When it comes to deciding the best time to enroll in Medicare, timing matters. Even if you’re feeling healthy right now, or still employed, or getting free medical advice from your neighbor’s daughter, you can’t count on that continuing. If you think you will want Medicare at any point in your life—and you most likely will—you need to understand when you can and should enroll.

Failing to enroll in Medicare at the right time can have huge financial consequences

At one of our recent Medicare Made Simple presentations, a 72-year-old attendee, Diane, was getting ready to retire and wanted information on how to apply to enroll in Medicare. She loved her employer-provided coverage. And she assumed, because she had worked continuously past age 65, that she could delay taking Medicare without hassle.

When it came time to notify Social Security of her intent to enroll in Medicare, Diane learned two pieces of bad news:

1. She wasn’t eligible to enroll in Medicare Part B by way of her Special Enrollment Period because her employer only had 18 employees.
2. Because she missed her sign-up window, she would pay a 70% Late Enrollment Penalty on her Medicare Part B premium for the rest of her life.

Situations like Diane’s aren’t uncommon. Be sure to double-check the size of your employer if you’re planning to remain on group health plan coverage past age 65. If you’re working for a small business or law firm, for example, you may need to start Medicare Part B.

When can I enroll in Medicare?

The Social Security Administration (SSA) has defined specific enrollment periods and deadlines. If you miss one, you can incur significant financial penalties.

There are three ways and only three ways to start Medicare:

1. Initial. By way of turning 65
2. Special. By way of leaving active group health coverage
3. General. Whoops, you missed 1 and 2 and now you need to scramble

What you need to know to make the most informed decision about when to enroll in Medicare:

• Your age
• Whether you are already drawing Social Security (in which case it’s pretty easy)
• Whether you/your spouse want to keep working after 65 and using employer health insurance
• How big your employer is (19 or under, or 20 or more)
• Whether you have a Health Savings Account (HSA)
• What your Initial Enrollment Period is (if you’re planning to sign up when you turn 65)
• What your Special Enrollment Period is (if you’re planning to transition from employer health insurance after age 65)

Step 1: Know your (or your spouse's) work situation

What if you’re still covered by an employer? First, it’s important to know the size of your or your spouse’s employer:

• A small group employer is 19 or fewer employees
• A large group employer is 20 or more employees

This distinction is important if you work after age 65 and currently get insurance from your employer or your spouse.

Choose which of these situations applies to you:

1. Under 65 and receiving cash disability benefits for 24 months or more

No action necessary. You will be enrolled in Medicare Part A and Part B automatically. If you are receiving cash disability benefits from Social Security or the Railroad Retirement Board, then your Medicare benefits will begin after 24 months. Social Security will automatically enroll you in Medicare Part A and Part B, and your Initial Enrollment Period will start on the first day of the 25th month.

2. 65 or older, not working, working part-time or with a small group employer and already drawing Social Security

No action necessary. You will be enrolled in Medicare Part A and Part B automatically. If you’re already drawing Social Security income, then the Social Security Administration assumes you want to enroll in Medicare and they will send you your red, white and blue Medicare card a few months before you turn 65. In the month of your 65th birthday, $170.10 will be deducted from your Social Security income for Medicare Part B unless you’re on Medicaid or a high earner. Remember, most Americans paid $170.10 for Medicare Part B in 2022 and $164.10 in 2023 after a historic decrease in premiums. The 2024 Part B premium is $174.70.¹

3. 65 or older, not working, working part-time or working for a small group employer but waiting to draw Social Security

Apply to start Medicare Part A and Part B during your Initial Enrollment Period. If you’re not drawing Social Security and you or your spouse do not actively work for a large group employer, then the best course of action is usually applying to enroll in Medicare during your Initial Enrollment Period. If you’re not taking Social Security yet, then you will need to proactively alert the Social Security Administration that you intend to enroll in Medicare. Good news: the process takes less than five minutes.

But wait, I’m still insured by my employer… Many people who work for small companies are stunned to learn that they need to sign up for Medicare. But that’s the rule. Even if you’re still working for an employer with 19 employees or fewer and want to remain on your small group coverage, Medicare will serve as your primary insurance. Your small group work-provided insurance will pay second (if you choose to keep it). A small group employer is not required to offer Medicare-eligible individuals comparable coverage to the insurance it offers employees under age 65.

I have seen this rule destroy the retirement savings of people who worked for small employers and thought they were doing the right thing by remaining on their work-provided coverage after age 65.

There are two reasons you should sign up for Medicare if you work for a small group employer:

1. If you fail to sign up for Medicare, your insurer can refuse to pay the portion of claims that Medicare would have paid otherwise.
2. Unless you’re actively working for a large group employer—defined as 20 or more employees—then you must enroll in Medicare to avoid a Late Enrollment Penalty. The Late Enrollment Penalty is a lifetime penalty. Worse, it continues to increase for as long as you delay starting Medicare. (You will continue to pay 10% more for Part B for every 12-month period that passed during which you could have enrolled and did not. For example, if you wait 2 full years, you will pay 20% more for Part B for the rest of your life once you enroll.) So, the person who should have signed up for Medicare because they work for an employer with 19 or fewer employees gets a double whammy. Their work-provided insurance carrier can deny the 80% portion of their medical bills that Medicare should have paid. Then they face a lifetime Late Enrollment Penalty as a result of not signing up for Part B.

