Editor’s Note: Journalist Philip Moeller is here to provide the answers you need on aging and retirement. His weekly column, “Ask Phil,” aims to help older Americans and their families by answering their health care and financial questions. Phil is the author of the new book, “Get What’s Yours for Medicare,” and co-author of “Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security.” Send your questions to Phil.
Monica – New York: I am over 65 and work for a law firm. The law firm has only 11 employees, but joined a state bar association insurance group and thus is considered part of a large group employer with more than 20 employees. We are seeking a new insurance plan, and the senior partners here want to drop the bar association plan and become a small employer again just because of me! This would make Medicare primary for me and save them money. They are pressuring me to drop their insurance and take a Medigap supplemental plan along with Medicare. Is this legal? I believe I am entitled to their insurance as secondary. They told me if I did this, they would “add a few bucks” to my pay. One attorney told me Medicare supplemental plans are better and cheaper for me than their plan, whatever it would be. I am troubled they want to save money at my expense.
Phil Moeller: Wow. Just when I thought I had heard all the reasons there are for disliking lawyers, you have provided another one! Truthfully, of course, what you describe could happen at any small company.
Your firm’s owners are free to become a small employer and leave their group pool. But they then have a legal obligation to provide their employer insurance to you as secondary coverage when you move onto Medicare. It sounds like they realize this.
In the all-too-real world in which we live, there are two issues:
- How harmful would it be to your job stability and your future pay increases were you to withstand their pressure and demand to be kept on their plan?
- What would be your monthly employee health insurance premium be under their plan, and how would this compare to the cost of getting a Medigap policy?
I’d argue that you should be able to get a very comprehensive Medigap plan and that your employer should make up the difference so that you are not out any dollars for doing your employer this favor.
Medigap plans in New York aren’t cheap, and I doubt that adding “a few bucks to your pay” will cover the difference. You can find this out by using Medicare’s Medigap Policy Search tool. Find the premium ranges for a letter F plan, which is the most comprehensive Medigap policy.
Keep in mind that you will be paying your Medigap premiums with after-tax dollars. By my reasoning, your employer thus should add your new employer-plan premiums to your pre-tax salary and then give you an additional raise that would produce enough post-tax income to equal your Medigap premiums.
If the firm is willing to do this, I’d follow Michelle Obama’s beautiful advice — “When they go low, we go high.” But you should not pay a financial price for playing the good soldier.
Last but hardly least, it is illegal for employers to subsidize Medicare premiums. Doing so is viewed by Medicare as potentially being a “bribe” to convince the employee to drop employer insurance in favor of Medicare, thus saving the employer money and shifting costs to Medicare and, by extension, taxpayers. Hmmm. This seems to be exactly what your bosses are trying to do!
As I said, gotta love those lawyers!
Anonymous – Maine: I just read your article regarding health savings accounts (HSAs) being disallowed for people with Part A of Medicare. I am in a horrible situation! I just discovered that I have had Medicare Part A as a result of signing up to collect Social Security under my husband going back to 2013. My husband has been collecting since 2012. I am 68, and he is 70. I work and have an HSA through my employer. My husband is retired, but is covered under my insurance.
I did not understand that Medicare Part A could not be waived. When I went to the Social Security Administration office in 2014, I signed up under my husband and filled out a form they provided, indicating I did not need Medicare, because I would lose my HSA if I signed up for it. At no time did they tell me I couldn’t waive it.
Now, Social Security is telling me that I have to pay back $37,000 in Social Security benefits!
Phil Moeller: I am sorry to hear about your problems. The HSA-Medicare rules are so poorly understood and communicated that I’m not surprised.
The only reason you would have to pay back your Social Security benefits is if you rejected Part A of Medicare — something you can only do if you repay all the Social Security benefits you’ve received. And while this would solve your HSA problems, I recommend that you don’t do this.
In your case, you unintentionally continued participating in your HSA after signing up for Social Security and being enrolled in Part A of Medicare. Being enrolled in Medicare means you are no longer entitled to make tax-free contributions to your HSA account.
Now that you’ve found out, you probably will need to pay income taxes on the money you contributed to the HSA. You may also get hit with a penalty by the IRS, but you made an honest mistake, and it’s not a foregone conclusion that the agency will penalize you. In either event, this likely will cost you a lot less than $37,000.
