If you are considering retiring soon or have already retired, it is important to have a health insurance plan. Many people depend on employer health insurance, so what do you do when you retire?

Although Medicare is a well-known program, you may be wondering how to apply and what is covered.

How to apply for Medicare

Medicare is available to people age 65 and over, and to some people under age 65 with qualifying disabilities. Even if you are not yet retired, you can apply for Medicare. You can apply online through the Social Security Administration by filling out the form, which usually takes less than ten minutes. You can find the application form online here. You can also call the Social Security Administration at 1-800-772-1213 to apply, or you can also visit your local Social Security office. Typically, there is nothing to sign and no documentation required although more information or identification may be requested. Keep in mind, you must apply four months before you would like the benefits to start.

The open enrollment to apply starts three months before the month you turn 65 and extends three months past the month you turn 65, giving you a seven-month window. It is best practice to apply early. Medicare can impose hefty financial penalties if you apply late, so make sure you enroll during the enrollment window. You will most likely pay at least 10% more if you enroll late. If you do not enroll during your enrollment window, you still have the opportunity to enroll between January 1st and March 31st in each of the following years. However, the longer you wait, the more it will cost as the penalty goes up 10% each year.

Medicare and Social Security

If you have already started Social Security, there is no need to apply for Medicare. Medicare Part A and B will start automatically when you become eligible because you have already applied for Social Security benefits. You should receive a “Welcome to Medicare” packet three months before you turn 65. If you would also like to enroll in Part D, you should do that at the time you receive your welcome packet. If the seven-month enrollment window ends, you will have to pay more to add it later.

Once on Social Security, you will no longer receive a bill from Medicare. All premiums are automatically deducted from your Social Security check. If you have an HSA account, you can take a tax-free withdrawal to “reimburse” yourself for the lost Social Security. If you are not enrolled in Social Security at the time you wish to start Medicare, you will receive a bill and may mail a check to the plan or arrange electronic transfer from your bank account.

Medicare While Still Employed

Those who are still working at age 65 are not obligated to enroll. Typically, you can enroll once you retire without paying fines even if you are over age 65. After leaving your employer, you have an eight-month window to enroll before receiving penalties. However, if you work for a company with fewer than 20 employees, this may not be the case. Talk to your employer and your financial advisor to determine the best time for you to enroll.

Even if you are on a large group health plan, you can still apply for Medicare when you become eligible. Although some people believe this will save them money because they have two insurance policies, this often isn’t the case. When you are covered by a large group plan and enroll in Medicare, Medicare is considered your secondary insurer. This means that Medicare will only pay the excess after your primary insurer pays, and only if Medicare limits exceed those of your primary insurer. Typically, employer plans have higher limits than Medicare, and therefore Medicare pays nothing. For this reason, enrolling in Medicare while you are still covered by an employer plan may not benefit you.

What does Medicare cover?

Medicare has four parts to cover different areas of health care.

– Part A covers hospital stays. It is typically premium-free.

– Part B covers physician fees. The premium starts at $144.50 per month (in 2020) and increases depending on income.

– Part C, also called Medicare Advantage Plans, are bundled plans offered by private companies and approved by Medicare. Medicare pays a fixed amount for your care each month to the companies offering Medicare Advantage Plans. Medicare Advantage Plans include Medicare Part A, B, and frequently D, as well as offering extra benefits such as vision, dental, and wellness care. This takes the place of a Medicare Supplement Plan. The monthly costs are very low, but you may be limited on choices of doctors and networks. There is usually a high annual deductible if you do need to utilize the coverage.

– Part D covers prescription medications. It is provided through private companies who have contracts with the federal government. Premiums vary based on income.

Medicare does not cover long-term care costs. Work with your fee-only financial planner to find a long-term care plan appropriate for your needs. Remember, fee-only advisors do not sell products or receive commissions. We hold a fiduciary responsibility and will only give recommendations based on your needs.

How does Medicare work with my other insurance?

If you sign up for Medicare but continue to have other coverage (employer-sponsored group plan, COBRA coverage, veteran’s benefits, etc.), it is important to understand who pays first. If you do not enroll in Medicare because you have other coverage but are eligible, you may get surprise bills that were not covered because your coverage is considered secondary to Medicare and will only pay above what Medicare would have paid if you had enrolled.

For example, if you are covered by an employer group plan covering 20 or more employees, this plan would be considered the primary plan and Medicare would be considered the secondary plan. The employer-based plan would pay medical bills first. If it is a small group plan (fewer than 20 employees), or COBRA coverage, Medicare is the primary plan. If you aren’t enrolled in Medicare, the part Medicare should have paid will be billed to you, and the group plan will only pay expenses over that amount.

For a deeper understanding of who pays first, reference Medicare’s guide.