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What to ask about your employer health coverage after age 65

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 “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; and he will answer as many as he can.

With more people continuing to work once they turn 65, it’s essential to understand employer health coverage rules and how they interact with Medicare. This is true for employees and, perhaps even more so for their spouses.

Generally, employer plans with more than 20 employees must continue to offer health coverage to active employees and their spouses if the employee continues working when they turn 65. In this case, the employee usually has the choice to get Medicare, either in combination with the employer plan or in place of it.

Small employer plans with fewer than 20 employees, by contrast, usually require active workers to get Medicare when they turn 65. At that time, the employer plan moves from being their primary to their secondary insurer, and Medicare becomes their primary insurer.

As secondary insurance, the employer plan provides the kind of supplemental coverage that people with original Medicare rely on Medigap plans to provide. If a person at a larger employer plan decides to keep the employer plan and also get Medicare, Medicare will provide secondary coverage that can help pay large deductibles that many employer plans now require.

It’s important also to understand how or even whether employer plans would continue to cover prescription drugs, and if a Medicare Part D plan is needed.

These questions should be easily answered by an employer’s benefits department or by the private health insurer that oversees the employer plan. Sadly, my inbox is filled with reader questions arising from a lack of employer-plan knowledge. I’d like to say that this is always because readers failed to get good information from their employer plans. But in all too many cases, it’s clear that readers didn’t seek help from their employer plans or even think to ask how they worked with Medicare.

Here is a cautionary tale from Cathy in Oklahoma that shows what happens when there is a big information disconnect between employers and their employer insurance plan. Her rising sense of disbelief and distress are palpable, and I greatly appreciate her sharing this story:

My husband is full retirement age but still working and covered by a Federal Employee Health Benefits (FEHB) plan through his job at the Post Office. I am not working so I am covered by his health plan and will turn 65 this summer. I expected that when he retired, we would keep his current insurance and it would function as our Medicare supplement along with Part A of Medicare.

Several insurance agents offering Medigap supplement plans have told me it will be more expensive to keep his FEHB plan than to purchase a plan from a commercial insurer. My husband needs an outpatient procedure within the next month and I was waiting to schedule a hysterectomy until after I turned 65, expecting that, between Medicare Part A and our postal plan, we would owe nothing out of pocket but a deductible and the insurance premiums he is currently paying.

However, we just learned that as long as he’s still working, his postal insurance remains the primary payer for both of us even though he has Medicare Part A and I am applying for it now. I was also told that Part A does not cover hospital expenses for outpatient procedures but only inpatient care and only if the patient is hospitalized for at least 48 hours. In short, we thought one of the few perks in turning “Medicare age” was paying nothing out of pocket for our health care except for Medicare deductibles and a continuing premium for his postal insurance with all medical expenses covered.

Would it benefit us to shop for a Medigap plan and ditch the postal insurance coverage and those higher premiums as soon as I have my Part A coverage? Also, in this climate of legislative hostility toward entitlement programs like Medicare and Social Security, as well as looming deficits in those programs, there’s a nagging concern that despite a higher cost we might want to keep the FEHB coverage since if we discontinued it he would have to be covered for a continuous five-year period before retirement to pick it up again. Is there any indication that FEHB coverage might be safer from unexpected twists and turns of insurance upheavals than regular insurance?

Cathy’s understanding of Part A is generally correct. Outpatient medical expenses are covered under Part B of Medicare. The key to whether a hospital stay is covered under Part A or B is not the duration of the stay but whether the hospital admits someone as an inpatient or as an outpatient for what is often called an observation stay. Even though the care for both types of stay can be identical, the Medicare coverage is different.

As for getting supplemental Medicare insurance, I doubt this is the way to go. Medigap plans require people to first get original Medicare. So, if Cathy’s husband dropped the FEHB plan, he’d still need to pay monthly premiums for Part B plus any Medigap premiums plus premiums for a Part D prescription drug plan.

The information that Cathy needs is what her husband’s FEHB plan will not cover, so she then can decide if original Medicare makes sense. This usually would be in addition to the FEHB plan. Many federal retirees are quite happy relying solely on their FEHB coverage, but some do add Medicare to augment their coverage. Getting rid of FEHB benefit is rarely the best option.

The key takeaway is that people simply must find out the specifics of what employer plans cover and what Medicare covers. They then can make informed decisions about what to do as they approach their 65th birthdays. These details can be confusing and may be hard to extract from employer insurers. But going through even an aggravating experience is much better, and usually cheaper, if it occurs before people get locked into nasty health-insurance mistakes.