How to Transition from Private Health Insurance to Medicare

MedicareHealthcare

Aug 7

How to Transition from Private Health Insurance to Medicare Vision Retirement CFP RIA financial planning investment management fiduciary financial advisor Ridgewood NJ bergen County Poughkeepsie NY.

Moving from private health insurance to Medicare isn’t as straightforward as you may think. For example, if you plan on continuing employer coverage after enrolling, keep in mind a few program rules may differ based on your employer's plan. This post addresses many of these same complexities to help make your transition as smooth as possible.

Determine your enrollment period

If you’ve received Social Security or Railroad Retirement Board benefits for at least four months prior to turning 65, the government will typically automatically enroll you in Medicare Part A and Medicare Part B (Original Medicare) at age 65—with your Medicare card often arriving in the mail with instructions three months prior to your birthday.

All other eligible folks enjoy an initial seven-month window to enroll in Medicare, with this enrollment period beginning three months before age 65 and ending three months after your birthday month. If you sign up before your 65th birthday, your coverage will start the first day of the month you turn 65. If you enroll at a later point within your window, meanwhile, coverage kicks in the first day of the following month. Keep in mind that you can apply for benefits either online or over the phone.

If you miss your initial enrollment period, don’t panic! You have the option to sign up during the Medicare General Enrollment Period (January 1-March 31), with your coverage starting the month after you do so. However, you may be charged a penalty if you lack an SEP (special enrollment period), allowed in light of specific life events—such as losing employer coverage.

Familiarize yourself with how Medicare works alongside your private health insurance

If you're under 65, plan to extend participation in an employer-based health insurance plan (including COBRA)—even after you enroll for Medicare—knowing that Medicare may work a little differently for you than others enrolled in the program.

Generally, Medicare will act as your primary insurance: meaning that whenever you incur a healthcare expense, the bill is first submitted to Medicare. Assuming a balance on your bill exists, your secondary insurance would cover the remaining amount.

However, if you’re still on an employer group plan that covers 20 or more employees or is part of a multi-employer group health plan (generally one jointly sponsored by two or more employers), your employer plan will act as the first payer and then Medicare will kick in as a secondary one. This is true whether you have coverage through your employer’s plan or are covered through your spouse’s plan.

Determining which plan is your primary one will make it easier for you to manage your insurance going forward.

Decide when to enroll in Medicare

Medicare Part A
If you qualify for free Medicare Part A premiums (as most do) and lack or want to continue contributing to a health savings account, there’s no reason to postpone signing up. That’s because a lag could create a gap in your insurance coverage regarding inpatient hospital care, skilled nursing facility care, hospice care, and home health care—items covered by Medicare Part A (sometimes referred to as “hospital insurance”).

If you don’t qualify for free premiums and don’t buy in when you’re first eligible for Medicare, your monthly premium could increase by 10%. You’d also need to pay this late enrollment penalty for twice the number of years you didn’t sign up but could have. For example, if you were eligible for Part A for two years but didn’t sign up, you’d need to pay the higher premium over a span of four years.

Medicare Part B
Medicare Part B covers medical services and supplies necessary to treat your health condition: including visits to doctors and other healthcare providers, medical equipment, and ambulance services. All participants pay a monthly premium for Part B.

You must enroll in Medicare Part B if you lack “creditable coverage” from another source, such as an employer. In this scenario, you won’t pay a penalty for delaying Part B if you enroll within eight months of losing your coverage or ceasing work (whichever occurs first). You’ll also want to plan ahead and enroll in Part B at least a month before you stop working or your employer coverage ends to prevent a gap in coverage.

Keep in mind that if you lack “creditable coverage” and don’t enroll in Part B, you may be required to pay a 10% monthly premium fee for each 12-month period you could have had Part B but didn’t.

Medicare Part D
To qualify for this optional plan—which helps cover the cost of both brand-name and generic drugs—you must have Medicare Part A and/or Part B. You can obtain Part D through stand-alone coverage or a Medicare Advantage Plan, but no matter which option you choose, you must go through a private insurance company regulated by Medicare and sign up during a designated enrollment period: such as your Initial Enrollment Period, Annual Enrollment Period (October 15–December 7), or Special Enrollment Period (based on specific life events).

While Medicare Part D is optional, remember that if you forego credible prescription drug coverage for more than 62 consecutive days after you’re first eligible, you’ll need to pay a late enrollment penalty once you do in fact enroll. This penalty is generally permanent, and the amount you pay varies based on the amount of time you lacked Part D or credible prescription coverage.

