Although retirement can be an exciting milestone, it inevitably raises many questions. Beyond replacing your paycheck, applying for Social Security, and scheduling the vacations you’ve postponed for years, you’ll need to secure health coverage that lasts throughout retirement. For most retirees, Medicare will be their primary option.
Eligibility for Medicare typically begins at age 65 and if you’re already receiving Social Security benefits, you’ll be automatically enrolled in Original Medicare Part A. If you’ve delayed claiming Social Security benefits, you’ll need to proactively enroll in Medicare. Failing to apply during your Initial Enrollment Period can result in steep premium penalties that last the duration of retirement.
However, if you or your spouse plan on working beyond age 65, while maintaining health insurance through either of your employers, you can defer Medicare enrollment without incurring penalties. In many cases, remaining on an employer’s health insurance plan can offer superior coverage at a lower cost than Medicare.
To help you make informed decisions, let’s review the basics of Medicare, highlight some of the coverage “gaps” Original Medicare presents, and explain why delaying enrollment can be advantageous.
Initial Enrollment Period (IEP)
The Initial Enrollment Period (IEP) is a seven-month window giving individuals the opportunity to enroll in Medicare. This period includes the three months before the month you turn 65, your birthday month, and the three months following it.
For example, if you turn 65 in June, your Initial Enrollment Period begins in March and ends in September:
If you don’t have access to an employer’s health insurance plan, it’s especially important to enroll in Medicare during this time. Failing to apply during this period, while not maintaining adequate health insurance, can result in permanent late enrollment penalties for both Medicare Part B and Part D. The Part B penalty equals 10% for each full year you could have signed up but didn’t, while Part D’s penalty equals 1% for every month you did not maintain proper drug coverage.
Lastly, it’s important to enroll during your Initial Enrollment Period because insurers cannot deny coverage for pre-existing conditions or consider them for pricing when applying for Medicare Advantage or Medicare Supplemental plans (more on these shortly). Once this time passes, you lose this assurance and can face limited insurance options.
Basics of Medicare, Medicare Advantage Plans and Medicare Supplemental Plans
Original Medicare Part A
Original Medicare Part A is hospital insurance, covering inpatient hospital stays, skilled nursing services, and some home health care and hospice care costs:
A benefit period begins the day you’re admitted to a hospital or skilled nursing facility and ends once you’ve gone 60 consecutive days without inpatient care or skilled nursing care. If you’re admitted again after one benefit period ends, a new benefit period begins and you’re once again responsible for the $1,676 deductible (2025).
* Note that Original Medicare Part A does not have a maximum out-of-pocket.
Original Medicare Part B
Original Medicare Part B is medical insurance, covering outpatient services:
Medicare Part B recipients pay the standard monthly premium of $185 (2025), while high income individuals may owe an additional monthly surcharge, as shown in the table below:
For example, a married couple with Modified Adjusted Gross Income (MAGI) of $750,001 or more in 2023 would each be subject to a $443.90 monthly Medicare Part B surcharge in 2025. Combined, these surcharges would cost them an additional $10,653.60 ($443.90 x 24) for Original Medicare Part B in 2025.
* Note that Original Medicare Part B does not have a maximum out-of-pocket.
Medicare Part D
Medicare Part D is prescription drug insurance offered by private companies not the government:
High income individuals may also be subject to a monthly surcharge for Medicare Part D:
For example, a married couple with Modified Adjusted Gross Income (MAGI) of $750,001 or more in 2023 would each be subject to a $85.80 monthly Medicare Part D surcharge. Combined, these surcharges would cost them an additional $2,059.20 ($85.80 x 24) for Medicare Part D in 2025.
* Note that Medicare Part D plans have a $2,000 maximum out-of-pocket (2025).
Medicare Part C
Medicare Part C, also known as “Medicare Advantage”, is a bundled alternative to Original Medicare offered by private insurers:
It’s ideal to enroll in a Medicare Advantage plan during your seven-month Initial Enrollment Period or Special Enrollment Period, as underwriting is not required and insurers cannot use your health or medical history to determine pricing or eligibility.
If you apply outside of these enrollment periods, insurers are able to consider your medical history and may charge higher premiums or even deny coverage altogether.
* Note that Medicare Part C plans have a $9,350 maximum out-of-pocket (2025).
