Orlando Harmon
If you're approaching retirement age, you may be wondering how to ensure you have adequate health insurance coverage before you become eligible for Medicare at 65. While 24% of large companies offer retiree health insurance, you may need to explore other options to fill this insurance gap. You could consider purchasing a Medigap policy, which is extra insurance that helps cover out-of-pocket costs in Original Medicare. Alternatively, you may be able to continue your existing employer coverage under COBRA for up to 18 months, although you'll likely pay higher premiums. If you're a veteran, VA benefits can provide affordable healthcare and prescription drugs. Additionally, you can purchase private health insurance through the health insurance marketplace or directly from an insurer. These options can help bridge the gap until you become eligible for Medicare.
| Characteristics | Values |
|---|---|
| Job-based insurance | If you or your spouse is still working, and you have insurance through that job, it may work with Medicare to cover your health care costs. |
| Veterans Affairs (VA) benefits | If you are a veteran and qualify for VA benefits, health care and prescription drugs that you get through the VA may be the cheapest. The VA may also cover services that Medicare will not cover for you. |
| Retiree insurance | Some employers provide health insurance to retirees and their spouses to fill in the gaps of Medicare coverage. |
| COBRA | You can continue your existing coverage for yourself and your family under COBRA (the Consolidated Omnibus Budget Reconciliation Act) after your last date of employment. |
| Private insurance | You can purchase health insurance from a private insurer by reaching out to the company directly or through an intermediary, such as an insurance broker. |
| Health Savings Account (HSA) | You can use the money in your HSA to pay for qualified medical expenses not covered by your insurance. |
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What You'll Learn
Job-based insurance
If you are still working when you turn 65, you may be eligible for Medicare due to your age, and you may also be covered by your or your spouse's job-based insurance. In this case, you have a Special Enrollment Period (SEP) to enroll in Part B of Medicare up to eight months after your job-based coverage ends. To qualify for the Part B SEP, you must be currently working, which includes having employment rights at your company even if you are on sick leave, are a seasonal worker, or have been temporarily laid off.
If you are covered by job-based insurance, it is important to determine whether it is primary or secondary insurance. Job-based insurance is primary if it is from an employer with 20 or more employees, in which case Medicare becomes secondary. Some people in this situation may choose not to enroll in Part B of Medicare due to the additional monthly premium. On the other hand, job-based insurance is secondary if it is from an employer with fewer than 20 employees, making Medicare the primary insurer. If you delay Medicare enrollment in this case, your job-based insurance may provide little or no coverage, so it is recommended to enroll in Part B to avoid high costs for your care.
To determine if your job-based insurance is primary or secondary, you can contact your or your spouse's human resources department. If you plan to delay enrolling in Part B of Medicare and use the SEP later, it is important to keep records of your health insurance coverage. You will need to submit proof of your enrollment in job-based insurance when accessing the SEP, which can include documents showing health insurance premiums paid (such as W-2s, pay stubs, tax returns, or receipts) and health insurance cards with the appropriate effective date.
If you have job-based insurance and want to transition to Medicare, it is important to understand how these two coverages interact. You should ask the employer that provides your health insurance if you need to sign up for Part A (Hospital Insurance) and Part B (Medical Insurance) when you turn 65. If you do not enroll in these parts of Medicare, your job-based insurance might not cover all your costs for services. Additionally, if you have retiree coverage from a previous job, it may not pay for your health services if you do not have both Part A and Part B of Medicare. Therefore, it is crucial to consult your benefits administrator to understand how your retiree coverage works with Medicare and to avoid losing your retiree coverage before joining a new plan.
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Veterans Affairs (VA) benefits
If you qualify for Veterans Affairs (VA) health care benefits, you can receive coverage for the services you need to maintain your health. Each veteran's medical benefits package is unique and depends on the advice of their VA primary care provider. VA health care benefits can be used alongside other forms of health care coverage, such as private insurance, Medicare, Medicaid, or TRICARE. However, it is important to note that VA benefits will not pay for Medicare cost-sharing, including deductibles, copayments, and coinsurance.
