Here’s the situation: you’re turning 65 this year and still working and because you have health insurance through your employer, you’re wondering whether you should sign up for Medicare. After all, why pay for it if you don’t need it right now?

That could be a serious mistake. First of all, Medicare is not a single program- there are four parts to it: A, B, C and D.

Part Medicare Cost
A Hospital costs Free for most people. (1)    $441.00/mo. if you don’t qualify
B Doctor fees, outpatient care, physical therapy, some home health care $104.90/mo. – or more based on your income
C “Medicare Advantage” Private insurers that contract with Medicare. Include HMOs that have their own doctors.  Coverage usually includes both Parts B & D Varies based upon provider and coverage
D Prescription Drugs Varies based upon coverage & your income

Provided you have worked in jobs where Social Security and Medicare taxes were deducted from your paychecks, Medicare hospitalization insurance costs nothing. If you are receiving either Social Security or Railroad retirement benefits at the time you turn 65, you will automatically be enrolled in Medicare Part A and B, although you’ll have the opportunity to opt out of Part B. If you’re not retired when you turn 65, you have to sign up for Part A. You can sign up here, and why not? It's free. 

Your Employer-Provided Insurance Might Require It

Moreover, according to Social Security spokesperson Dorothy Clark, “Some employers coordinate their health benefits with Medicare. For this reason, your company might require that you sign up for Medicare. If you don’t, it could affect the amount of coverage you have.”

There is a complex set of rules about whether Medicare or your other insurance coverage has primary responsibility for paying your bill. (In fact, the rules are so complicated there’s an entire brochure devoted to this topic--download a copy of Who Pays First? here.) It boils down to the size of your employer. Essentially, if your firm has fewer than 20 employees, your bills first go to Medicare and then your company-provided health insurance steps in. If you work at a company with more than 20 employees, then your group insurance plan is the first to pay. 

But if you don’t sign up for Medicare Part A (which you can do here) when you become eligible, then you could be stuck paying the Medicare portion of your bill.

If you don’t receive health insurance through work, you must file for Medicare during your “initial enrollment period.” This starts three months before your 65th birthday and ends seven months later. Miss this window of opportunity and you have to wait until the following year when the “general enrollment” period opens. This runs from January through March. Furthermore, you’ve got to wait until July 1 for coverage to start. 

To 'B' or Not To 'B'

Enrollment for Medicare Part B is another story. Since you have to pay for this, you don’t want to start while you’re covered by your plan at work. But there are strict rules- and costly penalties- if you don’t sign up for Part B after you retire.  “You have eight months from the day you retire or your coverage ends to file for Medicare Part B,” explains Clark.  For every 12-month period beyond this deadline that you delay enrolling, your premium will go up 10%. This higher premium is permanent. As in, “for the rest of your life.”

Medicare looks at the income you reported two years ago to determine the premium you have to pay. For instance, if you enroll in Part B this year, your 2011 tax return would be used.

But Wait, There’s More!

Under The Medicare Modernization Act of 2003 premiums for Part B began to be means-tested in 2007. Seniors whose income exceeded certain thresholds had to pay more. Each year the thresholds were adjusted upward to account for inflation.

The Affordable Care Act, a.k.a. “Obamacare,” took this a step further: it froze the thresholds at 2010 levels, eliminating the inflation-adjustment through 2019. It also made Part D premiums subject to means testing. 

The thresholds are the same for both Parts B & D. If you file your federal taxes as “married/joint, higher premiums begin to kick in at $170,000; for all other types of filers, it begins at $85,000. As a result, this year instead of $104.90/month for Part B, you’ll pay $146.90.

At the upper limit- $428,000 (married/joint) or $214,000 (all others)- your Part B premium will be $335.70 per month- more than triple the base rate. Click here for more details. The Office of Actuary of the Department of Health & Human Services estimated that by 2019 the top rate for Part B premiums will be $512 per month.

According to Social Security, about 5% of Medicare beneficiaries- 2.2 million seniors- have to pay higher premiums today. However, according to analysis by the Kaiser Family Foundation, not allowing the income thresholds to rise with inflation means that by 2019, 14% of Part B beneficiaries- nearly 8 million seniors- will be paying more than the base rate.

(1) Most people do not pay the monthly premium for Medicare Part A. It is free provided you meet one of the following conditions:

  • You are age 65 and receiving Social Security or the Railroad Retirement benefits
  • You are age 65 and eligible for benefits from Social Security or the Railroad Retirement Board but have not filed for them yet
  • You or your spouse are age 65 and worked in a government job and had Medicare premiums deducted from your paychecks

If you are under age 65, Medicare Part A is also free if :

  • You have received either Railroad or Social Security disability benefits for 24 months
  • You have end-stage renal disease

 

Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments' global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content. 

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