Leaving Employer Coverage After 65: Enrollment Period and COBRA
For individuals over 65 years old, you have 8 months to sign up for Medicare Part B with no penalty when leaving your employer coverage. If you go past the 8-month signup window, then you have to wait until the General Election Period (GEP), which is between January 1 - March 31, and your Medicare Part B coverage will begin on July 1. Additionally, if you missed the 8 months signup window after leaving employer coverage, for every year that you are not on Medicare Part B, you will be charged a 10% penalty for life on your Part B premium.
For example, Sarah retired in October 2020. Sarah’s enrollment period for Medicare Part B was between October 2020 to June 2021. Sarah had no medical coverage during this time and decided in August 2021 that she wanted to go on Medicare. Since Sarah missed her 8-month signup window, she will have to wait until January 1, 2022, to enroll in Part B and her part B will start on July 1, 2022. Given that Sarah also went a year without any coverage, she would have to pay a 10% penalty on the standard Part B premium. For 2022 this would be $17.01 added to your monthly Part B premium for life.
One of the main reasons that people incur this penalty after retiring is because they are offered COBRA. COBRA allows employees and their families to remain on their existing group health plan for up to 18 months. Although it may be enticing and sometimes more cost-effective to continue the group health benefits, if you are 65 or older, you have to go on Medicare Part A and Part B. Despite COBRA offering medical coverage, Medicare does not consider COBRA medical coverage creditable, meaning it does not meet the Medicare standards. Due to this, if you choose to go on COBRA for a year rather than enroll in Medicare, you will not only be subject to the 10% penalty, but you will also only be able to enroll between January 1st - March 31st.
It is important to note that if your spouse is under 65 and needs to go on COBRA for 18 months, they can do so without the employee going on COBRA as well. The same applies if the employee has dependents.
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