How to Transition from Employer Insurance to Medicare

First, it’s important to know when to make the switch.

If you’re retiring at 65, you must sign up for Medicare Part A and Part B during your Initial Enrollment Period. Missing this window can lead to penalties and policy gaps.

On the other hand, if you continue to work past 65 and your employer has over 20 employees, you can hold off on enrolling in Medicare until you retire. This way, you won’t face any penalties for late enrollment.

Sometimes, dealing with all the paperwork can be overwhelming. This is where a licensed financial advisor specializing in Medicare can be incredibly helpful.



The entire process might seem overwhelming, but it doesn’t have to be. Here’s how you can make your transition as smooth as possible.

Key Takeaways

• Enroll in Medicare during the Initial Enrollment Period at 65 to avoid penalties.
• You can delay Medicare enrollment if you're working past 65 for a large employer.
• Coordinate Medicare and employer coverage to avoid coverage gaps.
• Use resources and websites for guidance and support.
• Consult a licensed financial advisor to navigate the Medicare transition process.

Difference Between Employer Insurance and Medicare

First things first, let’s identify the key differences between these two options:

Source of Coverage: Employer insurance is provided by private companies as part of an employment benefit. Whereas Medicare is a government program administered by The Centers for Medicare and Medicaid Services (CMS).

Eligibility: If you’re a full-time employee, you might be eligible for employer-sponsored insurance. Medicare eligibility is primarily age-based (65 and older) or related to disability status.

Costs: In most cases, the employer pays at least 50% of the monthly premiums. The premiums you pay will be deducted from your paycheck. Meanwhile, Medicare enrollees pay a standard monthly premium for Part B. What you pay for Medicare Advantage Plan, Part D, and Medigap varies by plan.

Understand the Basics of Medicare

Let's break down the basics of Medicare in a way that's easy to understand.



Medicare is a health insurance program run by the government, primarily for people who are 65 and older. Some younger individuals with specific disabilities are also eligible for Medicare. Here’s a quick guide to its different parts:

Medicare Part A: Think of this as your hospital insurance. It covers things like inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care.

Medicare Part B: This is your medical insurance. It helps pay for outpatient care, doctor visits, preventive services, and ambulance services.

Medicare Part C (Medicare Advantage): These are plans offered by private insurance companies. They include everything in Parts A and B, and often add extra benefits like dental, vision, and hearing.

Medicare Part D: This part provides prescription drug coverage.

Medigap (Medicare Supplement): These plans help pay for out-of-pocket costs that Original Medicare doesn’t, like copayments, coinsurance, and deductibles.

Select Your Primary Insurance Coverage

Suppose you’re still working past 65 and have insurance through your employer. When you retire, you can switch to Medicare without any gaps in coverage by signing up for Original Medicare.



Medicare coverage can be coordinated with employer insurance to determine which will serve as your primary coverage, ensuring seamless benefits. It's advisable to consult your employer's benefits administrator for detailed information about your specific situation.

Determine When You’re Eligible for Medicare

Switching from employer insurance to Medicare involves understanding when and how to make the transition to avoid penalties and gaps in coverage.

To be eligible for Medicare, you need to be age 65 or older. Along with age, you must be a U.S. citizen or a legal permanent resident for at least five years. People under 65 may qualify if they have certain conditions like end-stage renal disease.



Once you meet the age requirement and other conditions, you can start your transition process. If you’re still employed and have group health coverage, make sure your employer plan is considered "creditable coverage." This helps you avoid penalties when enrolling in Medicare.

Enrollment Periods and Deadlines

Initial Enrollment Period (IEP): This is a seven-month window around your 65th birthday. It starts three months before your birthday month and ends three months after.

For example, if you turn 65 in July, your IEP is from April to October. Signing up during IEP helps you avoid late penalties and ensures you have coverage when you need it.

If you miss this period, you might have to wait until the General Enrollment Period (GEP) from January 1 to March 31 each year, with coverage starting on July 1. This could mean months without coverage and possible late penalties.

