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Working Past 65? Plan Ahead To Avoid a Medicare Penalty

More people are choosing to work past 65 like this woman drinking coffee at a work function. Medicare penalty.

If you’re nearing 65 and not ready to retire, you’re in good company. Currently, more than 10 million American workers are 65 or older. For individuals covered by health insurance at work or through a spouse’s plan, approaching 65 means making sure you understand Medicare requirements, including risks of Medicare penalty.

Delaying your enrollment in Medicare Part B would allow you to save some money on monthly premiums until the job-based insurance ends. However, failing to enroll for Part B coverage within a specific window can result in a Medicare penalty that raises your premium for the rest of your life, giving you less money to put into creating a satisfying retirement. And the financial fallout could be catastrophic if you have a serious health event while you’re not covered by either job-based insurance or Medicare. Careful Medicare planning is essential for protecting the retirement strategies you and your financial planners have crafted. 

The Initial Enrollment Period (IEP) for you to sign up for Medicare is a seven-month period that starts three months before you turn 65 and ends three months after the month of your birthday. (Your IEP starts a little earlier if you were born on the 1st of the month.) You don’t want to miss this window unless you know that you qualify for a Special Enrollment Period (SEP)—in other words, an opportunity to enroll later on with no penalty. Being covered by insurance at work may or may not qualify you for a SEP. Make a plan for Medicare enrollment before you turn 65 to avoid penalties and gaps in coverage. 

Working Past 65 and Medicare Part A 

For most people, it makes sense to apply for Medicare Part A as soon as they turn 65, assuming they worked long enough to pay at least ten years of Medicare taxes. If that’s you, you’re probably eligible for Part A with no premium, so there’s no downside to applying at 65. 

Individuals who didn’t pay enough Medicare taxes do have to pay a premium for Part A and should apply within three months of turning 65 to avoid penalties. The late enrollment Medicare penalty for Part A is temporary. It’s applied to the premium for twice the number of years that enrollment was delayed. (So someone who owes a Part A premium and signs up two years late would be penalized for four years.)

All this being said, if you are covered by a high deductible employer plan and are contributing to an HSA, there are some additional considerations before you enroll in Medicare Part A. If you wish to continue to contribute to your employer HSA, you should delay enrolling in Medicare. Once you enroll you can no longer make contributions. Enrolling after your 65th birthday is possible, but you can only be  covered for six months retroactively. You are always able to spend HSA funds that you have accumulated.

Working Past 65 and Medicare Part B

Medicare Part B enrollment issues can be complicated, especially for individuals who have complex insurance arrangements, so it’s always best to speak with your advisors about any specific enrollment questions to ensure you avoid a Medicare penalty. With that said, here’s an overview of three common scenarios for people working past 65. 

  • If you have health insurance through your employer (or your spouse’s employer) and the employer has more than 20 employees: You may be able to hold off on applying for Medicare Part B until after you or your spouse stops working, and you lose your job-based health coverage. When you do eventually sign up for Part B, you won’t pay a Medicare penalty for late enrollment as long as you sign up within your Special Enrollment Period. The SEP in this scenario is the eight-month period that begins the month after the employment ends, or you lose your employer-sponsored health plan, whichever comes first. For example, let’s say your spouse’s insurance covers you, and the insurance ends when they retire in January. The SEP clock would start ticking in February, and you would have until the end of September to enroll without penalty. 

You could also elect to sign up for Medicare Part B while still covered by your employer health plan. Because your health insurance is sponsored by a large employer, the Medicare Secondary Payer (MSP) rules apply. Your job-based insurance is primary and pays your covered medical expenses. Medicare only pays for costs that the primary payer didn’t cover (and even then may not cover everything).

  • If you have health insurance through your employer (or your spouse’s employer) and the employer has fewer than 20 employees: Large companies aren’t allowed to change an employee’s health coverage because they turn 65 and qualify for Medicare, but the rules are different for smaller companies. A company with fewer than 20 employees may end or alter your plan when you turn 65, requiring you to sign up for Part B within your Initial Enrollment Period. 

Small employers want eligible employees to sign up for Part B because the Medicare Secondary Payer rules generally work in their favor. When an individual is covered by both Part B and job-based insurance through a small employer, Medicare is the primary payer and the employer’s insurance pays second. 

These scenarios can be complicated because different group health plans/small employers say different things about Medicare for workers over 65. Work with whoever’s in charge of health plans at your company and your insurance advisors to make sure you’re clear on what your future coverage is going to look like. 

  • If you’re covered by some health insurance that’s not provided by a current job: This category of coverage includes insurance such as COBRA, retiree coverage through a former employer or a health plan you bought from the Marketplace. Every kind of coverage has its own rules about Medicare. Still, most people in this scenario should plan on enrolling in Part B within their Initial Enrollment Period to avoid penalties. 

What is the Medicare Penalty for Late Enrollment in Part B? 

Starting with the end of your Part B enrollment period, you’ll pay a 10% penalty for every year that you wait to sign up. Say you turn 65 this year, don’t qualify for a Special Enrollment Period and wait three years to enroll in Part B. You’ll have a 30% penalty added to your premium for the rest of your life.

What About Medicare Part D? 

You don’t need to sign up for Medicare Part D as long as you have credible drug coverage through job-based insurance. But if you don’t have adequate drug coverage or don’t qualify for a SEP, you must enroll during your IEP at age 65. If you go more than 63 days without credible drug coverage, your Part D premium will be increased by a 1% penalty for every month you go without coverage.

Coordinating Medicare Enrollment and Social Security Benefits

If you start taking Social Security benefits before turning 65 but don’t want to enroll in Medicare Part B at 65, you’ll need to take action. The SSA will automatically enroll anyone taking Social Security benefits in Medicare Part A and Part B the month they turn 65. You can refuse Part B enrollment, but you’ll need to contact the SSA before coverage starts. You should receive a card in the mail giving you instructions for refusing enrollment. 

Have Questions About Planning to Work Past 65?

Sachetta’s advisors are here to help you navigate complicated Medicare penalty and enrollment questions. Every person’s situation is unique. Speak to your financial and insurance advisors to ensure you don’t make any missteps that leave you without health insurance or raise your Medicare premiums. Let’s make a plan now so you know you’ll be covered without expensive penalties, no matter when you decide to retire. Contact us today. 



Joseph Sachetta, CFP®, CPA/PFS, MBA, MST, For over 40 years, Joe has worked in finance and accounting. He is a Certified Financial Planner, and a Certified Public Accountant. Joe’s passion lies with helping his clients strike a balance between living for today and saving for tomorrow.