If you’re 65 or older, still working and are covered by employer health insurance, it can make sense to sign up for Medicare now. Enrollment might reduce your out-of-pocket costs.
The proportion of Americans ages 65 to 74 who are working is projected to reach 30.2% in 2026, according to the Bureau of Labor Statistics.
But Medicare is complicated, and there are a lot of caveats and some surprise expenses to be avoided. So for working people 65 or older, here’s help with figuring out when to enroll in Medicare and how to avoid costly penalties and gaps in coverage.
A note for married couples where one spouse is covered by the other’s employer insurance: The information provided here also applies to you when you turn 65.
Will Medicare save you money?
If your employer (or your spouse’s employer) requires you to pay a large portion of the premium on your group health insurance, you may find Medicare cheaper and the coverage adequate. So compare your current coverage and out-of-pocket expenses with your costs and benefits under Medicare, which may also pay some expenses not covered by your group plan.
Medicare Part A: If it’s free, why not take it?
If by the time you reach 65 you’ve worked a total of approximately 10 years over your career, you’re entitled to premium-free Medicare Part A, which pays for inpatient hospital charges and more.
Why sign up for more hospital insurance when an employer plan already provides good coverage at low cost to you? Because in some cases, Medicare Part A may cover what your employer plan does not.
But as with so many aspects of Medicare, there are caveats, exceptions and potential pitfalls to avoid.
If your employer has 20 or more employees and a group health plan, you don't have to sign up for Medicare at 65 if it doesn't make financial sense.
If your employer has fewer than 20 employees and the health coverage is not part of a multiemployer group plan, at age 65 you must enroll in Medicare Part A, which will be your primary insurance. "Primary" means that Medicare pays first, and the employer insurance kicks in to pay whatever might be covered under that policy but was not covered by Part A.
If you have a Health Savings Account and want to keep contributing, you must delay enrollment in Part A (or Part B), because Medicare enrollees can't contribute to an HSA. In fact, to avoid a tax penalty, you should plan to stop making HSA contributions at least six months before signing up for Medicare.
If you don’t enroll in Medicare Part A at age 65 and neglect to sign up within eight months of stopping work or losing employer coverage (whichever comes first), you may have to pay a penalty. In any case, you should sign up for Part A before your employer coverage ends to avoid a gap in your health coverage.
Medicare Part B: Delay to avoid premiums
If you’re 65 or older and you or your spouse still have employer health coverage, you will probably want to delay enrolling in Medicare Part B, which pays for doctor visits and many other outpatient services. Because unlike Part A, everyone pays a premium for Part B.
Here are caveats, exceptions and potential pitfalls to avoid.
If your employer has 20 or more employees and a group health plan, you're not required to sign up for Medicare at age 65. But the clock starts ticking once you stop working or lose your employer coverage.
If your employer has fewer than 20 employees and the health coverage is not part of a multiemployer group plan, at age 65 you must enroll in Medicare Part B, which will be your primary insurance.
If you have an HSA and want to keep contributing, you must delay signing up for Part B. Stop making contributions to your HSA at least six months before you sign up for Part B. And you’ll want to sign up for Medicare at least a month before you stop work or lose employer coverage.
You must sign up for Part B within eight months of stopping working or losing employer coverage. Failing this, your premiums may include a penalty — for the rest of your life. You may also have to wait to enroll in Medicare, resulting in a risky gap in health care coverage.
Special situations: Previous employers, military, vets
If you have health insurance from a previous employer, such as COBRA or retiree health coverage, you need to enroll in Medicare Parts A and B when you turn 65.
If you have health benefits as a military service member or veteran, such as TRICARE or CHAMPVA, you should consult with those programs to determine when to enroll in Medicare.
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John Rossheim writes for NerdWallet. Email: USexpansion@nerdwallet.com.
The article Should You Sign Up for Medicare If You’re 65 and Still Working? originally appeared on NerdWallet.