Although the average retirement age is 63 currently, it has increased since the 1980s and continues to increase according to MarketWatch. Baby boomers every day are deciding to work past the average retirement age for several reasons, such as higher Social Security benefits, longer life expectancy, and employer health insurance.
For this reason, HR departments are handling their employees’ transition from employer coverage to Medicare more often than ever. If the company you work for is encountering more and more 65-year-old retirees, then learning how to transition from employer coverage to Medicare at retirement will help you help them.
Transitioning an employee from employer coverage to Medicare at 65
Employees who retire at 65 have the most straightforward Medicare enrollment process. Because these employees will lose employer coverage around the time they turn 65, they need to apply for Medicare during their Initial Enrollment Period. Failing to apply during this time can result in lifelong late fees and coverage gaps.
Employees’ Initial Enrollment Periods vary per person. The period occurs during the months that surround the employee’s 65th birthday. It starts three months before the 1st of the employee’s birthday month and ends three months after the birthday month. For example, an employee whose 65th birthday is on August 10th will have an Initial Enrollment Period from May 1st until November 30th.
When the employee’s Medicare coverage will start
If the employee applies for Part A and Part B during the first three months of his Initial Enrollment Period, then his Medicare coverage will start on the 1st of his 65th birthday month. Therefore, if his employer coverage stops the day before, this would ensure a smooth transition into Medicare.
On the other hand, if the employee applies for Part A and Part B during the last four months of his Initial Enrollment Period, then his Medicare coverage will start sometime after his birthday month. To create the most seamless transition, have your employees apply for Medicare during the first three months of their Initial Enrollment Period.
Other parts and plans of Medicare
Once they’ve applied for Part A and Part B, they can apply for additional parts and Medicare plans. Your employees can decide between a Medigap plan and a Medicare Advantage plan. These plans help lower out-of-pocket costs with Medicare. Employees who choose Medigap plans will need to apply for Part D during their Initial Enrollment Period as well. Employees who choose Medicare Advantage plans most likely won’t need Part D since these plans typically include drug coverage.
Transitioning from employer coverage to Medicare for employees who work past 65
Because the age to receive full retirement benefits from Social Security is around 66 – 67 for many baby boomers, they are working past 65 to take advantage of their full benefits. If you have employees who plan to work past the end of their Initial Enrollment Period, then they will have a Special Enrollment Period to apply for Part A and Part B.
However, whether they should apply during their Special Enrollment Period or their Initial Enrollment Period depends on the size of the employer they work for.
Large employer – 20+ employees
Large employer group health plans are creditable coverage for Medicare. Therefore, employees who work past 65 for a large employer can delay Medicare enrollment as long as they stay enrolled in their large employer group plan.
Although they can delay Medicare, most employees who work past 65 for a large employer still enroll in Part A since the coverage is free for most people. But they should not enroll in Part A if they plan to make contributions to a health savings account.
If they have a health savings account, all contributions should stop about six months before Medicare enrollment. This is because Medicare will backdate Part A coverage up to six months, and contributing to health savings account at the same time as having Medicare can cause IRS penalties.
These employees will have an eight-month Special Enrollment Period for Part B. The enrollment period begins the day they lose employer coverage or stop working, whichever comes first. However, they only have a 63-day Special Election Period to apply for Part D without penalty.
If they choose Medigap, they will have a six-month window starting the day their Part B is effective to enroll in a Medigap plan without health questions, just like the employees who retire at 65. However, if they choose Medicare Advantage, they will need to apply during their 63-day Special Election Period.
Small employer – less than 20 employees
Small employer group health plans are not creditable coverage for Medicare. Therefore, employees who work past 65 for a small employer needs to apply for Part A and Part B during their Initial Enrollment Period. However, they may be able to delay Part D, as their small employer group plan may have creditable drug coverage.
Once you know your employees’ plans for retirement, you will be better suited to help them after learning this information. First, ask at what age they plan to retire, then figure out when they should enroll in Medicare to avoid late penalties. Your employees will thank you for it.