As we get closer to our retirement years, one of the most impactful decisions we’ll need to make is deciding on our healthcare coverage and when to enroll in Medicare.

When it comes to Medicare, the question we need to answer is, should I enroll in Medicare as soon I hit 65, or should I wait?

Although most people assume that everyone should take Medicare at 65, there are certain scenarios where it makes sense to delay or in some cases, even forgo Medicare altogether.

We’ll go over the basics of Medicare and dive into the scenarios for when it makes sense to take Medicare, consider Medicare, or delay Medicare.

How Does Medicare Work?

Many people get confused about how all the parts of Medicare work, which is why it’s also known as the “Medicare Maze”.

Medicare is the federal health insurance program designed for people aged 65 and older and certain people with disabilities. There is no income limit for Medicare. But if your income falls above a specific threshold, your Medicare might cost more. 

This is known as an Income-Related Monthly Adjustment Amount (IRMAA), which is an extra charge added to your Medicare Part B (medical insurance) and Medicare prescription drug coverage (Part D) premiums. I’ll elaborate more on this below.

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The Medicare Initial Enrollment Period (IEP) is the time frame when you can first sign up for Medicare Parts A and B. You’ll want to be aware of this enrollment window to avoid potential late enrollment penalties:

Timing

• The IEP is a 7-month period that starts 3 months before the month you turn 65, includes the month you turn 65, and ends 3 months after the month you turn 65.
• If you’re under 65 but qualify for Medicare due to a disability, your IEP is based on your 25th month of receiving disability benefits.

 Enrollment

• You can enroll in Medicare Part A (hospital insurance) and/or Part B (medical insurance) during this period.
• Once you’re enrolled in Parts A & B, you can also join a Medicare Part D prescription drug plan.

Automatic Enrollment

• If you’re already receiving Social Security benefits when you turn 65, you’ll be automatically enrolled in Medicare Parts A and B. Otherwise, you need to actively enroll yourself during the IEP.

Medicare Part A (Hospital Insurance)

Medicare Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.

Most people don’t pay a Part A premium because they already paid Medicare taxes while working. But with Medicare Part A there are other costs you’ll need to cover, such as an annual deductible of $1,632 in 2024 for in-patient hospital stays.

This deductible covers your share of costs for the first 60 days of Medicare-covered inpatient hospital care in a benefit period. After the first 60 days, you pay coinsurance amounts.

Medicare Part B (Medical Insurance)

Medicare Part B covers certain doctors’ services, outpatient care, medical supplies, and preventive services. 

The standard monthly premium for Medicare Part B enrollees will be $174.70 for 2024 (an increase of $9.80 from $164.90 in 2023). The annual deductible for all Medicare Part B beneficiaries is $240 in 2024.

Medicare Part D (Prescription Drug Coverage)

These plans are offered by insurance companies and other private companies approved by Medicare.

Medicare Part D adds prescription drug coverage to Original Medicare, some Medicare Cost Plans, some Medicare Private Fee for Service Plans, and Medicare Medical Savings Account Plans.

Medigap (Medicare Supplemental Insurance)

Medigap is Medicare Supplement Insurance that’s designed to fill the gaps in Original Medicare. This is extra insurance you can buy from a private company to help you pay your share of costs in Original Medicare.

Policies are standardized and, in most states, named by letters, like Plan G or Plan K. The benefits in each lettered plan are the same, no matter which insurance company sells it.

Medicare Advantage (Medicare Part C)

Medicare Advantage, or Medicare Part C plans, have been becoming more popular.

Medicare Advantage is an alternative to Original Medicare (Parts A and B). These plans are offered by private insurance companies approved by Medicare and include all benefits and services covered under Part A and Part B. 

Most Medicare Advantage plans also offer prescription drug coverage. In 2024, insurance providers offer around 8,676 different Medicare Advantage plans.

Some of the popular Medicare Advantage providers in 2024 include Blue Cross Blue Shield, Humana, Aetna, and UnitedHealthcare.

