Hector's Card Arrives in the Mail
Hector turns 65 on August 3 and is still working full-time. His employer, a 120-employee engineering firm, covers him and his wife Rosa, 60, under its group health plan, and the drug coverage is certified as creditable. He began Social Security at 62, so a Medicare card arrives in the mail with both Part A and Part B. He contributes $400 a month to an HSA through payroll and has built a $22,000 balance. He plans to work until 68, then retire and travel. Rosa has Type 2 diabetes and a 2019 lumpectomy and is worried about being uninsurable. Hector's employer has told employees that anyone who waives Part B "loses it forever."
1. Should Hector keep Part B now or decline it, and what are the mechanics and the penalty risk?
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He should decline Part B. Because he is covered by a group health plan through current employment at an employer with 20 or more employees, that plan is primary and he may delay Part B. Enrollment is not automatic-optional: the card arrives because he is already receiving Social Security, so he must affirmatively decline Part B by following the instructions on the card and returning it - and keep proof.
If he keeps it. He pays the standard Part B premium for secondary coverage that for most services pays little or nothing after his group plan. That is a real cost for near-zero benefit.
Penalty risk: none, if documented. The late enrollment penalty (10% of the premium for each full 12-month period of delay, permanent) is waived when the delay is due to current-employment group coverage. He gets an eight-month special enrollment period after the earlier of employment ending or coverage ending.
Correct the employer's statement. "Lose it forever" is wrong for his situation. The warning that is real: COBRA is not current-employment coverage. If he retires and takes COBRA, that does not extend his Part B special enrollment period.
2. What must happen to the HSA, and when exactly?
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Contributions stop the month Medicare begins. HSA eligibility requires that you not be entitled to Medicare. He is entitled to premium-free Part A effective the first month he is 65, and that entitlement - not Part B - ends HSA eligibility. Declining Part B does not preserve it.
The retroactivity trap. If a person who delayed Medicare later applies for benefits, Part A can be backdated up to six months. Any HSA contributions made during those retroactive months become excess contributions and must be corrected - removed with attributable earnings, or left in and taxed. For Hector, stopping at 65 avoids this entirely.
The balance is not lost. The $22,000 can still be spent tax-free on qualified medical expenses after enrollment, including Medicare Part B, Part D, and Medicare Advantage premiums. Medigap premiums generally are not qualified.
Employer mechanics. Notify payroll now so the $400 payroll deduction halts before his birthday month - correcting an over-contribution after year-end is far more painful than stopping it.
3. Hector retires at 68. Walk through what happens to him and to Rosa, including Rosa's underwriting worry.
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Hector. Group coverage ends. He has an eight-month special enrollment period to take Part B (and Part D, if he wants it) with no penalty. He should enroll promptly rather than at the end of the window, to avoid a coverage gap. The employer's creditable-coverage notice protects him from the Part D late enrollment penalty for the months he went without drug coverage.
Hector's Medigap timing. His six-month Medigap open enrollment period - the one window in which an insurer must sell him any policy it offers at its best rate, without medical underwriting - turns on being both 65 and enrolled in Part B. Because he delayed Part B, that window aligns with his Part B effective date. He should confirm the details with his state insurance department and shop inside the window, not assume he can buy Medigap later without underwriting.
Rosa. At retirement she is 63 - not Medicare-eligible. Options are COBRA (expensive, and she should check whether the plan's administrator will offer it) or an ACA marketplace plan; declining COBRA does not make her ineligible for premium tax credits, since COBRA is not treated as affordable employer coverage. Marketplace plans cannot charge more or exclude her for diabetes or a cancer history.
Her real reassurance. When she turns 65, her six-month Medigap open enrollment period is guaranteed-issue regardless of her diabetes or lumpectomy history. That is the one window she must not miss.