Our Advice on Medicare Timing Mistakes That Can Cost You in Retirement
A missed enrollment date or poorly timed insurance cancellation can leave you with coverage gaps, penalties, and medical bills that could have been avoided.
Retiring is supposed to create more predictability in your life, not less. One of the easiest ways to create an unnecessary financial headache is to mishandle the transition from employer insurance to Medicare.
The goal should be simple: know exactly when your current insurance ends, know exactly when Medicare begins, and make sure there is no gap between the two.
You also need to understand that Medicare by itself does not necessarily eliminate your exposure to healthcare expenses. Choosing the cheapest option simply because it has the lowest monthly premium can backfire if the coverage doesn’t match your doctors, prescriptions, travel habits, or expected healthcare needs.
Here are the Medicare timing mistakes we believe retirees should avoid.
1. Don’t Cancel Your Employer Health Insurance Too Soon
This is probably the simplest rule: don’t cancel good coverage until you know what is replacing it and when the replacement becomes effective.
If you’re approaching 65 and still working, your employer plan may continue to cover you. Depending on your situation, you may also be able to delay Medicare Part B without a late-enrollment penalty while you or your spouse are actively working and you’re covered under an eligible employer group health plan. Medicare provides an eight-month Special Enrollment Period after the employment or qualifying job-based coverage ends, whichever happens first.
However, don’t automatically assume your employer insurance allows you to delay Medicare.
Employer size matters when determining which coverage pays first. For people 65 or older, an employer plan generally pays first when the employer has 20 or more employees; with fewer than 20 employees, Medicare generally pays first. Your employer plan may therefore require you to enroll in Medicare at 65 for the employer coverage to work properly.
Pros of Keeping Employer Coverage Temporarily
- Prevents an unnecessary gap in health insurance.
- Gives you time to coordinate Medicare enrollment.
- Employer coverage may be better or less expensive than your Medicare alternatives.
Cons
- Employer coverage may become expensive after retirement.
- Your employer plan may become secondary to Medicare.
- Staying on the wrong plan could create coordination-of-benefits problems.
Who could benefit: People still working at 65 or covered through a working spouse.
Who might not benefit: Someone whose employment and employer insurance have already ended and whose Medicare coverage is ready to begin.
2. Know Your Medicare Initial Enrollment Period
Don’t wait until your 65th birthday to start thinking about Medicare.
For most people, the Medicare Initial Enrollment Period is a seven-month window beginning three months before the month you turn 65 and ending three months after your birthday month.
If you’re retiring around age 65, start planning several months ahead. You want to ensure seamless coverage between employer insurance ending and Medicare beginning, while evaluating Medicare supplement or Medicare Advantage options. You will need to know:
- When your employer insurance terminates.
- When Medicare Parts A and B become effective.
- Whether you’re choosing Original Medicare or Medicare Advantage.
- Whether you need Medigap.
- How prescription drug coverage will work.
If you want Medicare Part B to begin when your employer insurance ends after working past 65, you should enroll before retirement rather than waiting until the employer coverage has already disappeared.
The objective isn’t merely getting enrolled. It’s coordinating the effective dates.
3. Don’t Assume COBRA Lets You Delay Medicare
This is a big one.
COBRA can be a useful safety net after leaving an employer, but COBRA generally does not extend your Medicare Part B Special Enrollment Period.
If you’re already 65 or older when you stop working, your eight-month Special Enrollment Period generally starts when employment or qualifying job-based coverage ends, even if you elect COBRA afterward.
Medicare may also become the primary payer once you’re Medicare-eligible, meaning COBRA may pay only after Medicare. This can create significant coverage problems if you’re relying on COBRA alone when Medicare should be your primary insurance.
COBRA itself is generally available for 18 months, although certain situations can allow longer continuation coverage.
Pros of COBRA
- Lets you temporarily continue familiar employer coverage.
- Can help bridge a short insurance transition.
- May be particularly valuable for a younger spouse or dependent who isn’t Medicare-eligible yet.
Cons of COBRA
- Can be expensive because you may pay most or all of the premium.
- It doesn’t normally protect you from missing your Part B enrollment deadline.
- Coordination with Medicare can get complicated.
Who could benefit: Someone temporarily losing employer coverage who needs continuity before another policy becomes effective.
Who might not benefit: Someone whose Medicare and supplemental coverage can begin immediately when employer insurance terminates.
4. Retiring Before 65? Build a Bridge to Medicare
If you’re retiring at 60, 62, 63, or 64, Medicare generally isn’t available simply because you’ve retired.
You need health insurance to bridge the period between retirement and Medicare eligibility.
One common option is an ACA Marketplace health plan. Losing job-based insurance because of retirement can qualify you for a Marketplace Special Enrollment Period, and depending on household income, you may qualify for premium tax credits or reduced out-of-pocket expenses.
Other possibilities can include:
- Coverage through a working spouse.
- COBRA.
- Employer retiree health insurance.
- Marketplace insurance.
- Certain private coverage arrangements when appropriate.
Pros
- Prevents you from being uninsured before Medicare.
- Multiple coverage options may be available.
- Marketplace subsidies may substantially reduce premiums for some households.
Cons
- The years immediately before Medicare can be expensive.
- Deductibles and provider networks can vary substantially.
- Retirement withdrawals can affect household income and potentially affect Marketplace subsidies.
Who could benefit: Anyone planning to retire before becoming eligible for Medicare who will lose employer-sponsored health insurance.
Who might not benefit: Someone who can remain on a spouse’s affordable employer health plan until Medicare eligibility.