Also, many Medicare Advantage plans in 2024 include additional benefits like dental, vision, hearing, lifestyle, and transportation. The average Medicare Advantage premium is estimated at $18.70 a month in 2024.

Navigating the Medicare Maze

Let’s take a closer look at the different paths you can take when deciding whether to enroll in Medicare at 65.

1. Do Not Take Medicare Yet

If you’re actively working and covered by a group health insurance plan through your employer, or if your spouse is working and you’re covered by their plan, you may not need to enroll in Medicare at 65.

2. Consider Taking Medicare

Even if you don’t have to take Medicare, you may still want to consider taking it, especially if your employer plan isn’t as strong as Medicare, or if you’re eligible for Medicare but not yet 65.

3. Enroll in Medicare To Avoid Penalties

If you don’t have health insurance when you turn 65, or if you’re on the following programs through The Affordable Care Act (ACA) Marketplace, also known as Health Insurance Marketplace or Obamacare, you may need to enroll in Medicare to avoid penalties:

• COBRA (Consolidated Omnibus Budget Reconciliation Act),
• a retiree health plan,
• an individual or family plan

Protections Against Medicare Pressure

Some people may not be aware that as an employee or spouse, you have rights that protect you from being pressured into switching to Medicare.

For example, your employer can’t offer you a deal or threaten you to switch to Medicare. This could include situations such as withholding your bonuses or extra benefits if you don’t switch.

Note that there’s an exception to these protections for companies with fewer than 20 employees. In this scenario, the company can encourage or require employees to take Medicare, which will save on their insurance costs.

This is because small employers don’t have the negotiating power of larger companies.

Three Paths in Deciding to Take Medicare at 65

Path #1: Do Not Take Medicare Yet

There are certain scenarios where you can delay Medicare at 65 without incurring penalties. The most common scenarios are:

If you or your spouse are still working and have employer or group health insurance: You can delay enrolling in Medicare Part B and avoid penalties as long as your group plan is considered creditable coverage.

Spousal Coverage: If you’re married and your spouse’s health insurance provides you with sufficient coverage, you may prefer to stay on their plan rather than enroll in Medicare.

Health Savings Account (HSA): If you’re making contributions to a Health Savings Account and want to continue, delaying your Medicare enrollment allows you to keep contributing to your HSA.

Special Enrollment Period (SEP): Once your employment or group plan ends, you’ll get an 8-month special enrollment period to sign up for Medicare Part B without owing late enrollment penalties.

This SEP lets you enroll in Medicare Part B during the eight months following the end of your employment or the group health plan. Qualifying Life Events for SEPs:

• Loss of Employer-Sponsored Coverage: If you lose your employer-sponsored health insurance due to job termination, reduction in hours, or closure of your employer’s business.

Other Qualifying Life Events:

• Moving out of your Medicare Advantage plan’s service area.
• Your Medicare Advantage plan or Part D plan terminating its contract with Medicare.
• Enrolling in or disenrolling from a Medicare Savings Program or Extra Help.
• Losing Medicaid eligibility.
• Being released from incarceration.
• Experiencing a natural disaster or other government-declared emergency.
• Receiving wrong information about Medicare enrollment.

Let’s look at some of these scenarios where you may want to delay Medicare.

Scenario 1: Actively Working with Group Health Insurance

If you’re still working and covered by a group health insurance plan, you could delay enrolling in Medicare Parts A and B until you retire or lose your company coverage.

Before deciding to delay Medicare enrollment, be sure to first contact your employer or benefits administrator and:

• Confirm whether it’s considered “creditable coverage” by Medicare.
• Ask your employer how your current insurance works with Medicare and whether delaying enrollment in Part A and Part B is possible without affecting your coverage.
• Note that some employer plans may require you to enroll in Part A and Part B to receive full coverage. Have your employer provide information about how your current insurance plan interacts with Medicare.

Scenario 2: Covered by a Spouse’s Group Health Insurance with 20+ Employees

If your spouse is working and you’re covered by their group health insurance plan, you could delay enrolling in Medicare until your spouse retires or you lose coverage under their plan. 

