TRUE STORY: Medicare Open Enrollment - How to Delay Without Penalties

Recently I had a conversation with a young eye doctor who had taken over his parent's practice. We talked about the reasons for the transition and he pointed out "It didn't make sense for my Mom and Dad (both physicians) to work any longer due to them coming up to age 65 and needing to enroll in Medicare." Key-word "Needing".

I was surprised at this point being the pushing point for the senior physicians to retire. Relating to how my wife and I are planning for this. As there is no penalty for 'passing' on this Medicare enrollment for us once we turned age 65. We're planning on keeping my wife's employer health plan for at least one additional year (her age 66). He was adamant about this 'fact', stating "I checked with our accountants, they said there's no way someone can pass on this without penalty." Still I found this strange as it relates to me and my house and what we found out? Why would this be different for this family of physicians?

Turning 65 brings important decisions about Medicare enrollment. Many people wonder if they can delay signing up for Medicare Part B and Part D without facing late-enrollment penalties. The good news is that under certain conditions, you can postpone Medicare enrollment without penalty if you remain covered by a group health plan through your employer or your spouse’s employer. This post explains how that works, what rules apply, and practical steps you can take to avoid unnecessary costs.

How Medicare Enrollment Works at Age 65 - When you turn 65, you become eligible for Medicare. You have a seven-month Initial Enrollment Period (IEP) to sign up for Medicare Part A (hospital insurance) and Part B (medical insurance). If you miss this window without qualifying for a Special Enrollment Period (SEP), you may face late-enrollment penalties that increase your premiums permanently. Medicare Part D, which covers prescription drugs, also has enrollment periods with similar penalty rules.

When You Can Delay Medicare Enrollment Without Penalties

You can delay enrolling in Medicare Part B and Part D without penalty if you have current coverage under a Group Health Plan (GHP) based on active employment. This coverage can be through your own job or your spouse’s job.

The key factor is that the employer providing the group health plan must meet certain size requirements. If the employer is large enough, Medicare allows you to keep your employer coverage as the primary payer and delay Medicare enrollm ent safely.

The Minimum Employer Size Threshold

The law requires the employer to have 20 or more employees to qualify for this delay without penalty. This threshold is based on Medicare Secondary Payer (MSP) rules, which determine whether Medicare or the employer plan pays first.

How the 20-Employee Count Is Calculated

• Employee Count Includes Full-Time and Part-Time Workers

The total number of employees includes both full-time and part-time workers on the payroll.

• The 20-Week Rule

The employer must have had at least 20 employees on each working day for 20 or more calendar weeks in the current or previous year. These weeks do not need to be consecutive.

• Corporate Aggregation Rules

The count includes all employees across the entire corporate structure, including parent companies, subsidiaries, and sibling companies, as defined by IRS aggregation rules. It is not limited to a single office or location.

• Who Counts Toward the 20 Employees

Anyone on the official payroll counts, even if they are not working on a specific day or not enrolled in the health plan. Self-employed individuals do not count toward this threshold.

Why the 20-Employee Rule Matters - If the employer has 20 or more employees, the group health plan is the primary payer, and Medicare acts as the secondary payer. This means the employer plan pays first for your medical expenses, and Medicare covers what the employer plan does not. Because the employer plan pays first, Medicare allows you to delay Part B and Part D enrollment without penalty. You can keep your employer coverage and avoid paying extra Medicare premiums unnecessarily.

If the employer has fewer than 20 employees, Medicare becomes the primary payer. In this case, you should enroll in Medicare Part B to avoid gaps in coverage and penalties.

How to Confirm Your Employer’s Size and Coverage Status

To decide whether you can delay Medicare enrollment, you need to verify your employer’s size and the nature of your health plan.

• Ask Your Human Resources (HR) Department

HR can confirm the number of employees and whether the group health plan qualifies as a Group Health Plan under Medicare rules.

• Check Your Health Plan Documents

Look for information about whether the plan is considered a Group Health Plan and if it covers active employees.

• Consult Your Spouse’s Employer if Covered Through Them

If you are covered under your spouse’s plan, verify the employer size and coverage status with their HR department.

Steps to Delay Medicare Enrollment Safely

If your employer meets the 20-employee threshold and you want to delay Medicare Part B and Part D, follow these steps:

Confirm Your Employer’s Eligibility

• Verify the employer size and that your coverage is through a Group Health Plan based on current employment.

  
  

  Keep Documentation

• Obtain a letter from your employer or HR department stating your coverage status and employer size. This letter will be important if you need to prove your eligibility for a Special Enrollment Period later.

  
  

  Do Not Enroll in Medicare Part B or Part D During Your Initial Enrollment Period

• If you have qualifying employer coverage, you can delay enrollment without penalty.

  
  

  Enroll in Medicare Part A

• Most people qualify for premium-free Part A at 65 and should enroll to avoid gaps in hospital coverage.

