Making the Transition from Employer Health Insurance to Medicare

It has become impossible to have a successful later life in the United States without finding a way to control—or at least manage—out-of-pocket healthcare costs. After several years of modest healthcare inflation, owing principally to provisions of the Affordable Care Act, healthcare prices are once again projected to rise by substantially more than either prices in general or the overall economy.

As more people continue working into their late 60s and 70s, they will need to be especially careful to make informed health insurance choices.

Two retirement programs on separate tracks

Signing up for Medicare should be a snap, right? You turn 65, you retire from your job, and you sign up for Parts A and B of Medicare with the Social Security Administration (SSA). You then decide if you want other coverage. Beginning and end of story. For the most part, this is how things used to work.

The linkage between Medicare and Social Security is hardly accidental. The Social Security Administration is legally responsible for a lot of Medicare work, including alerting people when they’re eligible, signing them up, sending out their Medicare cards, and withholding Medicare premiums from monthly Social Security payments.

Until 2008, 65 was the full retirement age for Social Security as well as the primary enrollment age for Medicare, so signing up for the two programs at the same time was common. Well, no más.

Today, signing up for Medicare can cause a major brain freeze. Based on changes to Social Security rules included in the program’s major 1983 reforms, full retirement age—the age when benefits are not reduced by early claiming reductions or hit with earnings test reductions—has been steadily rising.

It moved in two-month increments, from 65 in 2002, for people born in 1937 or earlier, to 66 in 2009, for those born from 1943 to 1954. It will stay there until 2020, and then begin moving again in two-month stages, for people born from 1955 to 1959, settling at 67 by 2027, for anyone born in 1960 or later.

This shift is not only a big deal for Social Security but also a big deal for Medicare, because it further reduces the linkage between the two programs in terms of claiming dates. This bond also has been weakened, if not blown up, by the historic rise in the percentages of people who keep working well past their 65th birthdays.

Roughly a third of people ages 65 to 69 are still in the labor force, and about 20 percent of those ages 70 to 74 are also still working. For sure, retirement is not what it used to be.

For good measure, the Great Recession erased trillions in retirement assets. And, while these losses have been recovered for the economy as a whole, they certainly haven’t been recovered by many of the people who took the hits. Some were forced to defer retirement; others took their Social Security benefits early.

Easy to misstep; high price if you do

The big picture here is that we no longer have two programs where people elect benefits at the same time. We have two programs with an enormous range of claiming patterns. This is a big deal for Medicare, because it means you can’t simply assume you will need Medicare as soon as you turn 65.

Some people will and others won’t. But the circumstances under which we do or don’t need Medicare at age 65 are often unclear. And neither Medicare nor Social Security has done a particularly good job of explaining what all of this means to the mere mortals who have to figure out when and how to claim their Medicare benefits.

Adding injury to insult, if you will, the government has also created a set of potentially harsh financial penalties for people who get this decision wrong and miss one of Medicare’s many enrollment deadlines.

Those penalties are one more reason so many people say they will never be able to afford to retire!

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Research fellow Philip Moeller is the author of the newly released book, “Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs.”