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Picture it, you’re turning 65 and learned that you need to sign up for Medicare Part A & Part B, and you’re in a mild panic because you didn’t plan ahead.
The only thing you know is that you’ve “paid into the system”, but that’s about it. This overwhelming feeling is understandable since Medicare has a lot of components, and can get confusing rather quickly.
This article focuses on Parts A and B only, but here’s a small primer on how Medicare generally works:
- Medicare Part A and Part B are otherwise known as “Original Medicare”. Generally speaking, Original Medicare covers 80% of healthcare costs (after some deductibles) and you are responsible for covering the remaining 20%.
- Medicare Parts A and B do not cover prescription drugs, those are covered separately under Part D (prescription drug plan), or within a Medicare Advantage Plan.
- Medicare Advantage (aka Part C) or Medicare Supplement plans (aka Medigap) are popular choices in order to help alleviate or eliminate the 20% you are responsible for paying. These are not required.
Here are the most common situations in which Medicare planning becomes top of mind:
- You work for some form of Federal, State, or local government, and you didn’t pay into Social Security – are you still eligible for Medicare?
- You are age 65 or older, retiring soon, and going to lose your employer health coverage.
- Your spouse is retiring and you will both lose their employer’s health coverage.
- Your parents are approaching age 65 or retirement, confused about Medicare, and would never find this article.
If you are one of these individuals, read on!
Am I Eligible to Sign Up for Medicare Part A & Part B?
Generally speaking, Medicare eligibility starts at age 65. Some exceptions may be that you are disabled and have been collecting Social Security or Railroad Retirement disability benefits, have end-stage renal disease (ESRD), or amyotrophic lateral sclerosis (ALS).
If you have worked the majority of your life (or at least 10 years) either as an employee or self-employed, you are eligible for Medicare. Each and every paycheck you paid a 7.65% FICA payroll tax of which 1.45% was for Medicare. Your employer paid another 1.45% on your behalf, for a total of 2.9%.
If you have been self-employed at any point you probably know that you have been paying the entire 2.9% since you are considered both employer and employee.
This Medicare tax pays for the Part A coverage (inpatient hospital care) of Medicare. Medicare Part A is premium-free for most people once they eventually enroll in Medicare.
If you haven’t paid the Medicare tax for at least 10 years, you can still be eligible at 65, but you may have to pay a premium for Part A.
If you are a spouse that has spent most of your time at home taking care of the kiddos (the most challenging career of all) and don’t have enough earned credits, you may still be eligible for premium-free Part A coverage at age 65 if your spouse has enough credits, and is at least age 62.
For additional help, check out our “Am I eligible for Medicare Part A & Part B?” flowchart.
California State Teachers’ Retirement System (CalSTRS)
As of April 1986, CalSTRS employees do not pay into social security but do pay the Medicare payroll tax of 1.45%. The same lifetime 40 credit rules apply (10 years).
If a member retires prior to attaining age 65, CalSTRS sends an enrollment packet approximately three months prior to his or her 65th birthday. If a member retires on or after his or her 65th birthday, CalSTRS sends an enrollment packet within a month of retirement.1
California Public Employees’ Retirement System (CalPERS)
As a member of CalPERS, you also pay into Medicare. A few months before you turn 65, CalPERS will send you notifications of the requirements to continue your health coverage.
The notifications request information about your eligibility or ineligibility to enroll in Medicare.
When you enroll or sign up for Medicare Part A and Part B (required to sign up for both) two to three months prior to your 65th birth month, CalPERS will work with the Centers for Medicare & Medicaid Services (CMS) to obtain your Medicare information and automatically transfer you from a CalPERS Basic (non-Medicare) health plan to a CalPERS Medicare health plan.
If CalPERS is unable to obtain your Medicare information from CMS, you’ll need to complete and submit the Certification of Medicare Status (PDF) form to CalPERS with copies of supporting documentation for manual processing.
Please review your CalPERS current year plan options before making the transition to Medicare. Transitioning from a “Basic” (non-Medicare) health plan to a Medicare health plan, is an opportunity to change health plans.
Not all Basic health plans have a corresponding Medicare health plan available.
You may request to change health plans when you provide your Medicare eligibility information. If you do not choose a Medicare health plan, CalPERS will automatically enroll you in a Medicare health plan.2
When do I Sign Up for Medicare Part A and Part B?
Medicare Initial Enrollment Period (IEP)
Your window to sign up for Parts A and B starts 3 months before your 65th birthday and ends 3 months after, for a total 7 months. This is called your Initial Enrollment Period (IEP).
