Bill Pellegrini

Medicare and Small Business Health Insurance

The full retirement age has already increased from 65 to 66 and will rise incrementally over the next several years to 67. That means more people today will be working while they are eligible for Medicare.

What does this mean for people who work for small businesses? If you are 65 years old and work for a small business that provides you and/or your spouse with group health coverage, it is important to know how it will impact your Medicare coverage.

If you are 65 and work for a company with more than 20 employees and have a group health insurance plan through your employer or through your spouse’s employer, you can choose to delay Medicare enrollment. Be sure to compare your company plan’s costs and coverage to Medicare’s and make the decision that is best for you. You might find Medicare is a better plan.

You can choose to delay Part D enrollment without penalty if your company insurance plan is creditable. If you decide to delay taking Part D, keep a record of your insurance until you enroll in Medicare for proof of coverage when you sign up for Part D later.

However, if the employer has 20 or fewer employees, of if you are self-employed, Medicare is the primary payer and if you do not sign up for Medicare at age 65, it will be as if you have no insurance at all and you will face lifelong penalties.

Medicare Part A, which covers hospitalization, is free to workers and their spouses if the worker paid Social Security and Medicare payroll taxes for at least 10 years. Because there is no monthly premium, most Americans enroll in Medicare Part A at age 65 even if they continue to work. The only change is that once they enroll in Medicare, they can no longer contribute to a Health Savings Account, even though they can still use their HSA funds tax-free to pay for out-of-pocket medical expenses.

Postponing enrolling in Medicare Part B, which covers outpatient services and doctors’ bills, until group health insurance coverage ends can save workers money by eliminating the need to pay for duplicate health insurance.

Workers who take advantage of their/spouse’s employer group health insurance coverage have up to eight months after that coverage ends to sign up for Medicare Parts A and B penalty free.  If they want to enroll in an all-inclusive Medicare Advantage plan, also known as Medicare C, or a Medicare D prescription drug plan, they have only 63 days after the loss of employer healthcare coverage to enroll penalty free.

For most people who do not have continued coverage through an employer group health plan, the time to sign up for Medicare is during the initial seven-month enrollment period. This is the crucial enrollment period for workers in small businesses and the self-employed.

The initial enrollment period runs from the three months prior to your 65th birthday month, includes your birthday month and continues for three months after your birthday month. For example, if your birthday is in September, your initial enrollment period begins June 1 and ends December 31. If you fail to enroll in Medicare during your initial enrollment period, you will be assessed a delayed enrollment penalty every month for the rest of your life. You would also have to wait until the next general enrollment period, which runs from January 1 through March 31 every year, to sign up for Medicare with coverage beginning that year July 1.

The delayed enrollment penalty for Medicare B is 10% per year for every year you were eligible to enroll in Medicare but did not. So, if you waited until 70 to enroll in Medicare B, you would pay an additional 50% delayed enrollment penalty every month for the rest of your life. The Medicare Part D delayed enrollment penalty is 1% per month (12% per year) for every year you were eligible to enroll but did not. Penalties are only assessed if no other creditable coverage existed.

If you plan on working past age 65 for a small business with less than 20 employees, you need to enroll in Medicare when you first become eligible. If you fail to enroll in Medicare during your initial enrollment period, you will be penalized.

Therefore, it is important to know all the facts about how Medicare functions in a small business in relation to your group health plan. Talk with your employer to see whether you need Medicare in addition to your current health coverage. Make sure to enlist the aid of an Independent Medicare Insurance agent who can help guide and counsel you on your options. This small move could save you big down the road.

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