This could allow you to maintain continuous coverage without having to switch to Medicare prematurely.

Note that this only applies if the employer has 20 or more employees. If your spouse’s employer has fewer than 20 employees, Medicare typically becomes the primary coverage at age 65, and the employer coverage is secondary.

In that case, you may need to sign up for Medicare at 65.

Scenario 3: You Have Coverage Through ACA Marketplace and It’s More Cost-Effective

If you have coverage through the Affordable Care Act (ACA) Marketplace and find it more cost-effective than Medicare, you could consider delaying Medicare enrollment.

Keep in mind that transitioning from Marketplace to Medicare isn’t automatic – premium subsidies end when you’re eligible for premium-free Medicare Part A. You’ll pay full price for the Marketplace plan.

Also, once Medicare Part A starts, you lose any Marketplace plan premium tax credits or cost savings. Also, missing the initial 7-month Medicare enrollment period can result in penalties.

Path #2: Consider Taking Medicare

Even though you might not be required to take Medicare, here are some scenarios where taking Medicare is worth considering.

Scenario 1: Not So Great Employer Plan

Maybe your employer-sponsored health plan isn’t great in terms of coverage or the out-of-pocket costs are high. In this case, Medicare might be a better choice.

You should still compare the two plans side by side and then consider enrolling in Medicare if it offers better coverage at a lower cost.

Scenario 2: You Have Group Health Insurance and You Have an Age Gap With Your Spouse

If you’re working and your spouse is younger and not yet eligible for Medicare, you may want to stay on your employer plan and delay Medicare enrollment until your spouse becomes eligible.

This way, both of you will continue to have continuous coverage.

Here are some factors to consider:

• This is only applicable if your employer has 20 or more employees. If your spouse’s employer has fewer than 20 employees, Medicare typically becomes the primary coverage at age 65, and the employer coverage is secondary.
• Assess when your spouse will become eligible for Medicare and whether the age difference warrants delaying your enrollment.
• Compare the total cost of your current employer plan with the combined cost of Medicare Part A and Part B premiums for both you and your spouse.

Overall, you’ll want to evaluate the coverage level and out-of-pocket costs of your current employer plan and see if it’s able to meet the coverage needs of your spouse until he or she becomes eligible for Medicare.

Scenario 3: No Health Savings Accounts and Medicare Enrollment

If you don’t have a Health Savings Account (HSA), you’ll have more flexibility when it comes to enrolling in Medicare.

An HSA is a tax-advantaged savings account that allows you to set aside money on a tax-free basis to pay for medical expenses. HSAs are typically paired with high deductible health plans (HDHPs) and are designed to help you save for future medical expenses.

The key is that enrolling in Medicare impacts your HSA eligibility and contributions. This is because Medicare is considered a non-HDHP.

So once you enroll in any part of Medicare, you’re no longer eligible to contribute new funds to an HSA. You’ll only be able to spend down your existing HSA balance for qualified medical expenses.

Scenario 4: Small Employer Plan

If you work for a company with fewer than 20 employees, evaluate your employer’s insurance plan to decide whether to enroll in Medicare.

For instance, enrolling in Medicare could be a better option if your current employer plan’s coverage is either very limited or very expensive.

Scenario 5: You Have FB or VA Benefits

If you have Federal Benefits (FB) or Veterans Affairs (VA) benefits, you might not need to enroll in Medicare. FB benefits are typically offered to federal employees, retirees, and their families, and VA benefits are available to eligible veterans and their families.

FB Benefits: FB benefits are considered creditable coverage, which means they meet Medicare’s minimum essential coverage requirements. If you have FB benefits, you could still consider enrolling in Medicare Part A, which doesn’t have premiums.

VA Benefits: VA benefits are also considered creditable coverage, although they might not give you the same level of coverage as Medicare. Even if you have VA benefits, going with Medicare could give you broader network access and facilities.

