If you or someone you know has a marketplace health care plan under the Affordable Care Act (an ACA plan), and you have reached the age of 65 or are close to it, it is 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 ACA plan and sign up for Medicare.
But many people are unaware of this fact, because there is 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. If you become eligible for Medicare, you cease being eligible for ACA subsidies. So for most people, the choice is between a hospitalization plan that is free and a plan that is suddenly far more expensive than what they have been paying in the past.
In addition, if you do not sign up for Medicare when you turn 65, and you eventually change your mind and submit a Medicare application, there are often substantial penalties you must 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. The range for the premium is $104.90 to $335.70 per month, depending on your annual income. But late applicants must pay an additional 10 percent penalty for each year that enrollment is delayed. Also, there is a similar penalty for Part D drug coverage if your other plan did not meet certain requirements.
You should also know that you cannot sign up for Medicare and keep your ACA plan as a supplement. You can buy a separate Medigap policy to cover what Medicare does not, but it is actually illegal for someone to sell you an ACA policy once you have Medicare.
Is it ever wise to keep an ACA plan and not sign up for Medicare?
There may be a few cases. For instance, people who have not worked long enough to qualify for free coverage under Part A might prefer to keep their ACA coverage instead. And since Part B premiums are based on income, some wealthy people might find that their ACA premiums are cheaper than their Part B premiums.
A problem may arise if these people ever change their mind, as they will be faced with Medicare late-enrollment penalties. (For people who do not qualify for free Part A, the penalty is a 10% increase in premiums for twice the number of years that they were eligible and did not apply.)
There is 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 do not apply for Medicare when they are turning 65 are sometimes limited in when they can apply, and the insurance does not always take effect immediately, so they might face a gap in coverage.
You should also consider that, even if they are cheaper, many ACA plans do not 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 ACA plan, be careful not to do it before the date when your Medicare coverage actually begins. If your ACA 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 are 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 will remain as the household contact unless you affirmatively change this as well.
Finally, if you are currently receiving subsidies to reduce the cost of your ACA plan, it is 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 will have to repay the subsidies at tax time.