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Ask the Expert: How does retiree health insurance work with Medicare?

I plan to retire from my current job when I am 65. My employer (with more than 500 employees) provides full health insurance coverage in retirement at no cost to me. Am I required to apply for Medicare when I retire? If I don't apply for Medicare, will I be penalized? Must I pay for Medicare Part D?

Retiree insurance almost always pays second to Medicare once you become Medicare-eligible. When that happens, the retiree health plan stops paying for medical expenses that Medicare covers and starts acting as supplementary insurance. It might cover the cost of Medicare deductibles and coinsurance fees, for example.

As a result, you must enroll in Medicare to be fully insured even if you have retiree health insurance. Indeed, some retiree health plans require you to sign up for Medicare when you're Medicare-eligible.

If you're 65 or older and have health insurance through your own or your spouse's current employment at a company with 20 or more workers, that insurance is your primary coverage. But the key words are "current employment." For people in this category, the deadline for signing up for Medicare is eight months after the job or the employer-provided health coverage ends, whichever comes first. The penalty for missing your sign-up deadline is a permanently higher Part B Medicare premium.

Some retiree benefit plans provide "creditable" prescription drug coverage — i.e., coverage as good as, or better than, Medicare Part D. If yours is one of them, you can delay signing up for Part D Medicare and if necessary enroll later with no penalty.

The bottom line

Before you retire, it's vital to ask your employer's human resources staff and health insurance provider exactly how the company's retiree health benefits coordinate with Medicare for people who are over 65.

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