplement plans without paying a penalty. If you fail to sign up within that eight-month window, then you could face a 10 percent penalty on all future Part B premiums — and the penalty goes up over time.

For purposes of Medicare enrollment, a Consolidated Omnibus Budget Reconciliation Act, or COBRA, plan doesn’t qualify as credible coverage. So even if you love your employer plan, once you or your spouse chooses retirement, leaves a company and becomes eligible for Medicare Part B, don’t enroll in COBRA. Enrolling in COBRA disqualifies you from eligibility for the eight-month special enrollment period, which means that when you do enroll, you’ll face a penalty.

Medicare encourages people to sign up for Part A while they are still covered by a credible employer plan, with that coverage remaining the primary coverage. In general, this is fine — unless you are covered by a high-deductible policy that is health savings account- or HSA-eligible. In that case, by signing up for Medicare Part A, you will lose your HSA eligibility. If you have an HSA plan, talk to your employer well before you turn 65.

In general, it is a bad idea to sign up — and pay — for Medicare Part B while you are still covered by a credible employer plan. Muschler says some people do this because they are confused or they think that having both will give them premium coverage. It generally doesn’t work that way. You’re just wasting your money.

Coordinating Medicare coverage with private insurance can be complex. Some human resource departments don’t understand the issues. If you are confused, get knowledgable advice.