Medicare’s Tricky if You’re Employed

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Medicare optionsI’m employed (obviously), turning 65 in June, and writing this blog to answer a question that is nagging at me and probably many of our readers in the same situation: do I have to sign up for Medicare, and if so which parts?

No one is actually required to sign up for Medicare. But everyone will need the health insurance eventually and failing to follow the rules can subject retirees to a lifetime of higher premiums.

And that surcharge can be substantial. Medicare adds 10 percent onto the Part B premium for every year a 65-year-old worker who should’ve, under the rules, signed up for the coverage for doctors and medical services but did not. Late enrollment in Part D drug coverage also triggers a penalty. More on the penalties later.

Part A is easy. Go ahead and sign up for Medicare’s Part A hospital coverage if you have employer health insurance, says Richard Chan, chief executive of CoverRight, an insurance broker with a consumer-friendly website. The federal Centers for Medicare and Medicaid Services agrees.

Part A won’t incur a late penalty if you paid your Medicare taxes for 10 years while working, because, in that case, Medicare does not charge a monthly premium – and Part A is added financial protection. “It’s free, and if you go to the hospital, Medicare can help cover the gaps that your work insurance doesn’t,” Chan said.

Eligibility for Part A begins three months before the 65th birthday. A couple of important caveats. People who didn’t put in 10 years of work will pay a fairly large Part A premium. And, under federal tax law, people who sign up for Part A are not allowed to contribute to a Health Savings Account, or HSA, which the government views as a health plan.

Part B is trickier. Older workers who have health insurance from a large employer – 20 or more employees – do not have to sign up for Part B until they retire and give up their employer’s coverage.

However, it’s good practice to confirm with the benefits office that the coverage does, in fact, meet Medicare’s requirement that the employer has at least 20 workers because employers with fewer than 20 employees are subject to completely different rules. And it’s not always clear cut whether the threshold has been met if, for example, the company has contractors or part-time employees.

When you eventually do sign up, you’ll need documentation, which is provided by your employer, to prove to Medicare that you were eligible to defer Part B without penalties.

A 65-year-old worker may also be able to delay signing up for Part B if he or she is covered by a spouse’s health insurance. But ask your spouse’s insurance plan administrator if the plan requires you to get Medicare in order to remain under the dependent coverage.

To avoid a Part B penalty after retiring, sign up within eight months of losing the employer coverage, though Chan recommends “aligning your Part B coverage start date with the end of your employer coverage so you don’t have any gaps in health insurance coverage.”

One big mistake some people make is assuming that COBRA coverage qualifies under Medicare rules as employer coverage, he said. It does not. Under COBRA, workers who are laid off or quit after the age of 65 can continue their employer coverage for 18 months. But to avoid the penalty, Part B’s eight-month enrollment period still applies.

If you’re on COBRA at 65, you need to enroll in Medicare,” Chan said.

Part B has different rules for small employers. Health insurance is expensive, and small company plans do not have the same requirements to provide a minimum, standard level of coverage to workers over 65. If an employer has fewer than 20 workers, Medicare becomes the primary health insurer for 65-year-old workers, and the employer policy is the back-up coverage.

To avoid the Part B penalty, sign up within a 7-month period that begins three months before your 65th birthday, includes your birthday month, and continues for three months after that. This is known as the initial enrollment period. However, if you want the insurance to start at 65, sign up during the three months before your birthday.

Part D has a late penalty. Older workers who don’t have what qualifies as creditable drug coverage from their employer would also pay a penalty on the Part D premium regardless of the size of the employer. The penalty is 1 percent of the standard premium set by the government – $33.37 in 2022 – for each month the worker could’ve enrolled.

“Everyone gets confused by this, including people who have employer coverage after 65,” Chan said.

Human resources should verify that the drug coverage is creditable – separate from whether the employer health insurance policy qualifies the 65-year-old worker for a Part B deferment. If the drug coverage doesn’t meet the standard, avoid the Part D penalty by signing up for a drug plan during the same seven-month initial enrollment period around your birthday that applies to Part B.

