Retiree health coverage and Medicare

Retiree coverage from a former employer or union can work well with Medicare, but it follows different rules from coverage through a current job. Most of the mistakes people make come from treating the two the same.

Medicare usually pays first

With retiree coverage, Medicare generally pays your bills first and sends what's left to your retiree plan. Retiree plans usually fill Medicare's gaps and sometimes add extras like drug coverage. Retiree coverage isn't a Medigap policy.

You'll probably need Part A and Part B

Most retiree plans expect you to have both. If you were eligible for Medicare but didn't sign up, your retiree plan might not pay your medical costs for that time.

The Part B trap: retiree coverage and COBRA don't count as coverage from current employment. If you put off Part B because you have retiree coverage, you won't get a Special Enrollment Period later. You'd have to wait for the General Enrollment Period (January 1 to March 31) and could pay a late penalty for as long as you have Part B. If you're leaving a current job, you have up to 8 months after the job or the coverage ends, whichever comes first, to sign up without a penalty, whether or not you take COBRA. See leaving job-based coverage.

Drug coverage

• Your plan must tell you each year whether its drug coverage is "creditable," meaning worth as much as Medicare drug coverage. If it is, you can skip Part D without a late penalty.
• Before you join a Medicare drug plan, ask whether joining would end your retiree coverage, including health coverage, for you, your spouse or your dependents.

Questions for your benefits office

• Do I need Part A and Part B, and from what date?
• Will my benefits, or my family's, change when I get Medicare?
• Is the drug coverage creditable?
• Do you offer coverage designed to work with Medicare?

If you're thinking about Medigap instead, remember your 6-month Medigap Open Enrollment Period starts when you sign up for Part B. After it ends, you may not be able to buy a policy or may pay more. Your state's SHIP counselors can help you compare for free.