If you or someone you know has a marketplace health care plan under the Affordable Care Act (an “Obamacare” plan), and you’ve reached the age of 65 or are close to it, it’s important to look carefully at your options. Not making the right decision could be costly.
In the vast majority of cases, the smart approach is to terminate the Obamacare plan and sign up for Medicare.
But many people are unaware of this fact, because there’s no warning given to such consumers that they have an important decision to make.
Most people who reach 65 become eligible for Part A, Medicare’s hospitalization benefit, free of charge. Not only that, but if you become eligible for Medicare, you cease being eligible for Obamacare subsidies. So for most people, the choice is between a hospitalization plan that’s free and a plan that’s suddenly far more expensive than what they’ve been paying in the past.
In addition, if you don’t sign up for Medicare when you’re turning 65, and eventually change your mind and submit a Medicare application, there are often hefty penalties you have to pay.
For Part B, which covers outpatient and preventive care such as doctor’s visits and tests, the current monthly base premium is $104.90. But late applicants must pay an additional 10 percent penalty for each year that enrollment was delayed. There’s a similar penalty for Part D drug coverage if your other plan didn’t meet certain requirements.
You should also know that you can’t sign up for Medicare and keep your Obamacare plan as a supplement. You can buy a separate Medigap policy to cover what Medicare doesn’t, but it’s actually illegal for someone to sell you an Obamacare policy once you have Medicare.
So is it ever wise to keep an Obamacare plan and not sign up for Medicare?
There may be a few cases. For instance, people who haven’t worked long enough to qualify for free coverage under Part A might prefer to keep their Obamacare coverage instead. And since Part B premiums are based on income, some wealthy people might find that their Obamacare premiums are cheaper than their Part B premiums.
But the problem is that if these people ever change their mind, they will face the Medicare late-enrollment penalties. (For people who don’t qualify for free Part A, the penalty is a 10% increase in premiums for twice the number of years that they were eligible and didn’t apply.)
There’s one exception to the late penalties. If your employer has a Small Business Health Options plan – sometimes known as a SHOP plan – and the company employs more than 20 people, you can keep your plan and avoid the Part B penalty as long as you sign up for Part B within eight months after you cease being covered by the plan. You can also avoid the Part D penalty if the SHOP plan provides “creditable coverage” for drugs.
However, there are other problems with waiting to sign up for Medicare. For instance, people who don’t apply for Medicare when they’re turning 65 are sometimes limited in when they can apply, and the insurance doesn’t always take effect immediately, so they might face a gap in coverage.
You should also consider that, even if they’re cheaper, many Obamacare plans don’t provide benefits that are as good as those under Medicare, in terms of co-pays, deductibles, hospital and doctor networks, annual limits on out-of-pocket expenses, and drug coverage.
If you decide to cancel your Obamacare plan, be careful not to do it before the date when your Medicare coverage actually begins. If your Obamacare plan covers other family members, be sure to remove only yourself from the plan, since canceling the plan altogether will cancel their coverage, too.
If you’re listed on the plan as the “household contact,” you should note that if you drop yourself from coverage but keep other family members on the plan, you’ll remain as the household contact unless you affirmatively change this as well.
Also bear in mind that if you’re currently receiving subsidies to reduce the cost of your Obamacare plan, it’s up to you to tell the plan to cancel the subsidies as soon as you become eligible for Medicare, whether or not you actually sign up for Medicare. Otherwise, you’ll have to repay the subsidies at tax time.