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Don't Make These Medicare Mistakes if You Lose Your Job After 65

Big penalties and bills could follow if you make the wrong moves

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En español | You may be tempted to not sign up for Medicare Part B when you turn 65 because you're still working and have health insurance through your employer. That can be a big problem if you lose your job unexpectedly. You'll need to make some moves quickly after you lose your job if you want to avoid penalties and expensive coverage gaps.

It's easy to make those mistakes. You have up to eight months after you leave your job and lose your employer's coverage to sign up for Medicare Part B without a late-enrollment penalty. (Part B covers doctor and outpatient services.) If you wait more than eight months, you may have to pay a lifetime penalty of 10 percent of the cost of Part B for every 12 months you should have been enrolled in Medicare but were not. You'll also have to wait until the next general enrollment period to sign up for Medicare, which runs from January through March with coverage starting on July 1.

When COBRA bites

A larger problem is for people over 65 who continue their employer's coverage through COBRA rather than signing up for Medicare. They could end up with big coverage gaps and massive bills, even before the eight months have expired. They need to sign up for Medicare as soon as they lose their jobs.

Many people who are still working sign up for Medicare Part A at 65 because it's free, but if they work for a company with 20 or more employees, they may choose to delay signing up for Part B while covered by their employer so they don't have to pay the Part B premium of $144.60 or more (depending on their income) each month. If they elect COBRA coverage, they can get into trouble.

COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law that lets you keep your employer's coverage for up to 18 months after you leave your job, if you work for a company with 20 or more employees (many states have similar laws for smaller companies). You keep the same benefits and provider network as you had when working, but you usually have to pay both the employer's and the employee's share of the premiums.

The problem: Even though COBRA coverage looks exactly like your employer's coverage, Medicare rules don't see it that way. As soon as you leave your job and lose your coverage as an employee, Medicare generally becomes your primary coverage — even if you keep their coverage through COBRA. If you don't sign up for Medicare when you leave your job, you could end up with big coverage gaps and big bills.

Bonnie Burns, a consultant with California Health Advocates, helped a 68-year-old woman who had health insurance through a large employer until she left her job at age 67. She signed up for COBRA rather than enrolling in Medicare. After she had some expensive medical issues, she received a $150,000 bill from her COBRA insurance company. The insurer argued that it shouldn't have paid the bulk of her claims because Medicare should have been her primary coverage — even if she hadn't signed up for it. The company ended up dropping the bill after the woman hired a lawyer to write to her employer and the insurer explaining that she was not adequately notified of the Medicare rules when she left her job.

Burns recommends contacting your State Health Insurance Assistance Program (SHIP) as soon as you lose your job, whose counselors can answer Medicare questions, walk you through the enrollment process and help with any problems.

“You need to sign up for Medicare right away” after you leave your job, says Joanne Giardini-Russell, owner of Giardini Medicare in Howell, Michigan, which helps people with Medicare issues and supplemental coverage. She recently helped a 70-year-old man who lost his job in late May and had coverage until the end of the month. He planned to continue his employer's coverage through COBRA after that because his wife was in the middle of having chemo sessions. She had an appointment for chemo on June 3, which generally costs about $13,000. He'd been focusing on the eight-month timeframe to avoid the late-enrollment penalty, and didn't realize he and his wife needed to sign up for Medicare right away to get the primary coverage. Giardini-Russell let him know about the rules just in time for him and his wife to sign up for Medicare and get her chemo covered.


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Check with your employer

Most employers don't warn people about this issue. “Human resources always seems to hand everybody a packet and say, ‘Here's your COBRA,’ and they never bring up the Medicare piece, even though they know how old they are,” says Giardini-Russell.

You may not realize the problem for a while. The COBRA insurer may pay small claims and not investigate until you have a large claim. “The COBRA policy may pay out as primary insurance for a while, because you didn't realize you should have had Medicare, and then something big happens — you need surgery or have an expensive procedure — and that causes the insurer to look at your claims and enrollment a bit more closely,” says Casey Schwarz, senior counsel for education and federal policy with the Medicare Rights Center. “At that point they say they are only paying 20 percent of the Medicare-approved amount, and they may say they shouldn't have been paying any of these claims in the past.”

Schwarz worked with a woman who had retiree coverage and didn't realize she had to sign up for Medicare, and the insurer went back and billed her for six years of claims, including a cancer diagnosis. “It was really devastating,” says Schwarz. “It was hundreds of thousands of dollars.” Medicare ended up paying most of the claims because she had records showing that the government had given her inaccurate information about whether she had to sign up for Medicare.

People who enroll in Medicare at age 65 can complete the application online at the Social Security Administration website, even if you don't want to sign up for Social Security benefits yet. But if you delayed Medicare enrollment because you were working past 65, you need to provide extra paperwork showing that you had employer coverage within the past eight months through your or your spouse's employer, says Diane Omdahl, a registered nurse and cofounder of Sixty-Five Incorporated, which helps people with Medicare decisions. You usually can't enroll in Medicare Part B online at that point, like you can at 65, but the Social Security Administration is currently making an online application available for post-65 applicants while field offices are closed or limited because of COVID-19. For more information, see Social Security's Medicare Benefits page.

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