Special Enrollment Period (SEP): If you’re working past 65 and have group health insurance, you might qualify for an SEP. This enables you to sign up for Medicare without facing penalties under these circumstances:

• When you retire or leave your job.
• When your employer's health coverage ends.



To activate the SEP, you need to fill out specific forms, including a form from your employer confirming your health plan status. The SEP lasts eight months from the end of your employment or the end of your employer coverage, whichever comes first.

Small vs. Large Employers

The size of the company you work for can impact how you switch to Medicare.

If you work for a small employer (fewer than 20 employees), Medicare becomes your primary coverage once you turn 65.

This means when you have a healthcare expense, the bill goes to Medicare first. If there’s anything left to pay after Medicare covers its part, your secondary insurance or employer coverage will take care of the rest.

However, for large employers (20 or more employees), your employer’s insurance remains primary, and Medicare is secondary.

This means that your employer’s insurance will pay first, and Medicare will act as secondary coverage. This is true whether you’re on your own employer’s plan or covered through your spouse’s plan.



If you're still working, you can delay enrolling in Part B without facing penalties since your employer plan covers most costs.

Be Aware of Health Savings Account Considerations

If you have a Health Savings Account (HSA), there are specific rules when transitioning to Medicare. You cannot contribute to it once you enroll in any part of Medicare, including Part A.



Before enrolling, make the most of your HSA contributions. These funds can still be used for qualified medical expenses once you're on Medicare. It’s also recommended to consult your benefits advisor to understand any tax implications when you stop contributing to your HSA.

Assess Costs and Fees for Medicare Parts

Switching from employer insurance to Medicare can bring about several financial considerations. Let's break down the costs, potential penalties, and ways to save.

When you enroll in Medicare, understanding the costs involved is essential.

Medicare Part A typically covers hospital stays and is usually free if you’ve paid Medicare taxes for at least 10 years.

Medicare Part B covers outpatient care, medical services, and durable medical equipment. You’ll have to pay a monthly premium, which starts at around $174.70 as of 2024.

For comprehensive care, consider Medicare Advantage Plans. Since these plans offer additional benefits like dental and vision, they can come with higher premiums.



Additionally, Medicare Part D covers prescription drugs, with separate premiums and deductibles. Make sure to compare different plans to find one that fits your healthcare needs and budget.

Late Enrollment Penalties

If you delay enrolling in Medicare Part B without credible coverage, your premium could increase by 10% for each 12-month period. This penalty may last for as long as you have Medicare.



Similarly, delaying Part D Prescription Drug Coverage can lead to a late enrollment penalty. This is calculated by multiplying 1% of the "national base beneficiary premium" by the number of full, uncovered months you didn't have Part D or other creditable coverage. Make sure to enroll on time to avoid these unnecessary costs.

Helpful Resources for Your Medicare Journey

Knowledge is power, especially when it comes to complicated topics like Medicare. The good news—several resources are available to help you with your transition:

Social Security: Medicare and Social Security are two separate programs. However, the Social Security Administration handles enrollment for many Medicare beneficiaries. They can assist you with signing up for Original Medicare (Part A and Part B). You can apply online, over the phone, or in person at your local Social Security office.

Centers for Medicare & Medicaid Services (CMS): The CMS website is full of detailed guides about your Medicare options, coverage, and enrollment.



State Health Insurance Assistance Program (SHIP): SHIP offers no-cost counseling on Medicare. This federal program exists in every state. If you're unsure about your Medicare options, you can contact SHIP for personalized assistance over the phone or face-to-face.

Frequently Asked Questions

Here are some common questions that many people have during the transition process.

Secure Your Healthcare Future With Confidence

Switching from employer insurance to Medicare can feel like a big change. But you don’t have to do it alone. Our expert team at Leonard Financial Solutions is here to guide you through every step.

Whether you’re retiring or continuing to work past 65, we got you covered. Our goal is to help you understand your options, avoid penalties, and select the best Medicare plan for your needs.



Reach out to us today for a free consultation!