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How does retiree health insurance work with Medicare?

| If you’re one of the shrinking number of people who have retiree health insurance from a former employer, you still need to make some key decisions about Medicare.

Even though retiree coverage can help pay your medical expenses, if you don’t enroll in Medicare at age 65, you could end up with big coverage gaps and late enrollment penalties. If your former employer offers retiree health insurance, you may find that the rules change when you reach Medicare age. 

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Do I need Medicare if I have retiree health insurance?

Yes, people who have company, government or union health benefits in retirement generally need to sign up for Medicare during their initial enrollment period, which begins three months before the month you turn 65 and ends three months after your birthday month. It’s important to consult with your plan administrator about the rules before you turn 65. 

If you don’t sign up for Medicare Part A and Part B during your initial enrollment period, you could face three negative consequences:

1. Penalty for late enrollment. If you don’t have health insurance from a current employer — either your own or your spouse’s — you’ll have to pay a late enrollment penalty if you sign up for Medicare Part B later. Even if you have good retiree health benefits in the beginning, the cost and coverage can change over time and your health care needs may change, too.

2. Coverage gap. At age 65, most retiree health insurance becomes secondary to Medicare whether you sign up for Medicare or not. Your retiree coverage may not pay medical bills if you were eligible for Medicare but didn’t sign up for it.

The rule is different for federal retiree health insurance, which can continue to be primary coverage.

3. Delay in enrollment. Having retiree coverage doesn’t qualify you for a special enrollment period to sign up for Medicare later, so you may need to wait until the annual general enrollment period, which runs Jan. 1 to March 31. Your coverage starts the month after you enroll. Before 2023, your coverage didn’t start until July 1 if you signed up during the general enrollment period.

However, you may still have to wait several months for insurance if you miss the March 31 deadline. For example, if you find yourself without insurance in April, you could wait nine months before the next general enrollment period starts. 

How does retiree health coverage work with Medicare?

If you have both retiree health insurance and Medicare, Medicare generally pays first and the retiree plan pays second. That means Medicare becomes your primary coverage, paying up to its coverage limits. Then the retiree plan pays if you have expenses that Medicare doesn't cover, which could include deductibles and copayments.

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The details of retiree coverage can vary a lot by company. However, some plans cover expenses that aren’t included in Medicare, such as dental and vision care. Contact your retiree plan administrator for details.

Retiree insurance may not cover all of Medicare’s out-of-pocket costs. But if you have retiree coverage, you typically don’t need to buy a Medicare supplement policy, better known as Medigap.

How is federal retiree health insurance different?

Retired federal employees covered under the Federal Employees Health Benefits (FEHB) program aren’t required to enroll in Medicare. Your federal retiree coverage can continue to be your primary coverage if you don’t sign up for Medicare.

Consider Part A. If you aren’t required to pay a premium for Part A, you may want to sign up for Medicare at age 65 or when you leave your federal job if you work beyond 65. The federal Office of Personnel Management encourages federal retirees to enroll in Part A if their premiums are free. 

Think carefully about whether you want to delay enrolling in Part B, because doing so could come with a penalty if you change your mind later. Part B costs $164.90 a month in 2023. It costs more if you’re single and your modified adjusted gross income is higher than $97,000 or higher than $194,000 if married and filing jointly.

You can continue to receive full coverage from the FEHB after 65, unlike other types of retiree benefits that may not pay unless you enroll in Medicare. But if you decide to get Part B later — if, for example, you think your federal health benefits have become too expensive compared to Medicare — you could get stuck with a late enrollment penalty.

The reason? You didn’t have coverage from an active employer during that time.

Complementary coverage. If you decide on both Medicare and FEHB retiree benefits, Medicare will pay first and the FEHB becomes secondary. The FEHB may cover Medicare’s deductibles and copayments, and it may provide additional benefits that Medicare doesn’t, such as dental and vision care and some emergency care outside of the United States.

Medicare will pay some of the costs for products and services that your FEHB plan may not cover, including specific medical equipment and supplies, home health care, and orthopedic and prosthetic devices. See the Office of Personnel Management’s FEHB and Medicare guide for more information about coordinating the two types of coverage.

Keep in mind

Prescription coverage. The rules are different for Part D prescription drug coverage. In this case, it doesn’t matter whether your drug coverage is from an active employer, a former employer or another source. If you have prescription coverage that’s considered to be at least as good as Part D, which the federal government considers “creditable” coverage, you don’t have to sign up for Part D.

Ask your former employer if your drug coverage qualifies. You also should receive a letter from your drug plan every September that shows whether your plan is creditable coverage.

Retiree coverage isn’t guaranteed for life. If you lose that drug coverage, you’ll be eligible for a two-month special enrollment period when you can sign up for Part D coverage without a late enrollment penalty.

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