Here's how to navigate Medicare if you return to work after retiring

Sometimes, retirement doesn’t end up sticking.

If the workforce is luring you back after you retired and you’re already on Medicare, you may be able to choose whether to drop your coverage in favor of an employer health plan and then re-enroll down the road. However, there are a lot of rules and deadlines to know if you go this route.

For starters, the size of the employer offering the health plan matters. While workers at companies with fewer than 20 employees generally need to be enrolled in Medicare once they reach age 65 to avoid paying extra later, people at larger companies may have choices.

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Basic Medicare consists of Part A (hospital coverage) and Part B (outpatient care). Some beneficiaries pair that with a standalone Part D prescription drug plan and a Medigap policy (which covers some costs that come with basic Medicare). Others choose to get their Parts A and B benefits delivered through an Advantage Plan (Part C), which usually includes Part D.

Part A comes with no premium as long as you have a 10-year history of contributing to the program through payroll taxes. For 2022, Part B comes with a standard monthly premium of $170.10 and Part D premiums will average $33 this year (higher earners pay more for both).

If you’re considering working for a small employer, you’d need to keep both Parts A and B even if you end up enrolling in the firm’s health plan.

“If they go back to work for an employer with less than 20 employees, they’ll want to keep both Part A and B because Medicare is primary and the group coverage is secondary,” said Danielle Roberts, co-founder of insurance firm Boomer Benefits.

It also may not make financial sense to choose the group plan instead of, say, a Medigap policy or an Advantage Plan.

“Sometimes health coverage at a small employer costs considerably more,” Roberts said, adding that it’s worth crunching the numbers before making a determination.

If the employer’s plan ends up being a good fit, you can disenroll from your prescription plan if the group coverage is as good as or better than (“creditable”) Part D benefits.

If you’re looking at a health plan at a company with 20 or more employees, be aware of a few potential snags.

First, if the work-based coverage comes with a health savings account, you cannot contribute to it if you remain on any part of Medicare, including just Part A.

And, canceling Part A solely to take advantage of an HSA may not be practical.

“If they’ve already begun taking Social Security retirement benefits, they cannot cancel Part A without having to pay back all the benefits they received from Social Security so far,” Roberts said.

If you do want to use the employer health plan, you could drop Part B and save on those premiums. Be sure to confirm that your employer plan would be considered creditable coverage for Part D. Your insurance company should provide you with that information.

“Those HSA plans might be okay for Part B but not Part D,” said Elizabeth Gavino, founder of Lewin & Gavino and an independent broker and general agent for Medicare plans.

Additionally, if you have a Medigap policy, you’d have to drop that, as well.

However, down the road when you would pick up Part B again, you’d get a new six-month window to buy a Medigap policy without underwriting, Roberts said.

“It is one of the very few ways a person can get a second Medigap open enrollment window,” she said.

There are other deadlines to be aware of when you eventually do lose your coverage and want to switch to Medicare, and, often, requirements for proof that you had qualifying coverage.

Once you stop working, you get an eight-month window to enroll or re-enroll in Part B. You could face a late-enrollment penalty if you miss it. For each full year that you should have been enrolled but were not, you’ll pay 10% of the monthly Part B standard premium.

To sign up for Part D — whether as a standalone plan or through an Advantage Plan — you’d get two months after your workplace plan ends. If you miss that window, you could face a late enrollment penalty. That amount is 1% of the base premium for each full month that you could have had coverage but didn’t.

Likewise, if you want an Advantage Plan, you only get two months from when your work coverage ends. If you miss that, you’d have to wait until the next enrollment period.

For those who may cycle in and out of the workforce and therefore in and out of workplace insurance: Each time you lose the coverage, the eight-month window restarts, according to the Centers for Medicare & Medicaid Services.

In other words, if you go to another employer that offers qualifying coverage before that timeframe runs out, you’re in the clear. The next time you drop it, that window restarts. However, remember that for drug coverage, it’s two months.

As for providing proof of coverage: Once you no longer have it through work, the insurer should mail you a letter showing the dates you were covered in its plan.

For Parts A and/or B signup, you need to provide the Social Security Administration with a form from your employer that certifies you were covered, Roberts said.