4. You or your spouse are planning to continue to work for an active large group employer with insurance but you are not contributing to a Health Savings Account

Enroll in Medicare Part A and assess the quality of your work-provided insurance to decide whether to start Medicare Part B. Even if you or your spouse will continue to work full-time for a large employer past age 65, it can be advantageous to start one or more parts of Medicare. It depends on:

• How much your employer deducts for health insurance premiums from your paycheck (be sure to multiply by two if you’re paid biweekly) on a per-person basis
• Whether it covers a spouse or dependent (there’s no Medicare family plan!)
• How much you like your coverage, including your deductible and out-of-pocket

Many people who intend to work beyond age 65 are surprised to learn that Medicare is often a better value than remaining on their work-provided coverage. That’s because original Medicare has an exceptionally low annual medical deductible: only $240 for 2024. That compares favorably to employer-provided coverage, which typically has deductibles that are at least $1,500 per year, and often far more.

If you are on a high-deductible health plan, Medicare is an even better value. If you intend to remain on your work-provided coverage and do not contribute to an HSA, then you can keep your employer health plan and sign up for Medicare Part A with no impact to your current plan. Part A would be premium-free for you and would start paying for expenses after the employer group coverage pays.

Signing up for Part A can be very useful, because the deductible is typically lower than work-provided coverage.

You and your spouse can wait until you stop working to sign up for Part B by way of a Special Enrollment Period (coming up in part two of this section), and neither of you will owe a Late Enrollment Penalty as a result.

5. You or your spouse are planning to continue to work for an active large group employer with insurance and you are contributing to a Health Savings Account

Assess the quality of your work-provided insurance. Decide whether you are better off with the coverage provided by Original Medicare or your employer’s health insurance. This analysis can get very detailed based on the amount you pay for your work-provided insurance and how much coverage it offers. An independent advisor can help you compare your options. If you intend to continue contributing to a Health Savings Account, then you should not start any part of Medicare, because you will face a tax penalty.

Do You Have a Health Savings Account (HSA)?

Health savings accounts are a great way to pay for a portion of your health care costs. HSAs have a triple tax advantage:

1. Your contributions reduce your taxable income.
2. Any investment growth within the account is tax free.
3. Withdrawals for “qualified medical expenses” are tax free. “Qualified medical expenses” include:

• Part B, Part C (Advantage) and Part D premiums
• Deductibles
• Copayments
• Coinsurance associated with any part of Original Medicare or Medicare Advantage

The only thing you can’t use it to pay for is your Medicare Supplement (Medigap) premium.

But here’s an important point: You cannot start Medicare if you’re contributing to an HSA.

You must discontinue contributions six months before you apply to enroll in Part A. You can apply to enroll in Medicare up to three months before you want coverage to begin. If that’s the case, then you must discontinue your HSA contributions up to nine months in advance.

The application date is the key factor here, not when you start receiving Medicare. For example, if you want your Medicare Part B to begin on Jan. 1, 2024, and you notify Social Security in October, then you must discontinue making HSA contributions by March 31 because your Part A will be dated to April 1 even though your Medicare Part B will not start until Jan. 1.

Step 2: Know your enrollment period

Your Medicare enrollment period can be based on your age and/or circumstances.

The three times when you can sign up:

• You turn 65
• You leave active large group health coverage
• You missed both of the above

Initial Enrollment Period

If you’re starting Medicare by way of turning 65, you will have a seven-month period to notify Social Security that you intend to enroll in Medicare. This is officially called your Initial Enrollment Period (IEP).

Your IEP window begins three months before the month in which you turn 65 and extends three months after it. For example, if your birthday falls on Sept. 9, then your window begins June 1 and closes Dec. 31 (Everything in Medicare-land is dated to the first of the month.):

 

Leaving current, large group health coverage (Special Enrollment Period)

You or your spouse kept working past age 65 and are now ready to retire. You missed your Initial Enrollment Period. What enrollment period should you use? Your Special Enrollment Period for Original Medicare. If you’re starting Medicare after age 65 because you or your spouse continued working for a large group employer and are now ready to retire, then you will have an eight-month window to sign up for Medicare. Your Special Enrollment Period SEP) begins three months before the month in which you stop working and extends eight months after the month when you stopped working.

Note: To qualify for the SEP, you and your employer must provide a one-page document, Form CMS-L564, to Social Security. The form is straightforward and your Human Resources department should be familiar with it. 

Also, be sure to keep proof of creditable coverage. By law, any employer offering health coverage must send a letter to all Medicare-eligible employees each fall stating if their group prescription coverage meets Medicare’s creditable coverage standard. Hold on to this letter. (If you lose it, your company’s Human Resources department must keep this annual letter on file for 10 years, so you can ask for a spare.)

Every other situation: General Enrollment Period

You can apply to start Medicare during the General Enrollment Period (GEP) between Jan. 1 and March 31. This is a catch-all window for anyone who missed either of the two enrollment periods discussed above. If you enroll during GEP, your Medicare Part A date will start Jan. 1 and your Part B will be dated to July 1.

Yes, you can change your mind

What if you’re above age 65 but planning to return to work for a large group employer? No problem, this is quite common.

The decision to start Medicare is typically reversible. You can discontinue paying premiums for Medicare Part B by completing Form 1763 if you’d like to opt in to your large company’s work-provided insurance.

Excerpted from "It's Not That Complicated" Copyright © 2022 Memoir, Inc. dba Chapter, All rights reserved. No part of this book may be reproduced without the prior written permission of the copyright owner.

Sources

1. Centers for Medicare & Medicaid Services.  2024 Medicare Parts A and B Premiums and Deductibles. Oct. 12, 2023. Found on the internet at https://www.cms.gov/newsroom/fact-sheets/2024-medicare-parts-b-premiums-and-deductibles