  
  

  However. If you are covered by an eligible employer group health plan (an employer with 20 or more employees), you are completely permitted to delay—or "pass on"—Medicare Part A right along with Parts B and D. While the general rule of thumb many people hear is to "just take Part A at 65 because it's premium-free," there is absolutely no requirement to do so if you want to delay it, and there are specific strategic reasons why passing on it is the correct move.

  
  

  Enroll in Medicare Part B and Part D When You Lose Employer Coverage

• When you retire or lose your employer coverage, you have an 8-month Special Enrollment Period to sign up for Part B and Part D without penalty.

  
  

Examples to Illustrate the Rules

Example 1: Large Employer Coverage

Jane works for a company with 50 employees. She turns 65 but continues working and covered under the company’s health plan. Because the employer has more than 20 employees, Jane can delay Medicare Part B and Part D enrollment without penalty. When she retires at 67, she enrolls in Medicare during her Special Enrollment Period.

Example 2: Small Employer Coverage

Mark works for a small business with 15 employees. When he turns 65, he must enroll in Medicare Part B because Medicare will be the primary payer. If he delays, he risks late-enrollment penalties.

Example 3: Spouse’s Employer Coverage

Susan is 65 and covered under her husband’s employer health plan. The employer has 30 employees. Susan can delay Medicare Part B and Part D enrollment without penalty as long as she remains covered by the plan.

What Happens If You Don’t Follow These Rules

Failing to enroll in Medicare Part B and Part D when required can lead to:

• Late Enrollment Penalties

These penalties increase your monthly premiums permanently and can add significant costs over time.

• Gaps in Coverage

Without Medicare Part B, you may face uncovered medical expenses if your employer plan does not cover certain services.

• Loss of Special Enrollment Period Eligibility

Without proof of qualifying coverage, you may lose the chance to enroll later without penalty.

The #1 Reason to Delay Part A: The HSA Trap

The primary reason you would actively choose to pass on Medicare Part A when staying on an eligible employer plan is to continue contributing to a Health Savings Account (HSA).

• The Rule: Under IRS guidelines, the moment you enroll in any part of Medicare (including premium-free Part A), you lose your eligibility to make or receive pre-tax contributions to an HSA.

  
  

• The Solution: If you or your spouse wish to continue building up HSA funds through active employment past age 65, you must delay Part A along with Part B.

  
  

Watch Out for the 6-Month Retroactive Lookback

If you do choose to pass on Part A now to maximize your HSA, you need to be aware of Medicare's automatic lookback rule for when you eventually do sign up down the road:

⚠️ The Landmine: When you finally enroll in Medicare Part A after age 65 (or when you apply for monthly Social Security retirement benefits, which automatically triggers Part A), Medicare back-dates your Part A coverage by up to 6 months (but not earlier than the month you turned 65).

Because this retroactive coverage instantly voids your HSA eligibility for those 6 months, any contributions made during that look back window become "excess contributions" subject to IRS tax penalties. Make sure to work with your CPA on this prepartion a year in advance.

• The Strategy: To avoid this, you must stop all employee and employer HSA contributions at least 6 months before you eventually apply for Medicare or Social Security.

  
  

One Crucial Exception: Receiving Social Security

The only scenario where you cannot pass on Medicare Part A is if you are already drawing monthly Social Security retirement benefits. Federal law automatically links the two: if you collect Social Security at age 65 or older, you are legally required to accept Part A, which would immediately end your ability to contribute to an HSA.

If you are not drawing Social Security and your employer meets the 20-employee primary payer threshold, you can safely leave Part A on the table until you are ready to transition.

Are you or your spouse looking to maximize HSA contributions for a specific number of years, or are you mapping out the exact timeline to stop funding the account before retirement?

Tips for Managing Medicare Enrollment

1. Start Early - Begin reviewing your Medicare options 3 to 6 months before your 65th birthday.

2. Keep Records - Maintain documentation from your employer about your coverage status and employer size.

3. Ask Questions - Contact Medicare or a licensed insurance counselor if you are unsure about your situation.

4. Review Your Coverage Annually - Employer plans and Medicare rules can change. Stay informed during Medicare’s Open Enrollment Period each year.

Medicare enrollment decisions can be complex, but understanding the rules about delaying enrollment without penalty can save you money and stress. If you have qualifying employer coverage from a company with 20 or more employees, you can safely delay Medicare Part B and Part D. Confirm your employer’s size, keep documentation, and enroll in Medicare when your employer coverage ends.

So, let me ask, Do you see how taking these steps will help you avoid penalties and possible lost earnings? Is it more important to you now to ensure you have the right coverage when you need? Do you work with experienced insurance advisors as well as CPA's who understand these rules and communicate with eachother on your behalf?

CONTACT: js@joesimon.solutions or 920-639-1920