Medigap
Medigap, also known as “Medicare Supplemental Coverage”, is supplemental insurance offered by private companies to help cover the “gaps” in Original Medicare, such as copayments, deductibles, foreign travel care, and out-of-pocket limits. To qualify for a Medigap policy, you must be enrolled in both Original Medicare Part A and Part B and cannot be actively enrolled in a Medicare Advantage (Part C) plan at the same time.
There are 10 Medigap plans standardized by the government and sold by private insurers:
Premiums and availability can vary between insurers and states, so it’s important to review your options to determine which plan meets your healthcare needs and budget. For example, Medigap Plan K and Plan L offer maximum out-of-pocket limits, but don’t provide coverage for emergency medical care outside the U.S. While the other eight plans don’t have maximum out-of-pocket limits, they do cover a larger share of copayments and coinsurance, and some offer coverage for emergency medical care while traveling internationally.
It’s ideal to enroll in a Medigap plan during your seven-month Initial Enrollment Period or Special Enrollment Period, as underwriting is not required and insurers cannot use your health or medical history to determine pricing or eligibility.
If you apply outside of these enrollment periods, insurers are able to consider your medical history and may charge higher premiums or even deny coverage altogether.
Delaying Medicare Enrollment
If you or your spouse remain covered by an adequate employer’s health insurance plan, you can delay applying for Medicare without facing permanent late enrollment penalties. In most cases, the employer plan must cover at least 20 employees to qualify as creditable coverage under Medicare rules.
It’s important to note that COBRA and Affordable Care Act (ACA) Marketplace health insurance plans are not considered adequate coverage, meaning they do not allow you to delay Medicare enrollment without penalty.
Why Delay Medicare Enrollment
If you’re a high earner, remaining on your employer’s health plan may actually be more cost-effective. Original Medicare Part B and Part D premiums are based on income, while employer coverage typically isn’t, and in many cases, the employer covers a substantial portion of the premium. If an individual is required to pay some or of all the premium, the payments are deducted directly from their W-2 wages or claimed as an income adjustment if they’re self-employed. In contrast, Medicare premiums are paid with after-tax dollars and are only deductible if you itemize your deductions and have significant medical expenses.
Although Original Medicare can offer low monthly premiums, the coverage is less comprehensive and doesn’t include annual max out-of-pockets. Whereas most group health insurance plans include an out-of-pocket limit, which is important if high medical costs are anticipated.
Another key consideration involves Health Savings Accounts (HSAs). Medicare is not an HSA qualified High-Deductible Health Plan (HDHP), meaning you cannot continue contributing to an HSA once enrolled. So, if maintaining HSA contributions is a priority and you have adequate coverage through an employer plan, you should consider delaying Medicare enrollment.
However, if you don’t plan to contribute to an HSA, while remaining on an employer’s group plan, you can enroll in Original Medicare Part A while delaying Part B and Part D. Assuming you’ve earned enough work credits (10 years of payroll taxes), Part A does not have a monthly premium and can provide supplemental inpatient coverage alongside your existing employer’s group plan.
If you choose to postpone Medicare enrollment, you’re given an eight-month Special Enrollment Period to enroll in Original Medicare Part B and a 63-day Special Enrollment Period for Medicare Part D without incurring permanent late penalties once your qualifying group health coverage ends. You’re also given a window of time to enroll in Medicare Advantage and Medigap plans without being subject to underwriting. During this process, you and your employer need to complete Form CMS-L564 to provide the Social Security Administration with proof of sufficient coverage for the period you deferred enrollment.
Bottom Line
Medicare can be daunting, but planning for healthcare before and during retirement doesn’t have to be stressful. Preparing ahead gives you confidence to choose the coverage that meets your needs and your budget.
While Original Medicare offers a solid foundation, gaps in the coverage can result in unexpected costs. So, take the time to review all the available options on medicare.gov before your Initial Enrollment Period or Special Enrollment Period end.
If you or your spouse plan to work past age 65, don’t feel obligated to enroll in Medicare because it’s common practice. If you’re high earners, staying on your employer’s group plan is often the most cost-effective choice. We recommend confirming with your HR department that your group coverage is considered “creditable”, as enrolling in Medicare may be unnecessary and could result in paying premiums without receiving any additional benefit.
Although we don’t offer Medicare Advantage or Medicare Supplemental plans, we regularly help clients navigate the complexities of healthcare in retirement and understand their available options. So, please don’t hesitate to reach out if you have questions. We’d be happy to help.