retirement

The Medigap Conundrum If You Take a Job in Retirement

A guide to some of the ground rules to keep your insurance intact and avoid penalties.

At 65, you retire, dutifully sign up for Medicare Parts A, B and D and select a Medicare supplement (medigap) policy to help cover your out-of-pocket costs. It’s not cheap, but you’re confident you have the insurance you need.

Then you decide to go back to work. Maybe you need the money. Maybe a company makes you an offer you can’t refuse. Bell-ringing bonus: The new job offers fabulous medical insurance as a fringe benefit.

Can you cancel your suddenly superfluous Medicare and medigap coverage and pocket hundreds of dollars a month in savings? Or will that threaten your ability to restart that coverage, when you really retire?

Those are the questions weighing on Barry Segulyev these days. The 75-year-old accountant lives in northern California and works an hour away in Reno, Nev. At age 65, he cut a deal with his then-employer, a nonprofit with fewer than 20 employees, to give up his employer health insurance and sign up for Medicare and medigap in exchange for some extra cash to help pay premiums. Medicare became his primary insurer.

A few years later, he switched to his current job, at a much larger firm with a company plan that provides primary coverage. Now Segulyev gets little, if any, benefit from Medicare and medigap. He’d like to drop them to save money until he leaves his current job.

The good news is that if Segulyev drops Part B, he can sign back on later with no penalty, as long as he does so within eight months after the company insurance ends. To disenroll, you must submit a special form after discussing the matter either in person or on the phone with a Social Security representative.

Things can get sticky if he drops medigap, though. Under federal law, you generally get just one opportunity to buy a supplemental policy when insurers have to sell it to you regardless of your health. That window is open for six months starting the first time you are at least age 65 and have both Medicare Parts A and B.

For Segulyev, that window closed a decade ago. If he drops his medigap policy now, he might not be able to buy a substitute plan later without medical underwriting. If he is in poor health at the time, insurers could charge him more or refuse to sell him a policy.

We say could because, although federal rules provide just one open enrollment period, Segulyev might get another bite at the apple. Casey Schwarz, senior counsel for education for the Medicare Rights Center, says it’s unlikely the medigap insurer would ask whether Segulyev had a supplemental policy in the past and, assuming he had simply delayed enrolling in Part B, would issue a policy without underwriting. He’d get the plan at the same price others of his age were paying.

It’s not guaranteed, though. “Unfortunately, the rules aren’t really super specific about what should happen in this situation,” she says.

Check Your State's Rules

Where you live comes into play, too. Schwarz points out that New York state has year-round open enrollment for medigap, making it easy to buy back into the system without underwriting. In California, where Segulyev lives, you can change medigap policies once a year, around your birthday, no questions asked. But if Segulyev drops his current coverage, that rule doesn’t help him. For your state’s rules, check with your state health insurance assistance program at shiptacenter.org.

When it comes to Part D prescription-drug coverage, you can disenroll if you get a job with coverage and reenroll later without penalty, as long as the employer coverage is at least as good as Part D coverage.

So what should Segulyev do—continue Medicare or drop it? Schwarz offers a third choice. She suggests Segulyev consider dropping his company plan. He could save that cost and rely on Medicare and medigap, and eliminate any problems re-upping his medigap.

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