More Americans are working past age 65 than ever before. But many are making costly Medicare mistakes along the way, often without realizing it until it’s too late.

One of the biggest risks? Incurring a permanent Medicare penalty.

The good news is that these mistakes are avoidable. Here are three of the most common ones and how to steer clear.

Mistake #1: Delaying Medicare Without Realizing Employer Rules Apply

Whether you can safely delay Medicare depends on your employer’s size.

• More than 20 employees: If you are actively working and covered by a group health plan from an employer with 20 or more employees, you can usually stay on your employer health plan and delay Medicare Part B without penalty. Your employer coverage remains primary, and you’ll qualify for a Special Enrollment Period (SEP) when you retire.
• Fewer than 20 employees: Medicare becomes your primary insurance at age 65. If you don’t enroll, you could end up with coverage gaps and penalties.

This is particularly important for business owners or sole proprietors to understand.

If you miss key enrollment rules, you could face a Part B late enrollment penalty that lasts for life. The penalty adds 10% to your monthly premium for every 12 months you delay enrollment. Over a long retirement, that can mean paying thousands of dollars more than you should. Even a short delay can increase your lifetime premiums.

What to do:

If you plan to keep working past 65, confirm with your HR and/or benefits team that the coverage is considered “creditable,” or perhaps more precisely, is coverage based on active employment (as defined by Medicare). This is important, as you will need to prove to Medicare that you had creditable coverage when you come off your employer’s insurance to avoid penalties.

Mistake #2: Contributing to an HSA After Enrolling in Medicare

Health Savings Accounts (HSAs) can be a valuable way to set aside pre-tax money for future healthcare expenses. If you have an HSA, there’s a critical rule: You can’t contribute to an HSA once you’re enrolled in Medicare.

That includes enrolling in only Medicare Part A, which many people do at 65, even when working, because it’s premium-free (if you or your spouse has paid Medicare taxes while working).

Any contributions made after you enroll in Medicare are considered excess contributions and can trigger:

• A 6% tax penalty on the excess amount
• This is repeated annually every year the excess stays in the account

But there’s another wrinkle: When you enroll in Medicare after 65, Part A coverage will date back or be retroactive for up to six months. That means contributions made in that six-month period could also be treated as excess and penalized.

What to do: 

Stop HSA contributions at least 6 months before enrolling in Medicare. If you already overcontributed:

• Withdraw the excess contributions (and any earnings on them) 
• Do it before your tax filing deadline to avoid ongoing penalties

Mistake #3: Relying on COBRA or Marketplace Plans to Bridge Your Medicare Gap

This is one of the most common and costly missteps. As you leave work, you might think, “I’ll take COBRA and enroll in Medicare when it ends.”

However, COBRA or marketplace (ACA) plans will not extend your Medicare deadline. In fact, COBRA and marketplace plans do not qualify as coverage based on active employment for Medicare Part B enrollment purposes, although COBRA can be creditable for Part D, depending on the plan. Therefore, both COBRA and ACA marketplace plans are not considered “creditable” coverage by Medicare, although COBRA can be creditable for Part D depending upon the plan, meaning you will accrue a Part B penalty, and neither qualify you for a Special Enrollment Period once coverage ends.

Here’s how the timing works:

• When you retire from a qualifying employer plan, you have an eight-month Special Enrollment Period to sign up for Medicare Part B without penalty.
• The clock starts when your employment ends or your employer coverage ends, whichever comes first.

If you miss that window, your next chance to enroll is the General Enrollment Period, which is every year from January through March. By then, the late penalty may have already started accruing.

Plus, there’s a second timing issue to be aware of: While you have eight months to enroll in Part B, you only have 63 days to enroll in a Medicare Advantage plan or a standalone Part D Prescription Drug Plan from when your employment coverage ends. If you miss that window, you may have to wait until the end of the year, during Open Enrollment, to enroll in a plan for the next year.

What to do:

If you’re planning to leave work after 65, build Medicare into your exit timeline. Ideally, enroll so your coverage starts the first of the month after your employment ends. Even if you use COBRA temporarily, it’s usually safest to enroll in Medicare within a few months of leaving your job to avoid gaps and penalties.

The Bottom Line

Medicare rules can feel like fine print, but they can cost you. Employer size, HSA contributions, and COBRA/marketplace coverage can all lead to penalties that may last a lifetime.

If you’re unsure about timing or plan choices, working with a licensed Medicare agent can help you compare options and stay on track.

The good news is you don’t have to figure it out alone. Wealth Enhancement has partnered with CoverRight so you can talk directly with a licensed Medicare agent who will walk you through the rules, help you understand your options, and compare plans from top insurance carriers in your area at no cost to you. Click here to speak with a CoverRight licensed Medicare agent.

If you’re approaching 65 and still working, it’s worth taking the time to understand how Medicare fits into your plan.

Some content provided by CoverRight. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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