Should You Enroll in Medicare if You're Still Working?

This is a question I am asked often, most recently by a woman who just turned 67 and began claiming 50% of her soon-to-be ex-husband’s Social Security.

“Rob, do you know anything about Medicare A and Medicare B? My coworkers told me I have to enroll in Medicare because I’m going to get screwed if I have to go to the hospital or need major treatments.”

Reasons to Enroll in Medicare Part A While Still Employed

Employees who are turning 65 and still working should speak with their benefits department before enrolling in Medicare Part A. Part A is free because we paid for it via withholdings from our paychecks. Medicare Part A provides coverage if you are admitted to the hospital (not observation care). Private insurance will also provide hospital coverage but, depending on your plan, your deductible may be much higher than Medicare.

Another reason to consider Medicare A is the coverage for rehabilitation at skilled nursing facilities if you are sent there after a hospital admission. Medicare A also covers hospice care, which may even be received at home.

Why You Shouldn't Enroll in Medicare Part A While Still Employed

You should pass on Medicare Part A while working if you are making contributions to a health savings account (HSA) and wish to continue to do so while working. Enrolling in Medicare Part A will terminate that option.

Before we get into the weeds with the above, a critical issue is if you have credible health coverage (or if you are covered by your spouse’s plan). Medicare defines that as 20 or more covered employees. And no, COBRA does not qualify as credible coverage. If you don’t have credible coverage via your employer or your spouse’s employer, then you must enroll in Medicare.

In this client’s case, she was not participating in an HSA plan. She also had credible coverage. Because she wanted to collect 50% of her soon-to-be ex-husband’s Social Security, she had to enroll in Medicare A to do that. This has been a Social Security/Medicare rule since 1993. (For more from this author, see: MAGI, Medicare Premiums and Social Security.)

Medicare B

Here’s where I cringed. Some of her coworkers were telling her to take Medicare Part B. That’s when I said, "Don't do that." Why? If she did, she would have to un-enroll from her employer-sponsored coverage, and Medicare Part B is not free. The premium is $134, assuming her modified adjusted gross income (MAGI) is $85,000 or lower. Go over that threshold and premiums are more expensive, starting at a 40% surcharge. She would have to have the Medicare Part B premiums deducted from her Social Security, which would lower the income she thought she was going to receive.

If she enrolled in Medicare Part B, she would forfeit her prescription drug benefit with her employer plan. That means she would have to enroll in Medicare Part D, one for the coverage, and two, because not enrolling on time would result in a late enrollment penalty. Medicare D premiums vary widely depending on your state and the amount of protection you want. You should always check to see if your prescriptions are covered before settling on a plan. I have seen situations where employer health plans had certain expensive drugs in their formulary, but not a single Medicare D plan had coverage for them. (For related reading, see: Understanding Medicare Part D Risks.)

Thanks to the Affordable Care Act, the premiums for Part D are subject to surcharges if you earn too much income in retirement. Oh, and Medicare A and B do not cover everything. She would have to go out and purchase a Medicare supplemental plan or Medicare Advantage plan, depending on her budget and location.

This client’s income was over $100,000. So, filing as a single taxpayer in tax year 2017 (next tax season) could make this a pricey situation when you factor in the Medicare Part B and Part D surcharges and the cost of a supplemental plan. Even if the monthly cost came out relatively the same as the employer-sponsored plan, Medicare Part B would have to be deducted from her Social Security. So, the Social Security income projection her financial advisor told her would not be accurate.

(For more from this author, see: Healthcare Costs in Retirement: What to Consider.)