“You need creditable coverage even if you are not currently taking any prescriptions drugs,” said Chan. He suggests that workers in this situation buy a very inexpensive Part D plan to get the coverage on the record.

To prevent Medicare’s premium penalties, do the homework about your particular situation. Read Medicare’s fact sheets. Talk to your employer’s benefits office. And if you have an unusual or complicated situation, call Medicare to make sure you are crystal clear on the rules.

Retirees usually live on a limited amount of income. Not understanding how the rules specifically apply to you will cost you.

On Wednesday, March 16, CoverRight will host a webinar on the basics of Medicare. Sit tight through a brief introduction about what the company does before the hosts explain what you should know about Medicare Advantage and Medigap plans. They will also answer your questions during the event.

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Catherine A Daly

I found at 70 when I retired and applied for Medicare Part B, that every trained Medicare advocate I consulted only spoke of Part B’s penalty’s but none indicated any Part D penalty or time frame for late registering. Seeing I did not have Meds, I let it go and received a Lifetime Penalty for Part D Medicare for each month I was late to sign-up. The period for signing up is quite short, unlike Part B. For Part D it is only 63 Days. My employer’s HR Department never knew anything about Medicare benefits sign-up other than Part B. If you miss the 63 Days then you’re penalized for life for Part D Rx drugs. The Medicare appeal process for this seems locked in to rejecting one’s reasons for being later than those 63 Days. There is no appeal to Medicare’s decision. That bundle of money monthly for penalties for late Part B and Part D collected by Medicare must be significant. I have never heard it spoken of. Seeing that there is no appeal process for the individual to Medicare about their decisions of rejection of one’s explanation, is it known how many penalty dollars Medicare accrues annually from their imposed Part B and Part D Penalties? Certainly it would be an informative fact for the public and retirees. Thank you.

John Gregorio

Thank you for this informative blog.

geoffrey hewitt

The explanation here is good since I have been on Medicare for 10 years now due to a life saving transplant. However, it is absurd to have Congress pass a law that the Medicare system can not negotiate prices on drugs where the costs at the VA are 70% less for the same drugs. Hello K Street lobby group.

Paul Rubinfeld

There is a national network of State Health Insurance and Assistance Programs (SHIP). SHIP is a Federal grant program that helps States enhance and support a network of local programs, staff, and volunteers.
I am a volunteer in California where the program is known as HICAP (Health Insurance Counseling and Advocacy Program). Counselors are certified to provide free, unbiased assistance. Go to: and select “Ship Locator” to find your local SHIP.


That’s very good information.

My wife and I both retired early (age 55y) and switched between our company’s retiree medical plan (for 3 years) and the Affordable Care Act (for 5 years) and then back to our company’s retiree medical plan (for 2 years) before finally signing up for Medicare when we turned 65y. So, we had a decade-long gap between our employment and our signing up for Medicare.

Since this decision was going to impact us more than likely for the rest of our lives, we felt that we should take the initiative to find out as much as we could so as not to be surprised by any “gotcha’s” during or after enrollment. So, a few years before turning 65y, we started attending Medicare seminars that were being held locally and remotely, so we were fairly well informed with the process and what was involved and required for signing up. Of course, the web site had a wealth of information that we used. In addition, our parents were on Medicare years ago so we already had somewhat of a foundation of knowledge to start with.

Another source of information we had was the company we retired from. The company had a special program through ViaBenefits (Towers Watson) to guide us through the Medicare enrollment process, plans, costs, etc. and ensure that we had all the checkboxes completed. We signed up for everything – Part A/B, Supplemental, and Part D during the same enrollment session through that special program.

By starting the enrollment process early and ensuring we had everything done well ahead of time, we avoided any possibility of incurring late penalties. (Late penalties and having creditable coverage were regularly mentioned in all of the seminars we attended.)

We did the homework for our particular situation and it worked out relatively seamlessly for us.

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