Chapter 4: Things to Watch Out For
For people working over 65, there are two unique items to watch out for:
1) Health Savings Account(HSA)
If you decide to stay on your employer coverage when you turn 65 (and this applies to companies with 20 or more employees), in most cases, you can simply sign up for just Medicare Part A and delay Part B until you retire. Part A has no cost for most people and it gets your name in the Medicare system.
However, there is an exception to our recommendation. The only time we don’t recommend you signing up for Medicare Part A when you turn 65 is if you are contributing to an HSA.
HSAs, or “health savings accounts” are paired with high deductible plans. You can put money pre-tax into an HSA and it rolls over each year if you don’t use it. The tricky thing with Medicare is that once you sign up for Part A, you cannot contribute any more money into your HSA.
However, you can still keep and use the money there for medical expenses. To be able to keep contributing to your HSA after 65, don’t sign up for any parts of Medicare. You will not be penalized as long as you stay employed and are on your employer’s plan.
Down the road, when you are ready to retire and would like to sign up for Part A, stop contributing to your HSA 6 months prior to part A enrollment, otherwise you’ll have to pay taxes on the money you’ve put in for those 6 months.
2) COBRA
From our experiences, one tricky scenario when it comes to Medicare planning has to do with COBRA. COBRA is the ability to continue your coverage from work for typically up to 18 months after you leave.
If you're eligible for Medicare, we do not recommend that you go on COBRA and that’s Medicare doesn't recognize COBRA as creditable coverage, even though it's the same coverage you had at work. Medicare doesn't recognize it because you're no longer an active employee, so in that case you would still have to sign up for Medicare Part B , and pay that $174.70(2024) per month.
COBRA is frankly very expensive, the average COBRA ranges $600-800 per person per month, so COBRA is usually not a good bet if you are eligible for Medicare. It can cause a lot of grief when it comes to billing coordination and Medicare penalties if you delay part B enrollment.