If you plan on working past 65 years old for a small business that provides you and/or your spouse with group health coverage, it’s important to know how this will affect your Medicare coverage.
The number of employees that work for your company will determine when you’ll need to enroll in Medicare and which parts you need to enroll in. For instance, if you work for a large employer or own a large company, you would have different options than someone who works for a small company.
Medicare beneficiaries that work for a large employer have the option to delay enrolling in Medicare all together until they retire. However, small business owners and employees do not have this luxury.
What Is A Small Employer?
In the eyes of Medicare, when a company has less than 20 employees, that business is considered a small employer or small business. When actively working past 65 for a small business, you have a few options regarding your Medicare coverage.
Your first option is enrolling in Medicare and keeping your group health plan through your company. The next option is dropping your group health plan and enrolling in Original Medicare (Part A and Part B) only. If you chose this option, you also have the option to either add on a Medicare Supplement insurance plan or a Medicare Advantage plan.
Medicare coverage will always be primary when you actively work for a small employer, so you’ll need to enroll in both Medicare Parts A and B when you turn 65. You can then choose between keeping your group coverage as your secondary coverage or enrolling in private supplemental coverage, whichever is most cost-effective.
When Medicare is primary, Original Medicare pays its share of your medical bill first. The remainder is then sent on to your secondary insurer to pay its share. If your secondary insurance is employer coverage, you may have some costs related to the plan’s deductible. If your secondary coverage is a comprehensive Medigap plan, you may owe little to nothing after both Medicare and your Medigap plan pay their share.
Why You Need Medicare When Working for A Small Employer
Since Medicare will be your primary coverage, it’s extremely important that you have both parts of Original Medicare. If you failed to enroll in Part B, you could find yourself on the hook for 80% of your outpatient expenses. This is the part that Medicare would have paid if you had enrolled when you were supposed to.
Because Medicare becomes your primary insurance when you work for a small employer, you would also be penalized for not enrolling in it during your Initial Enrollment Period (IEP) for Medicare. Your IEP starts three months prior to the month of your 65th birthday, lasts during your birthday month, and then ends three months after your 65th birthday month. In total, your initial enrollment period lasts for 7 months.
The penalty you accumulate for not enrolling in Medicare Part B during your IEP is 10% of the national average premium for each year that you go without Part B. For example, if you wait to get Medicare Part B until you retire at 70 years old, you will have a 50% penalty added onto your monthly premium for Part B.
The worst thing about Medicare’s penalties is that they last the entire time you are enrolled in Medicare. So, you could be paying this penalty for the rest of your life.
Enrolling on time during your IEP avoids both unnecessary medical expenses and unnecessary late penalties.
Medicare Part D for Small Business Employees
Medicare has a voluntary prescription drug program called Part D. Although it is voluntary, you will pay a late penalty for enrolling outside your IEP unless you have other creditable drug coverage. Your small employer health plan likely has drug coverage included in the plan, and if it does, there is a good chance that this would be creditable coverage, or in other words, drug coverage that is equal to or better than Medicare’s Part D drug coverage.
If you have decided to keep your group health plan as your secondary coverage, be sure to check with the insurance carrier or the group health insurance agent to confirm that the coverage is creditable for Part D. If it is, you can safely delay enrollment into Part D until you retire if you desire.
Before making the decision to delay enrolling into Medicare Part D, you should compare your group health plan drug coverage to Medicare’s drug coverage. A Medicare Part D plan may be more cost-effective to you than your group health plan’s drug coverage.
If you plan on working past 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 for the lifetime of your Medicare Part B coverage thereafter.
This is why it’s important to know all the facts about how Medicare functions in relation to your company’s group health plan. If you assume Medicare has the same rules for all types of businesses and employers, you could end up making a costly mistake.