As employees approach the end of their careers, it’s likely that most of them will have questions about retirement health insurance. The specifics will vary from one person to another, particularly in terms of Medicare eligibility, which begins at the age of 65 for most people — though about 16 percent of the 60 million Americans with Medicare are younger and eligible due to a disability. An employee who’s retiring at 55 will probably have different coverage needs and questions from an employee retiring at 65 or older.
Here’s a look at some of the most common concerns and questions people have when it comes to retirement health insurance.
Help Your Employees Know Their Coverage Options
What coverage will your employees have after they transition to retirement? Will they need to purchase their own? Are they eligible for Medicare? Does your employer-sponsored plan extend to retirees?
Employer-Sponsored Group Plans
If an employee retires prior to age 65 and your group plan offers retiree coverage, that might be all the coverage they need until they turn 65 and transition to Medicare. At that point, the employer-sponsored retiree plan will become secondary, and Medicare will be their primary coverage. For employees who are still working after they hit 65, Medicare can be primary or secondary to the employer-sponsored plan, depending on the size of the employer; once that employee retires, Medicare becomes their primary coverage even if they retain retiree coverage through your group’s plan.
If your group plan does not extend coverage to retirees, employees who retire before age 65 will need to obtain their own coverage from the individual insurance market unless they have access to coverage under their spouse’s plan.
For plans purchased in the state health insurance exchange, there are premium subsidies available to offset the cost of coverage as long as the enrollee’s household income doesn’t exceed 400 percent of the poverty level. For lower-income enrollees, there are also cost-sharing reductions that help to lower the out-of-pocket costs on silver plans.
There’s an annual open enrollment period each fall for health coverage purchased in the individual market, but an employee who retires and loses their employer-sponsored coverage will have access to a special enrollment period during which they can sign up for a new plan mid-year.
Medicaid is also a coverage option that might be available to some employees who retire prior to age 65. The majority of states have expanded Medicaid under the Affordable Care Act, making coverage available to adults up to age 64 whose household income doesn’t exceed 138 percent of the poverty level. Eligibility for expanded Medicaid doesn’t depend on assets; only income is considered — but enrollees should be aware of how Medicaid estate recovery works in their state.
For employees who transition to retirement at age 65 or older, Medicare will likely become their primary retirement health insurance. Medicare has several different components and coverage options.
- Medicare Part A. Most people are eligible for this premium-free hospital insurance once they retire.
- Medicare Part B. This outpatient coverage costs $135.50/month for most enrollees in 2019. This amount can change each year, but enrollees with incomes above $85,000 generally pay higher premiums.
- Medicare Part D. These plans are purchased separately and provide prescription drug coverage. Monthly premiums generally range from about $15 to about $150, depending on the plan.
- Medicare Supplement. Also known as Medigap, these plans are also available separately to cover some or all of the out-of-pocket costs that an enrollee would otherwise have to pay if they just had Medicare parts A and B. In all but three states — Massachusetts, Minnesota and Wisconsin — Medigap plans are standardized and are named with letters. This can get a little confusing, since we have Medicare parts A, B and D, as well as Medigap plans A, B and D — but they’re not the same thing! An enrollee can have Medicare parts A, B and D as well as Medigap Plan A, B, C, D, F, G, K, L, M or N.
- Medicare Advantage plans. Alternatively, these plans — also known as Medicare Part C, adding to Medicare’s alphabet soup, and not to be confused with Medigap Plan C — are available in most parts of the country. When a person enrolls in a Medicare Advantage plan, it includes Medicare parts A, B and usually D all in one plan. Many plans also include extras like dental and vision coverage.
Help Retirees Avoid Penalties
As of 2019, there is no longer a federal penalty for being uninsured — although Massachusetts, New Jersey and Washington, D.C., have their own state-based penalties for people who go without health coverage, and Vermont will join them in 2020.
But there are some penalties that apply specifically to Medicare enrollees if they delay their enrollment without having creditable coverage from an employer-sponsored plan. This is important for retiring enrollees to understand if they’re eligible for Medicare — or will be soon — and are considering initially skipping some parts of Medicare coverage.
Medicare Part A is premium-free for most enrollees, but Medicare parts B and D have premiums, and healthy people sometimes wonder if they’d be better off delaying their enrollment in those parts until they need health care. There are annual enrollment windows for both parts, so it’s possible to delay enrollment in Part B and Part D and then sign up later. But unless an employee has coverage from an employer- or union-sponsored plan during the time that they delay their enrollment in parts B or D, they’ll end up with a penalty if and when they do eventually enroll.
Here’s how the penalties are calculated:
- Part B. The penalty continues to apply for as long as an employee has Part B.
- Part D. The penalty continues to apply for as long as an employee has Part D.
- Part A. The penalty applies for twice the number of years that enrollment was delayed.
So, if an employee will have employer-sponsored retiree coverage — either their own or a spouse’s — then they may be able to delay enrollment in Part B and D. But if not, enrolling in both parts upon turning 65 is generally the best approach. This retirement planning guide from the federal government is helpful for employees who are working through these decisions as they prepare to retire.
Although there isn’t technically a penalty associated with delayed enrollment in Medigap plans, it’s important to understand that Medigap insurers in most states can use medical underwriting to determine eligibility for Medigap plans if a person applies for coverage after their initial six-month open enrollment window ends. So, a person with preexisting conditions might be unable to obtain Medigap coverage (or have to pay more for it) if they delay their enrollment.
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