Does it make sense for you to opt out of Medicare partially or entirely? - Mature Health Center

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Originally published February 4, 2014, last updated February 18, 2014

Does it make sense for you to opt out of Medicare partially or entirely?

2013 Medicare Part D Outlook

By Brian Hickey CLU, CLTC, FLMI
and Dwane McFerrin RHU, CLU, CFP, LLIF

Most people take Part A of Medicare when first eligible because it is free.  But did you know that if you delay retirement and continue working past 65, it may be beneficial for you to delay some or all parts of Medicare?

For example, if you work for a larger company and you are still covered under a group health plan with creditable coverage, you can delay taking Medicare B, thereby saving the monthly Part B premium. And you will not be penalized, provided the health insurance is classified as creditable coverage. Conversely, if you work for a small company (under 20 employees), the employer may require you to go on Medicare and no longer provide you group health benefits.  In the latter case, Medicare is considered primary coverage and opting out of Medicare would be a bad idea!

If you want to opt out of Part B, your first step should be to get a letter of creditable coverage from your employer.  If the group coverage isn’t creditable, you would be facing Part B and Part D penalties by delaying enrollment.  Also, reenrolling in Part B only happens January-March of each year and doesn’t go into effect until July 1st of a given year during its open enrollment period so not exactly convenient if you want to get back on Part B (and the penalties continue to add up). 

Part A is different. First of all, Medicare Part A is free for 99% of Medicare beneficiaries (about one percent pay a premium because the 40 quarters of Medicare-covered employment).¹ So why would you need to opt out of it? Well, you may be over age 65, still actively working, and want to continue contributing to a Health Savings Account (HSA) in combination with a high deductible health plan.  By doing so, you are opting out of Medicare entirely and that’s permitted as long as the high deductible health plan is determined to be creditable coverage. However, once you have enrolled in Medicare Part A, you can no longer make contributions to the HSA and receive benefits from the high deductible health plan.  You can continue to use the funds previously deposited to the HSA for qualifying expenses but can no longer make additional contributions.

If you think this might apply to you and you’re considering opting out of Part A, you will want to make very sure before you do, because it does come with risks. For example, did you know that opting out of Part A puts Social Security benefits at risk?  You must be on Part A of Medicare in order to receive Social Security benefits.  You also face possible Part B and Part D penalties, depending on the coverage provided by the employer.²   Penalties can be as follows:

Penalties:

Part A:  10% of the premium, paid monthly for twice the number of years delayed in enrollment (assessed only if paying a Part A premium)
Part B:  10% of the premium for 12 months a beneficiary delays enrollment with no creditable coverage – paid monthly for each month of Part B coverage
Part D:  1% for each month eligible but not enrolled and does not have creditable coverage.  Penalty continues monthly for each month enrolled in a Part D plan

Now you know some of the potential ramifications of opting out of some of all of Medicare. If you are still working and you’re thinking of delaying your benefits, call one of our Benefit Advisors to see if it is truly the right decision for you. We can prevent you from making a mistake that you’ll regret later.

Sources:

 www.cms.gov/Newsroom/MediaReleaseDatabase/Press-Releases/2013-Press-Releases-Items/2013-10-28.html
http://www.doi.nebraska.gov/shiip/brochure/OUT12249.pdf 


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