When to swap your workplace health plan for Medicare

Medicare kicks in when you turn 65, and typically you need to sign up in the months right before or after this milestone birthday to avoid penalties later. But when you still have employer health coverage, you may have other options for when to enroll.

In this week’s reader question for columnist Phil Moeller, the author of Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs and the co-author of the updated edition of The New York Times bestseller How to Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security, a Medicare-eligible reader who’s still on the job wonders what his best health insurance move is.

Am I better off with my employer plan or Medicare?

Question: Hi Phil, I will reach Social Security’s full retirement age of 66 next month and will continue working full-time for at least a year or so. My company just rolled out a new health insurance plan that is a high-deductible plan and requires many in-network doctors and medical facilities.

At age 65 last year, I signed up for Medicare Part A as required. I am now considering opting out of my employer’s plan after my birthday, enrolling in Part B, then getting a “no premium” Medicare Advantage plan.

I will still continue to work full-time, but it looks as though I will have better coverage and lower costs without the huge deductible ($5,000 annually). Medicare part B will cost me $135 per month versus a monthly $230 premium through work. Your thoughts?

Phil Moeller: The emergence of high-deductible employer health plans has changed the health-insurance equation for lots of older employees. It used to be common wisdom that Medicare-eligible employees should keep their employer coverage and defer getting Medicare until they retired or lost their health coverage for other reasons. 

No more.

As today’s questioner notes, forking over a huge deductible in an employer plan may not be nearly as attractive as getting Medicare. It has its own deductibles, of course, but they are much smaller than those of the typical high-deductible plan.

The basic monthly premium for Part B of Medicare will be $135.50 in 2019, and Part D prescription drug plans often cost less than $40 a month. Comparing these expenses with the costs of employer plans can help determine if a switch makes sense. 

Medicare Advantage plans, which the questioner leans toward, usually require paying the Part B premium plus any Medicare Advantage premium. Zero-premium Medicare Advantage plans are becoming very popular, although it’s important to look at the fine print of these policies and be alert for coverage limitations and the possibility of higher co-pays.

Before making that decision, it’s important to speak with an employee benefits staffer at your health plan. Ask what would happen if you drop it. Some employer plans, for example, have restrictions about dropping coverage and about signing up again in the future should you change your mind. 

It also could make sense to keep your low-cost employer plan and get Medicare as well. Again, it’s important to find out from a benefits person how the employer plan would work for someone with Medicare. 

Normally, group plans are the primary payer of claims, with Medicare being the secondary payer. In that secondary role, Medicare can help pay claims until you meet your employer plan’s annual deductible. Such coordination of benefit questions can be tricky, so talking with a benefits person makes sense before making a Medicare decision.

By the way, if you decide not to get Medicare that will not adversely affect your later Medicare enrollment. The only wrinkle is that the drug coverage of employer plans needs to be “credible”—aka as good as the typical Medicare Part D drug plan—or you face late-enrollment penalties for Part D when you eventually get Medicare. Employers are required to certify the credibility of their drug coverage each year.

Lastly, and with apologies for being long-winded, today’s questioner is incorrect in saying that getting Part A of Medicare at age 65 is required. It’s not. A person without Medicare need not get Part A unless they are receiving Social Security benefits. In that event, Part A is required by law.

This is important here because high-deductible employer health plans usually include a health savings account (HSA). By law, people on Medicare may not contribute to an HSA. This includes anyone with Part A.

So, if our correspondent wishes to participate in his or her employer’s high-deductible plan and HSA, contact Social Security and withdraw from Part A. There should be no adverse effect of doing so.