Some other reasons to consider taking Medicare if you have FB or VA benefits:

• Medicare can provide access to a broader network of civilian facilities and providers, which you may want if you need specialized care or prefer to see a specific doctor.
• Medicare can provide supplemental coverage to your FB or VA benefits, fill gaps in coverage, and reduce out-of-pocket expenses.
• Enrolling in Medicare could ensure you have continuous coverage if you lose your FB or VA benefits in the future.

Scenario 6: You’re Living Abroad

As a U.S. citizen or lawful permanent resident, you’re still eligible for Medicare even if you’re living abroad. Though you might not need to enroll in Medicare immediately, there are some reasons to consider enrolling in Medicare:

• If you don’t enroll in Medicare during your initial enrollment period, you could face penalties when you return to the States.
• Enrolling in Medicare will make sure you have continuous coverage if you return to the States in the future.
• Enrolling in Medicare can give you peace of mind regarding your future planning and medical expenses.

Having said that, Medicare coverage outside the U.S. is pretty limited. If you plan to travel outside the U.S. a lot or live abroad for extended periods, you should look at the portability and coverage of your current health plan. Then, compare it to Medicare’s coverage outside the U.S.

Path #3: Enroll in Medicare to Avoid Penalties

Lastly, let’s look at some situations where not enrolling in Medicare can end up in penalties, higher premiums, or gaps in coverage. Below are some scenarios where taking Medicare can help you avoid these:

Scenario 1: No Health Insurance at 65

If you don’t have health insurance when you turn 65, enrolling in Medicare will avoid penalties. Without having Medicare, you’ll likely face late enrollment penalties which can increase your premiums for the rest of your life.

Scenario 2: You’re On COBRA at 65

If you’re on COBRA when you turn 65, you’ll want to enroll in Medicare to avoid penalties. That’s because COBRA coverage is temporary, so once it ends, you’ll need to enroll in Medicare to keep continuous coverage.

Scenario 3: Retiree Health Plans

If you have a retiree health plan that doesn’t require you to take Medicare, you may still want to enroll in Medicare to avoid penalties. Even if your retiree plan is comprehensive, not enrolling in Medicare can result in penalties and higher premiums for you in the long run.

Scenario 4: Individual or Family Plan Through the ACA Marketplace

If you’re on an individual or family plan through the ACA Marketplace, enrolling in Medicare at 65 can help you avoid penalties and higher premiums.

That’s because Medicare is typically more cost effective than ACA Marketplace plans.

Once you qualify for premium-free Medicare Part A, you’ll lose your Marketplace subsidies the following month. This means your Marketplace plan monthly premiums become more expensive.

Penalties for Late Enrollment

Unless you fall under any of the qualifying scenarios discussed above where you won’t face Medicare penalties, you’ll likely pay a higher monthly premium. This is known as a late enrollment penalty if you didn’t sign up for Medicare when you were first eligible.

Some of these penalties are not just one-time fees but are added to your monthly premium for as long as you have that type of coverage.

These late enrollment penalties apply unless you qualify for a Medicare Special Enrollment Period based on special circumstances like remaining enrolled in an employer’s group health plan.

Otherwise, signing up late could mean permanently higher Medicare costs.

Here’s a breakdown of the penalties for each part of Medicare.

Final Thoughts

Deciding when to enroll in Medicare can be complex. Everyone’s situation is different and there are other scenarios we didn’t cover here.

Before deciding, take a close review of your current and anticipated healthcare needs, including any ongoing medical conditions, prescribed medications, and the likelihood of hospitalization or surgery.

Also, evaluate your financial situation and your available coverage options.

You can also work with a licensed insurance agent or a trusted financial planner. A licensed insurance agent should specialize in Medicare insurance options. They should also be able to explain all the plans and help you navigate the process.

Be sure to also check the official Medicare website for the most accurate and up-to-date information.

*This article is not meant to be financial or healthcare advice. You should consult with your advisor or professional before making any healthcare or Medicare related decisions.

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