I’m 65 and Still Working. Should I Enroll in Medicare?

A growing number of Americans are working past age 65—typically the age when you enroll in Medicare. But if you’re still getting health insurance through your employer at that age, does it make sense to move to Medicare?

The best answer to that question depends on factors unique to you, including:

• The features and cost of your current insurance.
• The size of your employer’s firm and your income.
• Your health.
• How you want to receive healthcare.

When navigating the question “When should I enroll in Medicare?” it’s important to step carefully in order to avoid stiff late enrollment penalties for Medicare Part B (outpatient services) and smaller penalties for Part D (prescription drugs).

Let’s walk through the rules on timing your Medicare enrollment, and the tradeoffs of these decisions.

When Should You Enroll in Medicare?

Medicare rules require that you sign up during a seven-month initial enrollment period that includes the three months before, the month of, and the three months following your 65th birthday.

Not enrolling during that window triggers substantial late-enrollment penalties levied in the form of higher premiums for Part B and Part D that continue for life.

There is one important exception to this rule: You can delay enrollment without penalty if you are still working beyond age 65 and have insurance through your employer, or if you receive insurance through your spouse’s employer.

And, there is one exception to this exception. If you work for a firm with 20 or fewer employees, you’ll need to sign up for Medicare—it becomes your primary insurer at age 65.

“In order to have complete coverage, you should enroll at that point,” says Diane Omdahl, co-founder of 65 Incorporated, a firm that advises people on Medicare enrollment. “It’s up to your employer at that point whether or not you can also keep your insurance through work as a secondary form of coverage.” (Failing to enroll in Medicare at this point won’t subject you to late penalties—it simply makes sense from a coverage standpoint.)

What Are the Late Enrollment Penalties for Medicare Part B?

The late enrollment premium penalty for Part B is equal to 10% of the standard Part B premium for each 12 months of delay.

This is a lifetime penalty, meaning the increased premium is permanent, and it escalates along with the cost of Medicare since it is levied as a percentage of the standard Part B premium. That could saddle you with thousands of dollars of extra expenses over the course of retirement.

What Are the Late Enrollment Penalties for Medicare Part D?

The late enrollment rules for Part D are a little different.

You can postpone enrollment so long as you have other creditable coverage. Credible coverage is Medicare-speak for coverage that is expected to pay on average as much as the standard Medicare prescription drug coverage.

This is the case even if your drug coverage is not based on current, active employment. And if you do make a mistake, the lifetime late enrollment penalty is less onerous than the Part B penalty—it is equal to 1% of the national base beneficiary premium for each month of delay ($31.50 per month this year).

What to Know about Medicare Part A

If you’re still working at age 65 and planning to stick with your employer’s insurance, you may be wondering if only signing up for Part A is the best option to avoid late enrollment penalties—after all, there’s no premium for Part A.

But that’s not the case. Instead, when you enroll in Part B, you’ll need to complete Medicare form CMS-L564 (your employer will need to add information as well), and submit this alongside your Medicare application. This form verifies that you had employer coverage at age 65 and beyond, and protects you from late penalties.

That said, enrolling in Part A can be useful for people enrolled in high-deductible insurance plans at work, notes Omdahl, who also is the author of a useful Medicare guide book.

“In some of these cases, the employer insurance hospital deductible is higher than the Medicare deductible—or the plan might not cover a stay in a skilled nursing facility for rehab,” she says.

But here again, there’s a trade-off. If you are enrolled in a high deductible plan and contributing to a health savings account, your contributions must stop six months before your Part A effective date, because Medicare is not considered to be high-deductible insurance. You can continue to make withdrawals, however.

Avoiding Other Costly Medicare Errors

Aside from employer coverage, other types of health insurance can also lead to costly Medicare transition problems.

COBRA insurance. Let’s say you lose your job at age 63 and sign up for your former employer’s COBRA insurance plan, which allows employees to pay for the same coverage for as long as 36 months after leaving a job. When your 65th birthday rolls around, you might be happy with the COBRA coverage—and perhaps you’re also using it to cover a spouse. So, you decide to keep the COBRA for one more year until it runs out.

This coverage comes from an employer, so it should protect you from Medicare’s late enrollment penalty, right?

Unfortunately, that’s wrong.

The key exception to the mandatory sign-up at age 65 is for people who are still actively employed at that age and for their spouses. You may delay enrollment in Medicare so long as you are actively employed, and a spouse can also remain on your employer coverage past age 65. But the key phrase here is “actively employed”—and COBRA coverage doesn’t qualify you for this exception.

Affordable Care Act coverage. Transitioning from coverage through the Affordable Care Act marketplace exchanges is also a common trip-up point. Sometimes, people who have ACA policies think they can keep them past age 65, but that also triggers Medicare late enrollment penalties.

Retiree insurance. Health insurance that some retirees receive from former employers usually includes supplemental help meeting cost-sharing requirements or prescription drug coverage. This coverage generally is secondary to Medicare—some retirees make the error of turning down Part B coverage in the belief that this supplemental coverage is primary—and end up with no primary coverage.