There also is the matter of your employer to consider. Many employers don’t understand these HSA rules either. Did your employer know you were receiving Social Security? If so, someone there should have told you that you could no longer participate in an HSA.
I’d suggest you get in touch with whoever handles health insurance where you work. Explain the situation and see if they have any advice. At the very least, they should be able to give you the cumulative amount of any tax-free HSA contributions that should be disallowed. You’ll need to know this for tax purposes.
I also think you should find a professional tax preparer to help you file the necessary tax forms to pay any back taxes. As I said, this might lead to an IRS penalty as well.
By the way, I asked the IRS last year to tell me how many taxpayers were penalized for disallowed HSA contributions and how this number had changed over time. The agency’s official response was that it didn’t even track this statistic! Given its well-publicized lack of enforcement personnel, I’d conclude that there is very little oversight activity here. So, while I would always urge people to obey the law, the consequences here for not doing so would appear to be modest, if not non-existent.
Lisa: I am a widow and will be 60 in two months. I was married to my husband for 12 years. He died in 1993, and I have never remarried. I want to apply for survivor’s benefits to get my late husband’s Social Security benefits. I want to postpone taking my own until after I am 66. Is there anything that I should be concerned about before I start the application process? I know Social Security is very complex, and I want to avoid making any mistakes.
Phil Moeller: Unlike other claiming situations, survivor benefits do not trigger Social Security’s “deeming” rules. This means you can file for a survivor benefit without also triggering a claim for your own retirement benefits at the same time. Alternatively, you can file for retirement without triggering your survivor claim. Because of this, it’s important for you to learn how your survivor benefits will compare with your own retirement benefits.
Your own retirement benefits, by contrast, can be claimed as early as age 62, but will grow in value by 7 to 8 percent a year for each year you delay claiming them until you turn 70, when they reach their maximum value.
I would begin by figuring out the values of these two benefits at different claiming ages. You can open an online “my Social Security” account to help you with these calculations. It would also help if you can get access to your late husband’s work history or have someone from Social Security help you calculate your widow’s benefit at different claiming ages.
If your retirement benefit will be the larger of the two, then you should file for your widow’s benefit as soon as you turn 60. While it will be reduced, you know now that you will shift to your larger retirement benefit later. In that case, the cumulative amount of these reduced survivor payments will still be maximized by beginning them right away.
On the other hand, if your widow’s payments are going to be larger than your own retirement benefits, you would want to delay taking them until they reach their maximum amount at your full retirement age. In this case, you would begin taking your own retirement benefit at 62 (the earliest you can do so) and then switch to your survivor benefit at your full retirement age.
Whatever you decide, make sure you express your claiming preferences very clearly to Social Security. I prefer face-to-face meetings in a Social Security office, but understand that it can be difficult to schedule appointments.
Karen – Florida: I read an article about Social Security that confused me. I am 66 and have been collecting Social Security since 62, because my husband and I needed the income. My husband is 59. When he decides to collect, his Social Security will probably be lower than mine. Can he get the higher of our two benefits (which the article indicated) or not? Should he collect at 62 or 66? Is there really a benefit to waiting?
Phil Moeller: Under a Social Security law enacted last year, your husband is too young to ever apply for just one benefit if he is eligible for two. What this means is that if he applied for a spousal benefit based on your earnings record, he must also simultaneously apply for his own retirement benefit (and vice versa). He wouldn’t receive both benefits but an amount roughly equal to the greater of the two.
There is an enormous benefit to waiting. If he claimed at the age of 62, his benefits would be only about 72 percent as much as if he waited to file until his full retirement age, which will be 66 years and 8 months old for someone born in 1959. Benefits would continue to increase by 8 percent a year from full retirement age until age 70.
Of course, deferring benefits means he would not be receiving Social Security benefits during those years. But with people routinely living into their 80s and 90s, deferring benefits may be the best way for most people to make sure they don’t outlive their money.
If your benefit is going to be much larger than his and you can afford to suspend it right now, you might consider doing so. It also will rise by 8 percent a year from its current level. And because you are the higher earner, should you die before him, he would receive a survivor benefit equal to your benefit for the rest of his life.
I urge a couple’s higher earner to maximize their Social Security benefits and thus provide the family’s highest possible benefit to the surviving spouse.
Many seniors who qualify for home-based care under Medicare aren’t receiving it. Why? Phil Moeller reports on the issue in this article.