Medicare Costs While Working: Premiums, Penalties, and Planning

Turning 65 while still employed brings a unique set of financial planning questions, with Medicare costs at the forefront. Many assume enrollment is automatic and mandatory, but for those with employer coverage, the decision is more nuanced. The cost of Medicare if you are still working isn’t a single number, it’s a calculation that depends on your income, your employer plan’s size, and your enrollment timing. Getting it wrong can lead to lifelong late penalties or paying for redundant coverage. This guide breaks down the premiums, penalties, and strategic choices you face to help you make an informed, cost-effective decision.

Understanding Medicare Parts and Premiums for Working Individuals

Medicare is not a monolithic program. It consists of distinct parts, each with its own cost structure. When you are working past 65, you often have the option to delay some parts without penalty if you have qualifying group health coverage. The standard costs for 2024 provide a baseline, but your income can significantly increase these amounts through Income-Related Monthly Adjustment Amounts (IRMAA).

Part A, which covers hospital stays, is usually premium-free if you or your spouse paid Medicare payroll taxes for at least 40 quarters (10 years). If you haven’t, you could pay up to $505 per month. Most people working that long qualify for $0 Part A. Part B covers outpatient services like doctor visits. Its standard monthly premium is $174.70 for 2024. However, if your modified adjusted gross income from two years prior exceeds certain thresholds, you will pay an IRMAA surcharge, making your Part B premium higher. Part D, for prescription drugs, also has a base premium set by the plan you choose, plus potential IRMAA surcharges based on income.

The Critical Role of Employer Coverage Size

Your path forward hinges on one key detail: whether your employer’s health insurance is considered “creditable coverage” under Medicare’s rules. This status is primarily determined by the size of your employer. If the company has 20 or more employees, its plan is the primary payer, and Medicare is secondary. You can delay enrolling in Part B and Part D without penalty, as your employer plan is deemed creditable. If the company has fewer than 20 employees, Medicare typically becomes primary at age 65. In this case, you must enroll in Part A and Part B during your Initial Enrollment Period to avoid late penalties, and your small employer plan becomes secondary.

It is imperative to contact your company’s benefits administrator to confirm the size and creditable coverage status of your plan. Do not rely on assumptions. This information directly dictates your enrollment deadlines and potential for penalties. For a deeper dive into how premiums and deductibles are structured, our 2025 Medicare Cost Guide provides a detailed forecast of upcoming changes.

Navigating Enrollment Periods and Avoiding Penalties

Missing Medicare enrollment windows when you are working can be costly. Your Initial Enrollment Period is a 7-month window around your 65th birthday (three months before, the month of, and three months after). If you have creditable coverage from a large employer, you can skip this for Part B and D. When that coverage ends, you are granted an 8-month Special Enrollment Period (SEP) to sign up for Part B without penalty. You also get a 2-month SEP to join a Part D plan after losing creditable drug coverage.

The penalties for missing these windows are severe and permanent. For each 12-month period you delay Part B enrollment without creditable coverage, a 10% late penalty is added to your premium for as long as you have Part B. The Part D penalty is 1% of the “national base beneficiary premium” for each month you didn’t have creditable coverage. These penalties last for your entire Medicare lifetime.

Calculating Your Total Cost Scenario

So, how much does Medicare cost if you are still working? Let’s outline common scenarios. First, if you have creditable coverage from a large employer and choose to delay Part B and Part D, your cost may be $0 for Medicare (assuming premium-free Part A). You would only pay your employer plan premiums, deductibles, and copays.

Second, you might choose to enroll in Part A only while working. Since it’s often free, this provides secondary hospital coverage alongside your employer plan at no extra premium cost. Third, you could enroll in both Part A and Part B while keeping your employer plan. Here, your employer plan pays first, and Medicare pays second, potentially lowering your out-of-pocket costs. However, you would pay the Part B premium ($174.70+), plus your employer plan premium. You must weigh if the dual coverage benefit outweighs the added cost.

Finally, upon retiring and losing employer coverage, your costs shift to full Medicare premiums, potentially including a Medigap or Medicare Advantage plan, and any Part D plan premium. Your income two years prior to retirement will determine if IRMAA surcharges apply. For strategies to manage these expenses, exploring 3 Ways to Save on Medicare Costs can be highly beneficial.

Medicare Advantage and Medigap Considerations for Working Beneficiaries

If you enroll in Medicare while working, you have choices about how to receive your benefits. Original Medicare (Parts A and B) alone has no out-of-pocket maximum. Many people supplement it with a Medigap plan or switch to a Medicare Advantage plan (Part C). However, if you have employer coverage, you need to be cautious. Most Medigap policies require you to have Part B, and they may not coordinate well with your employer plan, leading to unnecessary duplication. Medicare Advantage plans, which bundle Part A, B, and often D, typically require you to use network providers and disenroll from Original Medicare. They usually cannot be combined with employer coverage.

The best course is often to keep your employer plan as primary if it’s creditable and delay purchasing supplemental Medicare products until you retire. During your Medicare Special Enrollment Period when employer coverage ends, you will have guaranteed-issue rights to buy a Medigap plan without medical underwriting in many states, a critical protection. It’s also the time to compare Advantage plans. For instance, if you’re considering a specific service, you might ask, does Medicare pay for tooth extractions? The answer varies between Original Medicare and Advantage plans, highlighting the importance of understanding your coverage details before choosing a path.

Frequently Asked Questions

Q: Should I enroll in Medicare Part A if it’s free while I’m still working?
A: Usually, yes. Since Part A is premium-free for most, enrolling provides secondary hospital coverage that may pick up costs your employer plan doesn’t cover. However, if you contribute to a Health Savings Account (HSA), you must stop HSA contributions at least six months before enrolling in any part of Medicare, including Part A.

Q: How does my spouse’s coverage affect my Medicare decisions?
A: Your spouse’s employer coverage does not give you a Special Enrollment Period unless you are also covered under that plan. Your own employment-based coverage is what matters for delaying enrollment without penalty.

Q: What happens if my employer coverage is not considered creditable?
A: If your drug coverage is not creditable, you should enroll in a Part D plan during your Initial Enrollment Period to avoid the lifelong late penalty. For Part B, if your employer has fewer than 20 employees, you should enroll during your Initial Enrollment Period to avoid that penalty as well.

Q: Can I have a Medicare Advantage plan and employer coverage?
A: It is generally not advisable. If you join a Medicare Advantage plan, your employer coverage may automatically terminate. You should speak with your benefits administrator before making any decisions. It’s also wise to understand the full scope of an Advantage plan, such as whether Medicare Advantage covers hospice care, as these services are critical for long-term planning.

Navigating Medicare while employed requires careful coordination between your existing benefits and federal program rules. The cost is highly personalized, influenced by your employer’s size, your income, and your enrollment timing. Proactive planning, including consultations with your HR department and possibly a Medicare specialist, is essential to optimize your coverage and avoid costly mistakes. By understanding the interaction between these systems, you can ensure continuous, affordable health coverage through your working years and into a secure retirement.