Medicare coverage rules need better explanation from employers

June 16, 2017

Almost everyone must go on Medicare when they reach age 65. The only exception is if you or your spouse is still working for a company with 20 or more employees. People who are already receiving Social Security are automatically enrolled unless they opt out because they have required coverage from an employer. While the government does a pretty good job of explaining these rules to people turning 65, companies do not do a good job of explaining to workers continuing to work past that age.

A rare bipartisan bill was recently reintroduced in the U.S. House of Representatives. The Benes Act would help in this area and eliminate some common traps in getting required coverage. If enacted, this bill would require the Department of Health and Human Services, The Social Security Administration and the Internal Revenue Service to work together. They would notify people six months before their 65th birthday.

This notice would provide information on benefits under Part B, explain late enrollment penalties and talk about the need for secondary coverage for all of the charges Medicare does not cover. There would be a special website for these purposes. This is only proposed legislation, so it does not exist today. Let’s look at a case where confusing information can be very costly.

Mr. and Mrs. Smith had good jobs and excellent health insurance all of their lives. When Mr. Smith turned 65, his wife still worked for a large company with good health care benefits. A couple of years later when Mrs. Smith was 64, her company was bought out by a bigger company. As part of her termination package she was given two years’ worth of health care from the company plan.

This was paid for by the company.

The Smiths thought they were very lucky to receive this benefit.

Just before the two years of coverage ended, the Smiths prepared to move to Medicare. For the first time they learned that when Mrs. Smith stopped working that triggered a change under Medicare rules. Because she had not actively been employed for more than eight months, they did not have the usual special enrollment period that most people receive when they retire after age 65.

Although they were allowed to enroll in Part A immediately, they could not get Part B at that time. They were told that they would have to wait for the general enrollment program between Jan. 1 and March 31. This coverage would not begin until July 1. Concerned that they would suffer financial loss if either of them had health care expenses, they tried to purchase private coverage. They were told none was available because Medicare is the primary coverage for their age and they could only buy coverage if they had Medicare.

To add insult to injury, they found out that because they had delayed Part B coverage for two years they would now be penalized 20 percent for the rest of their lives.

Be careful and remember, you or your spouse must be actively working and the company must have 20 or more employees. Retirement health care can only be a supplement to your Medicare and cannot be the only insurance that you have.

Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

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