Harold Retires: Medicare, the Group Plan, and Ruth
Harold, 68, has worked full time for 22 years for a Louisiana manufacturer with 45 employees and is covered under its group health plan. He enrolled in Medicare Part A at 65 but declined Part B. He has been contributing to the company's HSA. His wife Ruth, 63, is covered as his dependent. Harold retires June 30. He wants to keep seeing his long-time cardiologist, is considering a Medicare Advantage plan, and asks whether he can also buy a Medigap policy "as a backup." He also wants to know if Ruth can stay on the group plan through COBRA until she turns 65.
1. While Harold is still working, which plan pays first, was declining Part B correct, and what is wrong with the HSA?
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Order of payment. The Medicare Secondary Payer "working aged" rule applies: for an active employee (and spouse) of an employer with 20 or more employees, the group health plan pays first and Medicare pays second. With 45 employees, Harold's group plan is primary. If he were at a 15-employee firm, the answer would flip.
Declining Part B was correct - with a deadline attached. Because he has group coverage based on current employment, he may delay Part B without a late-enrollment penalty. He gets an 8-month Special Enrollment Period triggered by the end of that group coverage. He must file inside it, and he should not wait the full 8 months because he needs coverage to start July 1 with no gap.
The HSA is a real problem. He cannot contribute to a health savings account once he is entitled to Medicare, and Part A enrollment alone counts. He has been making excess contributions for three years. He must stop contributions immediately, remove the excess plus earnings, and correct the affected returns - otherwise a 6% excise tax applies for each year of excess.
Also check now: whether the group plan's prescription drug coverage is creditable. That certificate determines whether he faces a Part D penalty later.
2. Map Harold's retirement sequence from June 30: what must he do, in what order, and what deadlines apply?
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Before June 30: get the creditable-coverage certificate from the employer and confirm which cardiologists are in the network of any MA plan he is considering.
1. Part B - file so coverage starts July 1. He is inside the 8-month SEP, and because the coverage was based on current employment with 20+ employees, there is no late-enrollment penalty.
2. Drug coverage - 63 days. If he does not enroll in an MA-PD or a standalone Part D plan within 63 days of losing creditable drug coverage, he incurs the Part D late penalty of 1% of the national base beneficiary premium per month uninsured, permanently.
3. Medigap - his guaranteed-issue window is narrow. The 6-month Medigap open enrollment tied to turning 65 and enrolling in Part B is long gone. But because he is losing group coverage, he has a 63-day guaranteed-issue right to buy certain Medigap plans regardless of his health. Miss it and he can be underwritten and declined for the cardiac history.
4. He cannot have both. Selling a Medigap policy to someone enrolled in a Medicare Advantage plan is prohibited (narrow trial-period exceptions aside). He must choose:
- MA plan - lower premium, network restrictions; verify the cardiologist is in network and that the plan's drug formulary covers his medications.
- Original Medicare + Medigap + Part D - higher total premium, broad provider access, no network. This is the safer choice given a long-standing cardiologist and cardiac history.
5. Watch IRMAA: his Part B and D premiums are income-tested on his return from two years earlier; a retirement-year lump sum or severance can spike them.
3. Can Ruth use COBRA until she turns 65, and what should she know about the timing?
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Yes, COBRA can bridge the gap. The employer has 20+ employees, so COBRA applies. A spouse losing coverage through the employee's retirement is a qualifying event with a 36-month maximum continuation period. Ruth needs 27 months to reach 65, so the duration is sufficient.
What she must understand:
- She pays up to 102% of the group premium. Compare that with a marketplace plan and any premium tax credit before electing - the COBRA subsidy for her is often poor value.
- COBRA is not coverage based on current employment. Once Ruth turns 65, Medicare becomes primary, even while she is still on COBRA. She must enroll in Part B during her 7-month initial enrollment period (beginning three months before her birthday month) or face a late penalty and a coverage gap.
- Her Medigap leverage is at 65. Her 6-month Medigap open enrollment at 65 gives guaranteed issue regardless of health. That is the single best window she will ever have; she should not let COBRA lull her past it.
- Do not let COBRA lapse casually. If it terminates early, she may not be able to reinstate it, and she would need marketplace coverage in the interim.
Planning note: because Ruth's COBRA costs are high and her Medigap window is at 65, the cleanest sequence is COBRA now, Part B and Medigap at 65, with marketplace coverage as the comparison benchmark.