Comparing employer coverage to Medicare: What’s the better option?
You have the option of taking employer coverage or Medicare. So, which should you choose? It depends on your situation.
Whether you’re planning for retirement or continuing to work past age 65, Medicare is a health coverage option for you. People often ask our advisors, “What’s better, my employer group coverage or a Medicare plan?”
There’s no right or wrong answer—we encourage our clients to choose the option that works for their personal needs, budget, and lifestyle. Our advisors are here to research and compare all your plan options so you can find the right fit. As you compare your employer coverage to Medicare, here are a few factors to keep in mind.
Common Mistakes
Many people assume they must enroll in Medicare as soon as they turn 65, even if they have strong employer coverage. Others overlook how their employer size impacts their options, which can lead to unnecessary costs or coverage gaps.
What Most People Don’t Realize
Medicare decisions are not one-size-fits-all; the right option can vary significantly depending on the individual situation. Also, Medicare and employer coverage can sometimes work together. Understanding how the two coordinate can help you avoid overpaying or duplicating coverage.
Retirement isn’t a requirement for Medicare.
A lot of people think that Medicare is only for retirees, but this isn’t true! You can enroll in Medicare while continuing your career. Your employment status does not impact your eligibility for Medicare.
If you sign up for Medicare while you’re still working, it may make your eventual retirement that much smoother because you won’t have to change your health insurance when the time comes.
Medicare offers more options than employer coverage.
When you enrolled in your health coverage through your employer, you likely chose from less than a handful of available plans. By comparison, in most states, there are hundreds of Medicare plan options. For some individuals, this can make the transition from employer coverage to Medicare feel overwhelming.
But Medicare’s multitude of options can work in your favor, despite how mind-boggling it may seem to choose one plan out of hundreds. Enrolling in Medicare provides more options to find a health plan that better fits your specific needs. Switching from employer coverage allows you to shed the one-size-fits-all insurance model.
Many Medicare plans are offered by the same insurance carriers that provide employer coverage. If you enjoy the customer service you get from your current insurance carrier, you may be able to continue with them when you're on Medicare.
Your costs will change.
Switching your health coverage means that some of your costs will change. This is unique to each plan, but generally speaking, Medicare tends to provide more benefits than employer coverage at a lower cost.
If you have a high-premium or high-deductible plan through your employer (or your spouse’s employer), switching to Medicare may be more cost-effective. Many Medicare plans offer first-dollar coverage, meaning you can pay little or nothing out of pocket for health care visits. Depending on the plan, Medicare can offer low premiums and deductibles.
Keep in mind that costs for some parts of Medicare (Part B and Part D premiums) can be adjusted based on income, but this only applies to a small handful of individuals.
It’s important to know that you cannot add dependents to Medicare coverage. You may need to make accommodations for your spouse’s insurance. Our local advisors will consider all these factors as we assess the right Medicare plan for your needs. We also offer individual health insurance plan options for your spouse to consider.
Some benefits may carry over.
To smooth the transition from employer coverage to Medicare, some benefits of your current plan may remain after you switch. One example is your health savings account (HSA). You can use your existing HSA funds to pay for qualified Medicare expenses.
It’s important to note that if you apply for Medicare before your 65th birthday month, you can continue to contribute to your HSA through your employer until the day prior to your Medicare effective date. However, if you sign up for Medicare after turning 65, your Medicare Part A coverage will be retroactive for up to six months. In this case, you should plan to stop contributing to your HSA up to six months prior to signing up for Medicare because you could face penalties if you continue to contribute. Keep in mind that your annual HSA contribution limit will be prorated by the number of months you are eligible – the number of months you do not have Medicare Part A or Part B in that calendar year.
If you work at a smaller company, you’ll need to enroll.
If you work for an organization with fewer than 20 employees, you should enroll in Medicare once you are eligible, since Medicare will pay primary (before) the employer health plan. If you don’t enroll in Medicare, you may have to pay what Medicare would have covered, which could lead to significant financial responsibility. For individuals who need to enroll in Medicare while working, it often makes sense to move from the employer plan to a Medicare plan.
However, if you work for an organization with more than 20 employees, you have the option to defer (or delay) Medicare Part B and Part D. Our advisors can help you take the proper steps to do this. Reach out to us to avoid late enrollment penalties and to ensure your drug coverage is creditable to Medicare.
It's important to note that the criteria for Medicare to act as the primary payer depends on the employee's age. If the employee is 65 years old or older, Medicare will pay primary when the employer has fewer than 20 employees. However, if the employee is under 65 and qualifies for Medicare due to a disability, Medicare will be the primary payer only if the employer has fewer than 100 employees.
Frequently Asked Questions
Should I choose Medicare if I’m still working?
It depends on your employer coverage, costs, and how your plan coordinates with Medicare. In some cases, staying on employer coverage makes sense, while in others, Medicare may offer better value.
Will Medicare cost less than my employer plan?
Not always, but many individuals find that Medicare offers more comprehensive coverage at a lower overall cost. The only way to know for sure is to compare your specific plan options side by side, which our advisors can do for you.
Can I delay Medicare without penalties?
If you have creditable coverage through an employer with more than 20 employees, you may be able to delay Medicare Part B and/or Part D without penalties. It’s important to confirm your eligibility before making that decision. Refer to our note above for more details about the employee age threshold that determines when Medicare pays as the primary insurance.
What happens to my spouse’s coverage if I switch to Medicare?
Since Medicare doesn’t cover dependents, your spouse will need to maintain their own coverage if they are not also eligible for Medicare. This could be through their employer, COBRA, or an individual health insurance plan.
Get local answers to health insurance questions.
As you prepare to transition from employer coverage to Medicare, let RetireMed do the research for you. We can compare your employer plan to Medicare, making it easy to find the right coverage for your needs. Additionally, we can provide individual health insurance plan options if you have a spouse who’s not yet eligible for Medicare.
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