Two-thirds of baby boomers plan to work past age 65—the age at which they become eligible for Medicare—according to a study by the Transamerica Center for Retirement Studies. One of the challenges they might face is determining whether they can and should remain on an employer’s health insurance plan or make the switch to Medicare. And it often is a very tricky choice that even human resources departments may not fully understand. What you need to know if you plan to work (or already are working) past age 65…

The number of workers that your employer employs dramatically affects your health-care options. If there are 20 or more employees, the employer is required to offer you the same coverage after you turn 65 that it offers its younger employees. This means you generally can remain on this group plan—and it is considered “primary coverage”—unless the employer’s prescription drug coverage is not considered “creditable.” For more information, put “CMS: creditable coverage” into a search ­engine and go to the CMS.gov site listed.

If your employer has fewer than 20 employees, you almost certainly should sign up for Medicare. That’s because Medicare generally is considered to be your primary health coverage…and your ­employer-based insurance, should you choose to continue to be covered, becomes “secondary” coverage (unless your employer opts to provide primary coverage to employees age 65 and over, though this is rare). That means the employer-based coverage will pay only the portion of your eligible health-care bills that Medicare does not cover. In this case, if you failed to sign up for Medicare, you would have to pay the lion’s share of your medical bills out of pocket.

For details and exceptions to these rules, including how they apply to disabled employees, go to Medicare.gov.

Caution: It sometimes is difficult to know whether a company has 20 or more employees under Medicare rules. A seemingly small company might ­legally be part of a larger organization…while a seemingly large company might actually have many part-time or contract workers who do not count toward the 20-employee threshold. Ask your company’s human resources department.

Medicare could be the better option even if you can choose your employer’s plan as primary coverage. In decades past, employer health insurance plans almost always were more attractive than Medicare. But many employer plans have become less appealing in recent years—deductibles, co-pays and premiums have grown larger, while
in-network medical-provider options have shrunk. So an increasing percentage of employees age 65 or older now would be better off switching to Medicare.

To figure out whether Medicare is the better choice for you, start by going to Medicare.gov and putting “Which insurance pays first?” in the search box.

If your employer’s coverage has a four-figure deductible and a 20%-or-higher copay after that, for example, there’s a good chance that Medicare would be better.

Helpful: Although ordinarily you must enroll with Medicare within a few months before or after you turn 65 to avoid late-enrollment penalties, if you stick with your large employer’s plan as primary coverage, you don’t have to sign up for Medicare at that point. The penalties do not apply as long as you sign up within eight months after the date your employer coverage ends or your employment ends, whichever comes earlier.

If you are at a small company and do sign up for Medicare, it sometimes makes sense to also keep your employer plan despite the extra cost. This isn’t common because the combined premiums of Medicare Part B (which covers medical services and supplies), Medicare Part D (which covers prescription drugs) and employer health coverage get pricey. But dual coverage could be best if you have a serious medical condition whose costs would be well-covered by the employer plan but not by Medicare. Ask your health-care providers if they can help determine whether you would face significantly different out-of-pocket costs or coverage gaps for your current needs if you don’t keep your employer coverage in addition to Medicare.

Your spouse and dependents cannot stay on your employer’s health plan if you leave it for Medicare. It might be worth continuing your employer coverage even if Medicare makes more sense for you as an individual, especially if your employer’s plan is the best way for your family members to obtain affordable high-quality health insurance.

However, there might be a way you could keep family members on your large-company employer plan even when you switch to Medicare for your own coverage. This involves COBRA coverage, which might be available to extend your family coverage, typically for up to 18 months, after you switch to Medicare. Ask your employer’s human ­resources department for details.

The HSA Medicare Mistake

Medicare often is discussed as if it is a single service, but it actually includes several components that eligible Americans could opt to sign up for at different times. Among these components is Medicare Part A, which covers hospital costs. There generally are no premiums for Medicare Part A, so people often are advised that they might as well go ahead and sign up for this “free” part of Medicare as soon as they become eligible even if they intend to remain on an employer’s coverage.

For many employees, that can be a costly mistake. That’s because more and more employer plans now include high deductibles and a Health Savings Account (HSA), a type of tax-advantaged savings account that can be used to pay medical bills. If you sign up for Part A and continue to make HSA contributions, you will face tax penalties. So if you opt to remain in an employer plan that includes an HSA, do not sign up for Part A until you leave this plan. (Rules differ for a spouse covered under your plan. For details, type into a search engine, “AARP: Can I have a health savings account as well as Medicare?” and go to the AARP website.)

Caution: Do not file for Social ­Security retirement benefits if you wish to continue contributing to an HSA. Starting Social Security anytime after age 65 automatically begins your Part A coverage up to six months retroactive to your Social Security signup date. If you made HSA contributions during that six-month period, you likely will face tax penalties.