Here’s why dropping Medicare for employer coverage may come with snags

For retirees on Medicare who head back to work, the move could provide the option of employer-based health insurance.

And given the various costs associated with Medicare, the employer’s plan might be cheaper. Yet before you drop parts of Medicare with the idea of picking them up down the road, be aware that there could be snags.

While the current number of retirees who re-enter the workforce is hard to come by, the share of people age 65 or older still working has been steadily rising for years.

For people age 65 to 74, it’s projected to reach 30.2% in 2026, up from 26.8% in 2016 and 17.5% in 1996, according to the Bureau of Labor Statistics. Among those age 75 and older, the share projected to be working in 2026 is 10.8%, up from 8.4% in 2016 and 4.6% in 1996.

Dropping Medicare, Key Points

The share of people age 65 to 74 in the workforce is projected to reach 30.2% in 2026, up from 26.8% in 2016 and 17.5% in 1996.

 

If you return to work and have the option of dropping Medicare for group coverage at your job, be aware of the rules that apply to the switch, as well as those you’ll face when you eventually want to pick it up again.

 

The Social Security Administration will want to talk to you before you make the decision.

Most retirees pay no premiums for Medicare Part A, which provides hospital coverage. Part B, which covers outpatient care, comes with a standard monthly premium of $144.60 for 2020 (although higher earners pay more). Part D, which provides prescription drug coverage, has a 2020 base premium of $32.74. Higher earners pay more for that coverage as well.

Some people choose to go with an Advantage Plan and receive their Medicare Parts A, B and D benefits (and often extras like dental and vision) through that option. Those plans also often come with a premium.

Assuming you are receiving Part A for free, there are two things to be aware of that could put a snag in your plan to drop Medicare Part B and switch to a qualifying employer option. (Be aware, too, that the rules are different for employers with fewer than 20 workers.)

For starters, if a health savings account, or HSA, comes with the employer’s group coverage — in other words, it’s a “high-deductible” health plan — you cannot make contributions to an HSA while on Medicare, even if only Part A.

For 2020, a high-deductible health plan is one with a deductible of at least $1,400 for an individual and $2,800 for a family, with maximum annual out-of-pocket costs (not counting premiums) of no more than $6,900 and $13,800, respectively. That excludes out-of-network costs.