Medicare at 65 While Still Working: Part A, Part B, and the HSA Trap

Employer coverage doesn't mean "skip Medicare." It means you get to choose — but the rules depend on your employer's size, whether you have an HSA, and when you plan to retire. Making the wrong call can cost you permanently.

The most common mistake

Many people turning 65 with solid employer coverage assume they can simply ignore Medicare. That's sometimes right, sometimes catastrophically wrong. The answer depends on two things the HR department rarely explains:

1. How many employees does your employer have?
2. Are you contributing to an HSA?

Part A (hospital) and Part B (medical) are also entirely separate decisions. You may want one and not the other — or neither, or both.

Step 1: The employer-size rule — who pays first?

Federal law determines whether your employer plan or Medicare is the primary payer. This is not negotiable.

How to check: Count full-time and part-time employees across the entire company (not just your location). A 22-person company where you work a 3-person satellite office still clears the 20-employee threshold. If your employer participates in a multi-employer plan where any participating employer has 20+ employees, the 20+ rule applies to everyone in the plan.¹

Part A vs Part B: two separate decisions

Medicare is not a single enrollment. Part A and Part B are distinct, with different costs and different enrollment rules.

Part A is free for nearly everyone with a work history, so most people take it at 65 regardless. The exception is if you're actively contributing to an HSA — see the next section. Part B has a meaningful premium and, if your employer plan is primary, adds limited value while you're still working.

The HSA trap: Part A enrollment ends your HSA contributions

This is the most expensive mistake made by high-income professionals still working at 65.

Federal law prohibits contributing to a Health Savings Account while enrolled in any part of Medicare.³ Enrolling in Part A — even though it's free — immediately ends your eligibility to contribute to an HSA. Contributions made after your Medicare effective date are "excess contributions" subject to:

• Ordinary income tax on the excess amount
• A 6% annual excise tax on the excess, charged each year it remains uncorrected³

The Social Security link: If you claim Social Security at 65 or later, you're automatically enrolled in Part A at the same time. You cannot separate them. To keep contributing to an HSA past 65, you must delay both Social Security and Part A enrollment.

Your Special Enrollment Period: the 8-month window

If you delay Part B while covered by an employer group health plan based on current employment (20+ employees), you are protected from the late enrollment penalty by the Special Enrollment Period (SEP).⁵

The SEP gives you 8 months to enroll in Part B after whichever comes first:

• Your employment ends, or
• Your employer group health plan coverage ends

You can also enroll in Part B at any time while you are still covered under the employer plan — you don't have to wait until you're leaving. If you're 68, still working, and decide you want Part B now, you can enroll during any month of active employer coverage.

The Part B late enrollment penalty: permanent and compounding

If you miss your Initial Enrollment Period and don't qualify for a SEP, the penalty is steep — and it never goes away.

Part B penalty: 10% added to the Part B premium for every full 12-month period you could have had Part B but didn't.⁵ At a base premium of $202.90/mo in 2026, a 3-year gap costs an extra $60.87/month — permanently, for the rest of your life.

Part D (drug coverage) penalty: 1% of the national base beneficiary premium per month without creditable drug coverage. For someone without drug coverage for 24 months, that's a 24% permanent surcharge on their Part D premium.

Penalty applies to 2026 base Part B premium of $202.90/mo.² Future premiums (and thus the penalty amount) rise over time — 20-year cost estimates use current premium only. Penalty is permanent.

Part D drug coverage while still working

If your employer plan includes prescription drug coverage that is "creditable" (at least as good as standard Medicare Part D coverage), you can delay Part D enrollment without penalty. Your employer HR department should provide a written notice of creditable coverage annually.

If your employer's drug coverage is non-creditable (rare, but it happens), enroll in a standalone Part D plan immediately to avoid the penalty clock starting.

Checklist: what to do if you're 63-64 and planning to retire

• Confirm employer size. Count all employees across the full organization. This determines whether you can delay Part B.
• Check whether you're on an HSA-eligible plan and how much you've been contributing. Model the value of HSA contributions vs. the benefit of early Part A enrollment.
• If you want to preserve HSA eligibility: Delay Part A and do not claim Social Security. Stop HSA contributions 6 months before you plan to apply for either.
• If HSA is not a concern: Enroll in Part A at 65 (free for most). Delay Part B enrollment if employer has 20+ employees and plan is primary.
• Create a Medicare.gov account to verify your enrollment status and confirm Part A effective date.
• Set a calendar reminder for your retirement date + 8 months. That is your SEP hard deadline for Part B enrollment. Do not miss it.
• Check Part D creditable-coverage letter from your employer plan each year. Keep these on file.
• Do not rely on COBRA to protect you from a Part B late enrollment penalty. The 8-month clock runs from when employment ends.

How this intersects with IRMAA

High-income professionals delaying Medicare until after a high-income working year face a compounding problem: their 2-year look-back MAGI (when Medicare premiums are determined) may be set by their highest earning years. Someone retiring at 67 with W-2 income of $400,000 in their final year of work will face top-bracket IRMAA surcharges for their first two years on Medicare — roughly $6,936/year extra per person beyond the base premium.

Planning around this requires coordinating your retirement date, income timing, and Medicare enrollment — not just picking an enrollment month at random. A specialist advisor models all three together.