When using VA health care benefits, it is recommended to inform your VA doctor if you are receiving care outside of the VA system. This helps coordinate your care and ensures you receive treatment that meets your specific needs. Additionally, your private insurer may apply your VA health care charges toward your annual deductible. While having both Medicare and VA benefits is possible, they do not work together seamlessly. Medicare does not cover any care received at a VA facility, and VA coverage typically requires receiving healthcare services within the VA system.
VA health care benefits offer a wide range of services, including routine eye exams, preventive tests, eyeglasses, and services for blind or low-vision rehabilitation. They also provide beneficiary travel benefits, caregiver support, and transportation services to and from appointments. It is important to note that VA health care benefits do not usually extend to veterans' family members, so dropping private insurance may leave your family without coverage.
To make the most of your VA benefits and Medicare, consider enrolling in Medicare Part B during your Initial Enrollment Period (IEP). This provides flexibility to seek healthcare outside the VA system and may qualify you for programs that assist with Medicare cost-sharing. You can retain your VA health benefits to cover items not included in Medicare, such as over-the-counter medications, annual physical exams, and hearing aids.
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Supplemental insurance (Medigap)
If you have Original Medicare—Part A (Hospital Insurance) and Part B (Medical Insurance)—you can buy a Medigap policy to help pay your share of out-of-pocket costs. Medigap is extra insurance that you can buy from private health insurance companies. It is important to note that you cannot buy Medigap while enrolled in a Medicare Advantage Plan (Part C), which is another way to receive Medicare coverage. You also cannot use Medigap to pay your Medicare Advantage Plan copayments, deductibles, and premiums.
Medigap policies are designed to assist with out-of-pocket costs not covered by Parts A and B, such as deductibles, copays, and coinsurance. These plans are available across the United States and can vary in premiums and enrolment eligibility. All standardized Medigap policies are automatically renewed each year, provided that you continue to pay your premiums and the plan is still available. Some Medigap plans also cover foreign travel emergency services.
If you have a Medigap policy and receive care, Medicare will pay its share of the Medicare-approved amount for covered healthcare costs. Typically, you will need to have your Medigap insurance company retrieve your Part B claim information directly from Medicare. Your Medigap policy will then pay your doctor whatever amount you owe under your policy, and you will be responsible for any remaining costs. Some Medigap insurance companies also provide this service for Part A claims.
If you join a Medigap policy and a Medicare drug plan offered by the same company, you may need to make two separate premium payments for your coverage. If you drop a Medigap policy to join a Medicare Advantage Plan, you have a single 12-month period to get your Medigap policy back if you switch back to Original Medicare.
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Consolidated Omnibus Budget Reconciliation Act (COBRA)
The Consolidated Omnibus Budget Reconciliation Act, commonly known as COBRA, is a crucial piece of legislation that provides a safety net for individuals and their families who experience a sudden loss of health benefits. This could be due to various reasons, including voluntary or involuntary job loss, a reduction in working hours, transitioning between jobs, death, divorce, or other significant life events.
COBRA gives eligible individuals the opportunity to temporarily extend their health coverage when they would otherwise lose it due to specific qualifying events. This means that even if a person loses their job or experiences a reduction in hours, they can maintain their health benefits for a limited period. This extension ensures that individuals can continue receiving the same level of healthcare coverage provided by their previous group health plan.
To be eligible for COBRA coverage, certain requirements must be met. Firstly, the individual must have been a member of a group health plan before the qualifying event occurred. Secondly, the qualifying event must result in a loss of coverage under the group health plan. Qualifying events are specific occurrences that lead to a change in health insurance coverage. These can include situations such as losing a job, reducing working hours, or experiencing life events like divorce or the death of a spouse.