Medigap policies
Offered through various insurance companies, Medicare Supplement plans (also known as Medigap policies) cover many out-of-pocket costs Original Medicare does not: such as copayments and deductibles. Some policies also cover medical expenses when you travel beyond U.S. borders—another service Original Medicare doesn’t offer. If a Medigap policy is right for you, it’s important to familiarize yourself with how the rules differ based on your health insurance.

For example, if Medicare is primary coverage and your employer’s plan is secondary, you have a guaranteed right to purchase a Medigap policy within 63 days of losing your primary coverage—meaning there’s no need to make a decision right away. However, if your employer’s plan is your primary insurance but Medigap policies are right for you, you should enroll during your initial seven-month enrollment period: meaning that insurers cannot deny you coverage or charge you more for any preexisting health conditions. Adding a Medigap policy outside of your enrollment period may cost you more overall, however. Even worse? Insurers can deny you coverage based on your health status. Specifics vary from state to state, so be sure to do your homework accordingly.

Other Medicare enrollment considerations

Your income and Medicare premiums
IRMAA—which stands for “income-related monthly adjustment amount”—is the additional amount you may need to pay alongside your Medicare premiums. Why? Because Medicare imposes surcharges on higher-income beneficiaries for Medicare Part B and Part D.

The surcharge is calculated based on tax returns you reported from two years prior: meaning your 2023 income determines your IRMAA in 2025, your 2024 income determines your IRMAA in 2026, and so on.

For those unfamiliar with IRMAA, this two-year lag can result in unpleasant surprises when you first enroll in Medicare—especially if your income declines substantially after you retire. IRMAA can also creep up later in life when you begin taking RMDs (required minimum distributions), as the additional amount is reevaluated every year based on your previous two years of income. It’s therefore important to plan for Medicare a few years before you enroll.

That said, one approach to mitigating or even avoiding Medicare surcharges is to file an appeal—especially in light of a life-changing event that may qualify for IRMAA reconsideration. These include:

· The death of a spouse

· Marriage

· Divorce or annulment

· Reduction of hours worked (or a complete cessation)

· Reduction in or loss of pension income (due to a default, scheduled cessation, etc.)

· Loss of income-producing property beyond beneficiary control (such as a disaster, theft, or similar circumstance)

· Employer settlement payment wherein you or your spouse receives a settlement from an employer (or former employer) due to said employer’s bankruptcy or reorganization

The quickest and easiest way to file an appeal is via online filing form SSA-44 through the Social Security website, but you can also do so over the phone (800-772-1213) or by contacting your local Social Security office. Note that you should appeal only after receiving notice that your Medicare premiums for Part B and Part D (prescription drug coverage) include IRMAA.

Long-term care
According to the U.S. Department of Health and Human Services, there is an almost-70% chance someone celebrating a 65th birthday today will need some type of long-term care (LTC) services in the future—with an estimated 20% requiring care for more than five years. Unfortunately, many people incorrectly assume that Medicare covers long-term care. The truth is, however, that it doesn’t—except in very limited circumstances.

Long-term care is also very expensive. For example, recent Genworth data estimates median annual home health aide costs are $68,526 (and growing!) in the state of New Jersey. Even if you plan on retiring in a warmer locale such as Florida, know that median costs are $57,200 in the Sunshine State. Fortunately, you do have a few options to ensure your long-term care needs are covered—which you can read about here .

Medicare Advantage plans
Medicare Part C, also known as Medicare Advantage plans, are “bundled” or “all-in-one” plans that provide an alternative to Original Medicare (Parts A and B) and are offered by private companies pre-approved by Medicare.

Akin to private health insurance, most plans operate similar to a health maintenance organization (HMO) or preferred provider organization (PPO). While HMOs require you to see doctors and other providers within the plan’s network and service area for the lowest costs, PPOs allow members to seek out-of-network care (which often comes with a heftier price tag).

The biggest benefit of joining a Medicare Advantage plan is additional coverage for services Original Medicare doesn’t cover. Examples include vision, dental, hearing, fitness programs, home health aides, in-home safety device installation, prescription drug coverage, and additional services such as transportation to medical appointments—none of which are covered by Original Medicare. Click here to determine if Medicare Advantage is right for you.

In sum: transitioning to Medicare

As you can see, Medicare is an extremely complex and dynamic program; perhaps that’s why a recent Harris Poll survey claimed more than seven out of every ten future retirees (over age 50) yearn to better understand it! By reading this post and browsing our Medicare article library, you’ll hopefully feel better prepared while looking ahead to enrollment.