Working Past 65: Deferred Part B, an HSA, IRMAA, and Medigap Underwriting
Irwin, 68, has worked full time for 22 years as a plant manager for a 30-employee manufacturer in Arizona. He is not receiving Social Security. Because he had coverage from his employer, he deferred both Part A and Part B at 65 and has been contributing $600 per month to the company's HSA, which now holds $19,000. The company has confirmed each year that its group plan is creditable for Part D purposes. He has COPD and takes four prescription drugs. He plans to retire at the end of September and wants to know when to sign up for Medicare, what happens to his HSA, and whether he can still buy a Medigap policy without medical underwriting despite his COPD. His modified adjusted gross income was $210,000 in 2023 and will fall to about $70,000 after retirement.
1. Who pays first while Irwin is working, and what enrollment windows apply to Part A, Part B, and Part D when he retires?
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Order of payment. The Medicare working-aged rule makes the employer plan primary when the employer has 20 or more employees. With 30 employees, Irwin's group plan pays first and Medicare is secondary. That is exactly the situation in which he is permitted to delay Part B without penalty.
Part A. Because he is not receiving Social Security, he was not automatically enrolled at 65 - he must actively file. He should file when he stops working, alongside Part B.
Part B. His special enrollment period has two parts:
- While he is still working and covered by the employer plan, he may enroll at any time.
- After employment or coverage ends, whichever is first, he has 8 months to enroll.
He should file in the month he retires, not later. Missing the 8-month window triggers a permanent late enrollment penalty of 10% of the standard premium for each full 12 months of delay.
Part D. He has 63 days after losing creditable prescription coverage to enroll in a Part D plan without a late enrollment penalty, so he should select a stand-alone Part D plan or a Medicare Advantage plan with drug coverage before the 63 days run out. Note the asymmetry: the Part B window is 8 months, the Part D window is 63 days.
COBRA trap. If he were offered COBRA after retirement, COBRA is not coverage based on current employment, so it does not extend the Part B special enrollment period.
2. What must happen to the HSA, and what are the consequences of getting the timing wrong?
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The rule. He may contribute to an HSA only while he is not entitled to Medicare. Entitlement begins with the effective date of Part A - and Part A can be made retroactive up to 6 months when an application is filed after the initial enrollment period. So the effective date may reach backward before the day he walks into the Social Security office.
What to do.
- Stop payroll HSA contributions before the month in which Part A becomes effective - in practice, at least six months before he files if retroactive enrollment is possible, or in the month he retires if he files promptly.
- Calculate the excess. The annual HSA limit is prorated by the number of months he was an eligible individual, so if he stops in September he can contribute for the eligible months only. The employer and employee contributions combined must fit within that prorated limit.
- Remove the excess contribution and its attributable earnings before the tax filing deadline to avoid the 6% excise tax that applies for each year the excess remains.
What does not change. The $19,000 already in the account is his. He can no longer contribute, but he can spend it tax-free on qualified medical expenses at any time - including Medicare premiums, which are a qualified expense. He should keep receipts and pay from the HSA rather than from a taxable account for as long as he has qualified expenses.
Common error. Enrolling in Part A early to "get it out of the way" while still contributing to the HSA creates excess contributions that most people discover a year later at tax time.
3. How will IRMAA affect his Part B and Part D premiums, and can he still obtain Medigap coverage without underwriting?
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IRMAA. Medicare Part B and Part D premiums are income-related, using modified adjusted gross income from the tax return filed two years earlier. With $210,000 of 2023 MAGI, Irwin will initially be placed in an income-related tier and billed more than the standard premium for both Part B and Part D.
The fix. Retirement is a recognized life-changing event. He can file Form SSA-44 with proof (a letter from the employer stating the last day of work, or a pay stub showing reduced income) so that SSA uses his current, lower income. The reduction generally applies from the month of the event forward, and it is not automatic - SSA does not know he retired until he tells them. He can also appeal an IRMAA determination within 60 days of the notice.
Medigap. The 6-month Medigap open enrollment period is triggered by the later of turning 65 or enrolling in Part B. Because Irwin deferred Part B, his Medigap guaranteed-issue window has not started yet - it opens the month his Part B takes effect and runs six months. During that window an insurer must sell him any Medigap plan it offers, at the standard rate, without medical underwriting, regardless of his COPD.
The consequence of waiting. If he lets the six months lapse, insurers in most states may medically underwrite, and COPD is a common ground for a rate-up or outright decline. He should choose a Medigap plan during the window, and note that a Medicare Advantage plan does not require underwriting but uses networks and prior authorization, which matters for a COPD patient with four prescriptions.
State variation. Connecticut, Massachusetts, Maine, and New York have continuous or annual guaranteed-issue rules that would soften this advice; Arizona does not.