When enrolling in COBRA, individuals have the right to receive detailed information about the premiums they will be required to pay. This information is provided in the COBRA election notice, which outlines the premium amounts, due dates, and the potential consequences of payment default. Importantly, plans cannot mandate that qualified beneficiaries pay a premium at the time of the COBRA election. However, beneficiaries must be given a reasonable timeframe, typically a minimum of 45 days, to make their initial premium payment after the election.
The cost of COBRA coverage is an important consideration. Qualified individuals may be required to pay premiums of up to 102% of the plan's cost for similar individuals who have not experienced a qualifying event. This cost includes both employer and employee contributions. In the case of an extension of coverage due to disability, the premium may increase to 150% of the plan's total cost of coverage. Plans must also allow beneficiaries to pay premiums on a monthly basis if requested and may offer flexibility for payments at other intervals, such as weekly or quarterly.
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Health Savings Account (HSA)
Health Savings Accounts (HSAs) are tax-advantaged savings accounts designed to help individuals with high-deductible health plans (HDHPs) offset their healthcare costs. HSAs offer a way to save money specifically for future medical expenses, allowing individuals to contribute pre-tax dollars to the account. This means that contributions to an HSA are not taxed when made, and withdrawals are also tax-free as long as they are used for qualified medical expenses.
To be eligible for an HSA, an individual must have an HSA-eligible plan, also known as a High Deductible Health Plan (HDHP). These plans typically have lower premiums but higher deductibles than traditional health insurance plans. The deductible is the amount you must pay for healthcare expenses before your insurance coverage kicks in and starts paying for covered services. By pairing an HSA with an HDHP, individuals can use the tax-free savings in their HSA to help cover the higher out-of-pocket costs associated with HDHPs.
Funds contributed to an HSA can be used to pay for a variety of qualified medical expenses, including deductibles, copayments, and coinsurance. Additionally, HSA funds can be used to pay for a range of healthcare services and products, such as prescription medications, dental and vision care, and even over-the-counter medications in some cases. It's important to note that once an individual enrolls in Medicare Part A or Part B, they can no longer contribute pre-tax dollars to their HSA. However, they can continue to withdraw money from their HSA to pay for medical expenses not covered by Medicare, such as deductibles, copayments, and coinsurance.
When planning to enroll in Medicare, it is important to stop contributing to your HSA at least six months before enrollment to avoid a tax penalty. This is because Medicare Part A provides up to six months of retroactive coverage. However, individuals can continue to use any remaining funds in their HSA to pay for qualified medical expenses that Medicare does not cover. Additionally, once an individual turns 65, they can use the money in their HSA for any purpose without incurring tax penalties.
In summary, Health Savings Accounts (HSAs) offer a tax-advantaged way to save for future medical expenses, particularly for those with high-deductible health plans. By contributing pre-tax dollars to an HSA and using the funds for qualified medical expenses, individuals can offset their healthcare costs. While enrollment in Medicare Part A or Part B impacts HSA contributions, the account can still be utilized to pay for medical expenses not covered by Medicare.
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Frequently asked questions
The insurance gap before Medicare refers to the period after retirement when an individual is not yet eligible for Medicare (usually before the age of 65) and has to pay for health insurance.
If you have been relying on your employer's group health insurance, your coverage will likely end. However, you can check with your employer's HR department to see if you are entitled to continue your existing coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act).
COBRA coverage typically lasts up to 18 months after leaving your job, but there may be exceptions related to Medicare, disabilities, or other factors that could extend the coverage for up to 36 months.
You can purchase health insurance from a private insurer directly or through an intermediary, such as an insurance broker. You can also purchase private insurance through the health insurance marketplace established by the government after the passage of the Affordable Care Act (ACA). Additionally, you can explore Medicare Supplement Insurance (Medigap) plans offered by private health insurance companies to help cover out-of-pocket costs.
The best time to buy a Medigap policy is during the Medigap Open Enrollment Period, which is a 6-month period starting from the first day of the month you turn 65 and enroll in Medicare Part B.
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