If you are already receiving Social Security or Railroad Retirement benefits, you will be automatically enrolled in Part A and receive your Medicare card in the mail with the option to opt-out of Part B.
For additional help, check out our “Will I Be Enrolled Automatically in Medicare” flowchart.
Why opt-out of Part B? If you are still employed and covered under an employer health plan, you can delay signing up for Part B and continue your current health coverage. This does not mean you will never need/want Part B, even if your employer offers retiree health coverage after you retire!
If you think Medicare Parts A and B combined with a Medicare Supplement (aka Medigap) or Advantage Plan (aka Medicare Part C) will be better than your employer’s current plan, you can sign up for Parts A and B and end your employer’s coverage.
Sometimes jumping ship to Medicare makes more sense vs keeping your employer’s coverage, even if you decide to continue working. Depending on your employer coverage, Medicare can occasionally be more comprehensive and affordable.
If this is the case, always do your homework on what coverage is available in your area. Make sure you coordinate your coverage properly so that you don’t have a coverage gap in which you are completely uninsured.
Check with your human resources department to see if your employer’s coverage on you ends on a specific day of the month, or if you can request it end on the day your Medicare coverage begins.
For example, employers will typically cover you until the end of your retirement month even if you retire on the 8th of the month. This will be important to know when applying for Medicare coverage and selecting a desired effective date.
If you continue to work and remain on your employer’s group plan, then you will have a Special Enrollment Period (SEP) when you decide to begin Medicare coverage or leave that employer.
NOTE: If your employer’s group health plan has less than 20 people covered in the plan and you reach age 65, then you should sign up for Medicare Parts A & B as it will be your primary coverage. The employer group plan will be a secondary payer.
Medicare Special Enrollment Period (SEP)
Once your Initial Enrollment Period ends, you may have the chance to sign up for Medicare during a Special Enrollment Period (SEP).
If you’re covered under an employer’s group health plan based on current employment, you will have a SEP to sign up for Medicare Part A and/or Part B. This is called having credible coverage.
Here are a few important things to keep in mind in order to be eligible a SEP:
- You and/or your spouse (or family member if you’re disabled) are working and covered under a plan.
- COBRA coverage does not count as coverage based on current employment.
- Retiree health coverage by a former employer does not count as coverage based on current employment.
The SEP is an 8-month window to sign up for Medicare Part A and/or Part B that starts at one of these times, whichever happens first:
- The month after the employment ends.
- The month after group health plan insurance based on current employment ends.
Usually, you won’t pay a Part B late enrollment lifetime penalty if you sign up during a SEP.3
Medicare General Enrollment Period (GEP)
You can sign up for Part A and/or Part B during the General Enrollment Period (GEP) between January 1st –March 31st each year if both of these apply:
- You didn’t sign up when you were first eligible (Your IEP or SEP for example).
- You aren’t eligible for a Special Enrollment Period.
You should always try to sign up for Part A and Part B during your IEP or SEP. There are a couple reasons for this:
- If you sign up during the General Enrollment Period, your coverage will start July 1st. Therefore you likely won’t have healthcare coverage until then!
- You will likely have to pay a higher premium for late enrollment in Part A and/or a higher premium for late enrollment in Part B. This is due to the late enrollment penalties which are assessed for life!
How Do I Sign Up for Medicare Part A and Part B?
As we mentioned earlier you may be automatically signed up for Parts A and B if you’re already receiving retirement benefits from Social Security or Railroad Retirement.
If you aren’t receiving Social Security or Railroad retirement yet, but are turning 65 or retiring and at least 65, you’ll first want to determine whether or not you need to sign up for Parts A and B just yet.
- If you are retiring and therefore losing employer healthcare coverage, and 65 or older, the first step is to verify with your employer when their group coverage on you will end. This is critical!
- If you aren’t retiring but you are turning 65, you should still consider signing up for Part A since the premium for most is free.*
*The exception to this is if your contribute to a Health Savings Account (HSA). If you contribute to an HSA and enroll in Part A, you will no longer be eligible to contribute to the HSA. Therefore you should consider enrolling in Part A during your SEP down the road.
To find out what you should be signing up for given your situation, we highly suggest starting the process online here on the Medicare.gov website.
It only takes about 5-minutes and you can do it at your own convenience in the comfort of your own home.
Once you go through the prompts and answer questions based on your situation, Medicare.gov will tell you how to apply with the Social Security Administration.
With the SSA, you can either:
- Sign up for just Part A (hospital insurance) or Part B (medical insurance). Make sure to request an effective date for coverage that coincides with the date your employer coverage ends!
- Apply to get benefits from Social Security (or the Railroad Retirement Board). You’ll get Part A automatically once you start getting benefits. You’ll choose if you want Part B when you apply for benefits.