Someone retiring before 65 should include health insurance costs in the retirement budget before leaving work, not afterward.
5. Don’t Miss Your Medigap Open Enrollment Window
If you choose Original Medicare, you may also want Medicare Supplement insurance, commonly called Medigap.
This is another area where timing matters.
Your federal Medigap Open Enrollment Period lasts six months and begins once you’re 65 or older and enrolled in Medicare Part B. During this period, insurers generally cannot deny you a Medigap policy because of health problems. Outside this window, your options may become more limited, and depending on the state and circumstances, medical underwriting may apply.
That means you shouldn’t casually activate Part B years before you actually need it without understanding how Medicare and your Medigap enrollment opportunities work together.
Pros of Medigap
- Helps cover certain out-of-pocket expenses left by Original Medicare.
- Generally provides broad access to doctors who accept Medicare.
- Can make healthcare expenses more predictable.
Cons of Medigap
- Requires an additional monthly premium.
- Prescription drug coverage normally requires a separate Part D plan.
- Premiums can increase over time.
Who could benefit: Retirees who prefer Original Medicare and want greater predictability around deductibles, coinsurance, and other Medicare-approved expenses.
Who might not benefit: People enrolled in Medicare Advantage. Medigap is designed to supplement Original Medicare, not Medicare Advantage.
6. Don’t Forget About Prescription Drug Coverage
A retiree may feel perfectly healthy at 65 and decide that prescription drug insurance isn’t worth paying for.
That can create problems later.
If you go 63 consecutive days or longer without Medicare drug coverage or other creditable prescription drug coverage after becoming eligible, you may owe a Part D late-enrollment penalty when you eventually enroll. That penalty can continue as long as you maintain Part D coverage.
If you’re staying on employer insurance after 65, ask whether the employer’s prescription coverage is considered creditable coverage and keep the documentation they send you.
Don’t throw those notices away.
7. Watch Your HSA Contributions When Medicare Is Approaching
People working beyond 65 with a Health Savings Account, or HSA, have another timing issue that often gets overlooked.
You cannot continue making HSA contributions for months you’re enrolled in Medicare. Medicare Part A can also be retroactive when someone enrolls after 65, potentially turning previous HSA contributions into excess contributions.
If you’re working beyond 65, contributing to an HSA, and planning to enroll in Medicare, coordinate the dates carefully with your tax professional and benefits department.
This is one of those seemingly small mistakes that can create an unnecessary tax problem.
8. Don’t Automatically Choose the Cheapest Medicare Coverage
Retirement planning should be about creating sustainability, predictability, and consistency.
The cheapest monthly Medicare option isn’t necessarily the least expensive option once you actually need healthcare.
Compare the entire package:
- Monthly premiums.
- Deductibles.
- Copays and coinsurance.
- Maximum out-of-pocket exposure where applicable.
- Prescription costs.
- Doctor and hospital networks.
- Specialist access.
- Travel requirements.
- Expected healthcare utilization.
For some retirees, Medicare Advantage makes sense. For others, Original Medicare paired with Medigap and Part D provides the predictability they’re looking for.
There isn’t one answer that works for everybody.
Other Insurance Retirees Should Consider
Medicare shouldn’t be viewed as the only insurance decision you need to make in retirement.
Depending on your circumstances, additional coverage could include:
- Hospital indemnity insurance: Pays benefits according to the policy when you’re hospitalized or receive certain covered services. It can help offset expenses but isn’t a replacement for comprehensive health insurance.
- Dental, vision, and hearing coverage: Original Medicare generally doesn’t provide broad routine coverage for these expenses, so separate insurance or benefits through another plan may be worth considering.
- International travel medical insurance: Medicare usually provides very limited coverage outside the United States. Frequent international travelers should understand their Medicare or Medigap foreign-travel benefits and consider dedicated travel medical coverage when necessary.
- Long-term care insurance: Medicare is not designed to pay for most ongoing custodial long-term care. Someone concerned about eventually needing home healthcare, assisted living, or nursing-home care should consider traditional long-term care insurance, hybrid life and long-term care insurance, or an annuity with long-term care benefits.
Who Needs to Pay Particular Attention to Medicare Timing?
You should be especially careful if you’re:
- Retiring between ages 60 and 65.
- Leaving your employer at or around age 65.
- Continuing to work after 65.
- Covered through your spouse’s employer.
- Using COBRA.
- Contributing to an HSA after 65.
- Taking expensive prescription drugs.
- Considering Original Medicare and Medigap.
- Moving from retiree health insurance to Medicare.
- Planning frequent international travel.
- Trying to keep retirement healthcare spending predictable.
Our Advice
Don’t treat Medicare as something you’ll figure out after you retire.
Start planning several months before your employer coverage ends.
You should know the exact date your existing insurance terminates, the exact date Medicare becomes effective, what your supplemental insurance will be, how prescriptions will be covered, and approximately how much the entire package will cost.
The whole point of retirement planning is to reduce financial surprises.
Saving a few dollars on premiums doesn’t accomplish much if it eventually exposes you to thousands of dollars of unexpected medical expenses or causes you to miss an enrollment period.
At The Annuity Expert, we’re an independent insurance agency that can help you compare Medicare Supplement and other retirement insurance options and coordinate them with the rest of your retirement plan.
Contact us for free quotes and help comparing your coverage options. There is no obligation to buy. The goal is to put the appropriate coverage in place at the appropriate time so your retirement healthcare costs are as predictable and sustainable as possible.
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