Still Working? When it Makes Sense to Switch to Medicare

If you’re working past age 65 for a larger firm (20 or more employees), the choice is yours. Here are some key considerations:

Spouse and family coverage. Medicare coverage is for individuals only, so if your spouse or children are covered by your employer’s plan, you’ll want to stick with it. However, it might make sense for a spouse who has reached age 65 to enroll in Medicare if that allows the employed spouse to shift their workplace plan from family to single coverage.

Prescription drug coverage. Many prescription drugs are covered by Part D plans, which do not currently have out-of-pocket maximums. That is changing due to provisions of The Inflation Reduction Act, which will cap out-of-pocket spending in Part D plans, with the controls coming in two phases.

In 2024, Medicare’s current requirement that enrollees pay a 5% coinsurance above the Part D “catastrophic threshold” will be eliminated. This will provide critical help to beneficiaries who now pay 5% of the cost of very expensive drugs. And starting in 2025, no enrollee will be required to pay more than $2,000 out of pocket per year.

The new law also empowers Medicare to begin negotiating drug prices with pharmaceutical companies. The first negotiations focus on 10 drugs, including the blood thinners Eliquis and Xarelto and the diabetes drugs Jardiance and Januvia. The list will be expanded slowly in the years ahead, but the effect of the negotiations is uncertain, and pharmaceutical makers already are fighting back with litigation.

But some of the most expensive drugs—such as biologics for cancer—are covered under Medicare Part B, since they are administered by healthcare providers in clinical settings. Here, there currently is no out-of-pocket maximum. Part B pays for 80% of covered services, with patients paying the remaining 20%.

People enrolled in traditional Medicare who have purchased Medigap supplemental policies will have some or all of that co-payment covered.

The cost implications were in the spotlight last summer with the federal approval of Leqembi, an expensive new Alzheimer’s drug. With a price of $26,500 annually, Medicare patients without Medigap would shoulder more than $5,000 in out-of-pocket costs annually. That includes people on traditional Medicare who do not have Medigap policies and everyone enrolled in Medicare Advantage plans.

Overall cost. Compare the premiums and out-of-pocket costs in your employer plan with what you would pay for Medicare. The numbers will look somewhat different for traditional Medicare than for Medicare Advantage. (For people who can afford the higher up-front premiums, I recommend traditional Medicare.)

Omdahl says that the cost comparisons often are very close. “In my experience, it’s a 50-50 choice.”

The math will change if your income is high enough to trigger Medicare’s Income-Related Monthly Adjustment Amounts (IRMAA). These are premium surcharges levied on individuals and married couples with modified adjusted gross income over certain amounts. Since you’re still working, in this situation, you very likely would be subject to IRMAA.

Here’s a quick primer on this works.

Most Medicare enrollees pay the standard Part B premium, but people with higher incomes pay IRMAA. The standard Part B premium covers 25% of Part B program costs, while those subject to IRMAA pay anywhere from 35% to 85% of those costs.

The Social Security Administration determines whether you must pay these extra fees using your most recent tax return made available by the IRS to the SSA—generally two years before the year for which the premium is being determined (but not more than three years).

There are five IRMAA brackets, defined by a modified adjusted gross income formula that includes the total adjusted gross income on your income tax return plus tax-exempt interest income. The determination is made using the most recent tax return made available by the IRS to the SSA.

It’s quite easy to trip over the IRMAA limits when you’re still working: This year, the first IRMAA bracket for single filers begins with MAGI of $103,000.

Access to healthcare providers. Most employers these days offer managed care health insurance plans (PPOs and HMOs) that limit your choice of in-network providers.

Omdahl says that many employed clients who decide to switch to Medicare are those with significant medical issues. Traditional Medicare, paired with Medigap, offers the most robust coverage and the widest possible access to care. She notes, “If someone is dealing with cancer, traditional Medicare opens the doors to wider networks.”

Should You Worry About the Financial Health of Medicare?

You may have read that Medicare is running out of money. That’s not true, for a couple reasons.

Reason one: Medicare is funded through a combination of prepaid payroll tax revenue, enrollee premiums, and general government revenue.

Solvency projections for the Hospital Insurance Trust Fund, which finances Part A (and is funded through the Medicare payroll tax), can swing around quite a bit. At various times since 1970, Medicare’s trustees have projected insolvency in as few as four years or as many as 28 years. The other parts of Medicare (Parts B and D) cannot run out of funds, because general government revenue and premiums are adjusted annually to meet projected costs. When those costs rise quickly, that’s a reflection of overall trends in the cost of healthcare, not a Medicare-specific problem.

The last report of the Medicare trustees (which published in 2023) projected that the Hospital Insurance Trust Fund would be depleted in calendar-year 2031. More recently, assumptions used for the Biden Administration’s 2025 budget points to depletion in 2038.

Reason two: If depleted, the Hospital Insurance Trust Fund wouldn’t have sufficient revenue to make all payments due to hospitals—but it would still be able to meet 90% of its obligations.

The problem likely will be fixed through some combination of payment rate cuts and new revenue sources. New revenue could include an increase in the Net Investment Income tax rate for high-income households, higher Medicare payroll tax rates for some households, or other tweaks to revenue coming into the fund.