NOTE: You’ll need to create your secure my Social Security account first, before you can start the process to sign up for Medicare or apply for Social Security benefits online.
Ways to sign up:
- Online – It’s the easiest and fastest way to sign up and get any financial help you may need.
- Call Social Security at 1-800-772-1213 Monday through Friday. TTY users can call 1-800-325-0778. Read our tips below first before calling Social Security!
- Contact your local Social Security office to make an appointment to apply in-person.
- If you or your spouse worked for a railroad, call the Railroad Retirement Board at 1-877-772-5772.
About 2 weeks after you sign up, they will mail you a welcome package with your Medicare card.
Once you are done signing up online, Social Security will assign you to someone in their system. Part A may be retroactive to the 1st of the month in which you apply.
Part B starts according to what month of your enrollment period you applied and your chosen effective date, this is why aligning coverage becomes important.
Tips to Avoid Long Wait Times With Social Security
- Avoid calling during their busy hours of 10AM to 3PM – Rather, try call at breakfast or dinner time.
- Or, call at night and leave a message. SSA is committed to call-backs the next business day
- Avoid calling on the first few days of the month. The first few days are when payments are delivered to recipients and delivery problems turn into a flux of phone calls.
- If signing up for Part B, you can save a ton of time by getting form CMS 40B (1-page) filled out before calling in or going online. If leaving employer coverage you can also fill out form CMS L564 (1-pager) to send to your current/recent employer for verification and signature. Social Security will ask for this to be done anyways.
How to Pay for Medicare Without Social Security
If you are in a situation where you are not yet collecting Social Security benefits, but need to sign up for Medicare Part B due to turning 65 or retiring post-age 65, then you must pay for Medicare Part B directly.
The reason for this is that if you are currently receiving Social Security (or Railroad Retirement) benefits, Medicare will automatically deduct the required premium from your check in the form of a deduction*.
However if you aren’t collecting yet, they obviously have no way to do that.
*For Federal Employees: Per Medicare.gov, you can ask to have your Part B premiums deducted from your Office of Personnel Management (OPM) annuity, as long as you’re not getting Social Security (or Railroad Retirement Board) benefits.3
After initially signing up, you should receive your first bill from Medicare called CMS-500 (click here to see the guide to understanding CMS-500).
Medicare sends this bill around the 10th of the month. When you initially sign up for Medicare Part B for a future date (i.e. sign up 3 months before age 65), then you will receive the bill before your requested 1st of the month effective dates starts. The Medicare bill is due on the 25th of the month.
When paying for Medicare Part B directly, Medicare sends this bill out every three months (quarterly).
Each bill will include the charges for the upcoming three months. The charges can include potential Part B IRMAA surcharges for higher income earners.
Potential Part D (prescription drug coverage) IRMAA surcharges may also be listed on the bill as well.
To make things easier you can also pay your Medicare bill online via your Medicare account or sign up for the auto bank draft program called “Medicare Easy Pay”.
You can sign up for Easy Pay online via your Medicare account, or by mail by filling out form SF5510.
The Bottom Line
- Signing up for Medicare can seem daunting, but it is actually something you should look forward to. Medicare coverage can be comprehensive, flexible (like a good PPO plan), and actually pretty affordable.
- You should apply for Medicare as early as you can! (3-months before your 65th birthday or just before your SEP starts). Social Security has long delays and it can take well over a month to get your application processed.
- Keep in mind that more U.S. citizens – specifically the Baby Boomer Generation – are retiring now than ever in our history! You’re not alone!
- Delayed processing can cause many potential issues for you and your spouse.
You may be planning on signing up for a Medicare Supplement policy and/or Part D (prescription drug plan) to complete your comprehensive healthcare coverage, but if you haven’t been assigned a Medicare number yet you won’t be able to fully complete those enrollment processes.
This can lead to a worst case scenario which is a gap in coverage!
- You can speed up the Part B enrollment process by getting the previously mentioned forms filled out ahead of time (CMS 40B and CMS L564). Remember to choose a Part B effective date that coordinates with the date your former employer coverage ends.
We hope this helps clarify the process of getting started with Medicare. However, there is much more to learn beyond enrolling in just Parts A and B.
Contact us if you want want to be shown how transitioning to Medicare will impact your overall financial plan.
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Cameron Valadez is a CERTIFIED FINANCIAL PLANNER™ located in Riverside and Orange County, CA.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
This is meant for educational purposes only. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions.
1 (Overview of the California State Teachers’ Retirement System and Related Issues, 2017)
2 (CalPERS Health & Medicare, 2018)