Retired Military Finances 101: Tricare, Medicare and Employer Provided Health Insurance

If you work past 65 in your post military career, you’ll have a dilemma….Medicare. Why is that? Because at age 65 you become eligible for Medicare (not your full retirement age, which is 67 for many of us). Here are the details and why it can be a problem.

Medicare and Tricare

Most people think you become eligible for Medicare at age 65. That’s partially correct. You become eligible for Medicare at age 65 or when you’ve been entitled to Social Security disability benefits for 24 months, plus a few other situations. So, if you or a spouse collect Social Security disability benefits you could become eligible for Medicare.

And that is when the trouble can start. Once you become eligible for Medicare (specifically Part B) you must take it or you lose your Tricare coverage. That’s kind of a big deal as Tricare (more correctly Tricare for Life (TFL)), acts as a supplement to your Medicare policy.

Bottom line: Eligible for Medicare? Take Part B (and A which is free) or lose Tricare

Premiums can Bite You in the Butt

Medicare premiums are based on your Adjusted Gross Income (AGI) and if you’re a retired Senior Military Officer or SNCO that could put a hit on your wallet. Here are the ranges and amount of the increased premiums, as of this writing (2021).

Single Taxpayer AGI	Married Filing Joint AGI	Medicare Part B Premium (per person)
Less than $88,000	Less than $176,000	$148.50
$88,001 - $111,000	$176,001 - $222,000	$207.90
$111,001 - $138,000	$222,001 - $276,000	$297.00
$138,001 - $165,000	$276,001 - $330,000	$386.10
$165,001 - $499,999	$330,001 - $749,999	$475.20
$500,000 and up	$750,000 and up	$504.90

If you’re still working at age 65 (or anytime you or your spouse become eligible for Medicare) and sign up for Medicare Part B, there is a really good chance you’re going to see increased Medicare premiums. If you’re in the National Capital Region there is a very real chance you could be in the upper two brackets (notice that if you’re in those categories, those filing single start paying the highest rate at greater than 50% of the amount that married couples do…yet another marriage penalty).

The good news is there is an out. If your employer offers a qualified health care plan, you can go on it and not take Medicare and you won’t be assessed the penalty or taking Medicare Part B late (yup, there is a penalty for that too). You and your spouse can take advantage of this.

The downside to this is you will lose Tricare coverage until such time as you do sign up for Medicare. That means you’ll lose pharmacy coverage. By the way, you might as well take Part A even if you do take employer coverage, since it is free anyway.

Weigh All Options

You may be able to get coverage through your employer for a lower premium than you will pay to Medicare and it may make sense to do so. But if your employer’s plan doesn’t have great prescription coverage it may be just as expensive as taking Medicare Part B and keeping your Tricare prescription coverage.

Take a hard look at any Roth contributions you are making to a 401(k) or other employer retirement plans. By reducing your AGI through pre-tax contributions, you may reduce your premium by an amount more than what you’ll pay in taxes when you take the funds out. Look for other pre-tax benefits your employer offers. Is Deferred Comp an option? Max it out, especially if you’re in those upper two cost bands.

You Need to Think Ahead

By the way, did you know what year’s income they use to determine the premium? If is your two-year prior tax return. So, when you turn 65, your Medicare premium will be based on the tax return for the year you turned 63. If you wait until you turn 65 to think about this, it will be too late.

Military Finances are Different

There are Medicare benefits specialists out there. How many of them do you think understand TFL and how Medicare affects you? We don’t think many do. That’s why we think you should work with a Financial Advisor or Planner that works with current and retired military members each and every day. If you’d like to chat with us about our services, give us a call or schedule a free initial consultation.

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If you found this article useful, you might like the following blog posts:

Retired Military Finances 101: Tricare for Life

Retiree TRICARE Select to Become More Expensive

6 Estate Planning Tips for Retired Military Business Owners