May 9th 2022
By Ari Parker
We get this question several times a week from clients. If you are turning 65 and have employer-sponsored coverage through your own job or a family member’s employer, you’ll likely consider this decision.
By Ari Parker
Every day, we help people sort through this question and help them run the numbers and compare benefits. In this article, we share how we approach this question. If you’d like help with your particular situation, you can always schedule a time to speak with one of our advisors. There’s never any cost to work with us.
Many people benefit from staying on their employer-provided plan as long as possible. In most circumstances, this choice also permits people to defer enrolling in Medicare without penalty.
But many others can save money and get better benefits by enrolling in Medicare as soon as they are eligible.
This is because many people can save money on premiums with Medicare and get more benefits, in comparison to what they pay for their employer-provided coverage and what they receive for that coverage.
Below, we present the full framework we suggest using to answer this question. The framework is long, but we want to present you with all the facts.
And if you’d like, we’d love to support you, guide you each step of the way, or simply help to confirm your math.
Evaluate whether to enroll in Part A
First, you should consider whether to sign up for Part A, or defer enrolling. Part A is Hospital Insurance, and covers many of the costs of being hospitalized.
If you’re eligible for Social Security like most people (even if you haven’t yet started it), you are eligible for premium-free Part A. In this case, you should probably sign up for Part A. With it, you will receive more robust hospital coverage, and in most cases Part A will help to pay for out-of-pocket expenses that your employer plan may not cover. The one exception is if you have an HSA and want to continue contributing to it. If you enroll in Medicare at all, you can't continue to contribute to an HSA, although you can keep your account.
Decide whether to keep your employer coverage or enroll in Part B
Second, you should consider whether to enroll in Part B of Medicare. Part B is Medical Insurance, and it covers many medical services like when you visit the doctor’s office. Unlike Part A, you must pay a monthly premium for Part B to Uncle Sam. For most people, if you keep your employer coverage, you will want to defer enrolling in Part B.
But how should you make this choice?
Your decision to keep your employer-sponsored coverage depends on two factors:
Your costs of keeping your provided coverage versus
Your premium costs for Medicare Part B coverage plus the costs of the Medicare Supplement (aka Medigap) plan or Medicare Part C (aka Medicare Advantage) plan you might choose
The quality of your current employer-coverage in comparison to your Medicare options
Look up what you pay for your employer-health coverage
If you have health coverage through your work or your spouse’s employer, you probably have to pay something for it. Most employers require employees to pay a significant portion of their health insurance premiums, even if the employer covers the majority of the cost.
You can look up this cost on your recent pay-stubs by seeing the amount that is deducted from your pre-tax income to cover health, dental, and / or vision coverage.
Remember that if you and your spouse both receive coverage from the same employer, you’ll need to break out the costs required to cover each of you individually. If you have any trouble, we can help you with this.
Once you have this cost, you’ll know the monthly amount that you pay for your health coverage through your employer.
Estimate your potential Part B Premiums
If you chose to sign up for Part B, how much would you pay each month?
Your potential part B premiums will depend on your income over the past two years -- for 2021 it will technically be 2018 and 2019 since your 2020 return won’t be filed until April. Most people will pay $148.50 per month for Part B in 2021. But if your annual income was more than $88,000 filing individually or $176,000 filing jointly, you’ll pay over $200 per month and could pay as much as $505 per month if you are in the top income segment. (You can see the full brackets for Part B premiums here.)
Decide whether you’d like to consider a Medicare Supplement or Medicare Advantage Plan
Part A and B are together known as Original Medicare. Collectively, Original Medicare covers about 80% of medical costs, and doesn’t provide coverage for dental, vision, and hearing.
Approximately 60% of Americans choose to secure additional coverage to cover these gaps and services not covered by Part A and Part B.
If you’re like most people, you’ll want to estimate what you might pay for this type of additional coverage. You can use this cost -- plus your likely Part B premium -- to estimate your monthly costs of Medicare coverage. And then you can compare this cost to what you pay for your employer coverage.
In most states, Medicare Supplements are typically at least $100 per month and sometimes significantly more. Medicare Advantage plans can be as low as $0 per month.
What’s the difference?
Medicare Supplements -- also known as Medigap plans -- cover the ~20%-plus of costs that Original Medicare doesn’t. With them, you’ll minimize your out-of-pocket costs for medical care in exchange for an additional monthly premium. These are a great option for people who can afford those premiums and who want to see any doctor in the country, provided that that doctor accepts Original Medicare (which is most).
Medicare Advantage plans allow you to receive your Medicare benefits from a private insurance company. Provided you continue to pay your Part B premium, many of these plans charge $0 premiums or very low amounts. Medicare Advantage plans also often include coverage for prescription drugs, and benefits like dental, vision, hearing, and some even cover transportation to the doctor’s office or chiropractic services. These plans each have a specific network of doctors and healthcare providers, which is one reason why they are more affordable. They also typically have low co-pays when you see a doctor and coinsurance for other medical services. Medicare Advantage plans are a great plan for people who want lots of benefits at an affordable monthly premium, and are willing to receive care from a preferred network of healthcare providers.
If this seems confusing, don’t worry. We specialise in helping people to choose among Medicare Supplements and Medicare Advantage plans. We have a database of every plan available nationwide from which we can help make recommendations.
Compare the benefits of your current coverage against Medicare coverage
So far, we’ve just been comparing costs between your employer coverage and Medicare Part B plus Medicare Supplements or Advantage plans.
But what about the quality of those plans?
The final step is to compare the quality of coverage you receive from your employer-sponsored health plan with your likely Medicare coverage. This means looking at the doctors and hospitals that are covered, the prescription drugs that are covered, and any other non-premium costs like deductibles or out-of-pocket limits.
One final note
The option to keep your employer coverage is a choice only if your current coverage is provided by an organization with more than 20 employees. If that's not the case, you’ll need to go on Medicare as soon as you turn 65. Unfortunately, you will not be able to defer enrolling in Part B without starting to have penalties accumulate, because Medicare is considered primary coverage for small group employers.
We often encounter individuals -- or their spouses -- who are employed by an organization with fewer than 20 employees. If they miss this note and delay enrolling in Part B after they turn 65, they typically start to accumulate Part B penalties equal to 10% for every year they wait to enroll. If you have any questions on whether you might be in this situation, feel free to send us an email at [email protected]
We’re here to help
If you’re new to Medicare and want to decide whether to keep employer coverage or enroll in Medicare, we’d love to help. You can schedule time with us or email us with any questions.
