Joining medicare in your later years

Full retirement age (FRA) is the age when you can collect 100% of your Social Security retirement benefit with no early-filing reduction. FRA is age 66 or 67, depending on your birth year. FRA applies to Social Security, not Medicare. Medicare eligibility begins at age 65, regardless of FRA.

As a result, many people delay taking Social Security until they reach FRA and continue to work. They may also delay enrolling in Medicare without penalty, as long as their employer offers creditable coverage for Part B (medical insurance) and Part D (prescription drugs). Creditable coverage is coverage considered at least as good as the standard coverage offered by Medicare. The following explains the coverage and penalty details for each part.

Medicare Part B: If you or your spouse are actively working and the employer has 20 or more employees, the employer coverage is generally considered creditable for delaying Part B enrollment. If you do not sign up for Medicare Part B when you are first eligible and you do not have qualifying employer coverage, you may pay a penalty. The penalty is 10% of the Part B premium for every full 12-month period you were eligible but did not enroll. In most cases, this penalty lasts for life.

Medicare Part D: Employer or union drug coverage is considered creditable if it is expected to pay, on average, as much as or more than Medicare Part D. If you keep creditable employer drug coverage, you can delay enrolling in Medicare Part D without a late-enrollment penalty. If the coverage is not creditable and you delay Part D, you may owe a permanent penalty later.

You may owe a Part D penalty if you go 63 days or more in a row without Part D or creditable prescription drug coverage, such as coverage from an employer or union. The penalty is calculated as 1% of the national base beneficiary premium multiplied by the number of full months you were without coverage. The result is added to your monthly Part D premium, often for life.

Employers are required to notify you each year, and whenever coverage changes, whether your drug coverage is creditable. Save that “Notice of Creditable Coverage,” as you may need it later as proof when you enroll in Medicare.

Note: COBRA coverage is not considered creditable for Medicare Part B and does not count as active employment coverage. You cannot delay Part B enrollment based on COBRA. If you rely on COBRA instead of enrolling in Part B, you may face a late-enrollment penalty. However, COBRA can be considered creditable coverage for Medicare Part D.

Second note: If you are contributing to a health savings account (HSA) and enroll in Medicare at age 65, you must stop HSA contributions when Medicare coverage begins. If you enroll in Medicare after age 65, you must stop HSA contributions six months before enrolling in Part B to avoid an IRS penalty.

Nanette Makrauer is an independent insurance broker and Certified Medicare Advisor residing in Bluffton. nanette@health-wealth-insurance.com (www.health-wealth-insurance.com)