How to Defer Medicare and Avoid Late Penalties

You can defer Medicare and avoid late penalties past age 65 if you or your legal spouse have active group health coverage through a current employer with 20 or more employees. The standard Part B premium is $202.90 per month in 2026, so putting off enrollment while you have good workplace coverage saves real money.¹ Get the rules wrong, though, and Medicare adds a surcharge to your premiums for as long as you have coverage, which for most people is the rest of their life.²

Who Qualifies to Delay Part B

Two conditions have to be true at the same time. You or your spouse must be actively working, not retired and not on leave, and you must be covered under a group health plan tied to that current employment. The employer needs 20 or more full-time or part-time employees.³ If the company is smaller than that, Medicare is your primary insurer by default and the employer plan pays second, so you need to enroll during your Initial Enrollment Period. That window runs seven months: three months before you turn 65, your birthday month, and the three months after.⁴

One trap for smaller companies: if your employer participates in a multi-employer plan and any single participating employer has 20 or more workers, the standard rules apply to everyone in the plan. The small-employer exception only works when every employer in the arrangement is below 20.⁴

The statute says “spouse.” Coverage through a domestic partner’s employer plan does not qualify for penalty-free deferral unless your state recognizes a common-law marriage.³ Marrying before 65 is the cleanest fix if this affects you.

Coverage That Does Not Count

Several kinds of insurance feel like they should qualify but don’t, and relying on them past the Initial Enrollment Period locks in a permanent penalty.

COBRA continuation coverage after leaving a job is not group health plan coverage for Medicare purposes. If you’re on COBRA when you turn 65, enroll in Part B during your Initial Enrollment Period. COBRA also does not extend your Special Enrollment Period; the clock started when your employment ended, not when COBRA runs out.⁵

Retiree health plans are not based on current employment and don’t qualify. Many actually require you to enroll in Medicare and wrap around it as secondary coverage, so check with your plan administrator before assuming anything.

ACA Marketplace plans and individual policies bought directly from an insurer do not count either. If that’s your only coverage, enroll at 65.⁶

Self-employed coverage rarely qualifies. Ask your insurer whether the plan meets the IRS definition of employer group health plan coverage; in most cases it won’t.⁶

VA health care does not require Medicare enrollment, and you can keep using VA benefits without Part B. But VA coverage is not employer group health coverage, so time spent relying on it doesn’t protect you from the late penalty. Many veterans carry both.

The common thread is “current employment.” If you’re not actively employed (or married to someone who is) at a company with 20-plus employees whose plan covers you, the deferral option isn’t available.

How to Decline Automatic Part B Enrollment

If you’re already collecting Social Security or Railroad Retirement Board benefits when you approach 65, Medicare signs you up for both Part A and Part B automatically. Your welcome packet and Medicare card arrive about three months before your 65th birthday.⁷ With qualifying employer coverage, you can keep Part A, which is premium-free for most people, and decline Part B to avoid the $202.90 monthly charge.¹

Follow the instructions in your welcome packet and mail the Medicare card back to Social Security at the address provided.⁸ Do it promptly. If you hang onto the card, Part B premiums start coming out of your Social Security checks. SSA sends you a replacement card showing Part A only. Copy the original card and keep proof of mailing before sending anything back.

How to Enroll in Part A Only

If you haven’t started collecting Social Security yet, nothing happens automatically. You apply through the Social Security Administration’s website and choose which parts you want. Select Part A only and leave Part B unselected.⁹ A summary page asks you to confirm you’re declining medical insurance. Save the confirmation number and digital receipt as proof that Part B was intentionally omitted, not accidentally missed.

Part A covers hospital stays and is premium-free if you or your spouse earned at least 40 quarters (10 years) of Social Security work credits. For 2026, people with 30 to 39 quarters pay $311 per month, and those with fewer than 30 pay $565 per month.¹ For most people, taking premium-free Part A at 65 costs nothing and provides hospital coverage that coordinates with the employer plan.

Deferring Part D Prescription Drug Coverage

Part D uses a different standard. You can defer without penalty only if your current drug coverage is “creditable,” meaning it pays at least as much on average as the standard Medicare drug plan.¹⁰ Your employer or plan sponsor has to send you a written notice each year before October 15 stating whether your coverage meets that threshold. Keep every one of these notices. They prove you maintained creditable coverage and you’ll need them when you eventually enroll.¹¹

If you go 63 or more consecutive days without creditable drug coverage after your initial enrollment window, Medicare adds a late penalty. It’s 1% of the national base beneficiary premium ($38.99 in 2026) for every full month you lacked coverage.²¹² Two years without creditable coverage adds roughly $9.40 per month, recalculated each year as the base premium changes. Permanent, like the Part B penalty.

The HSA Six-Month Lookback Trap

Contributing to a Health Savings Account through a high-deductible workplace plan creates a tax problem the moment Medicare kicks in. The IRS sets your HSA contribution limit at zero starting the first month you have Medicare coverage. Anything you contribute after that is an excess contribution, subject to a 6% excise tax every year it stays in the account uncorrected.¹³

Here’s the twist. When you enroll in Part A after age 65, coverage backdates up to six months (but never before your 65th birthday). Apply at 66, and Medicare treats you as covered starting six months earlier, turning every HSA contribution you made in that window into an excess contribution. Stop HSA contributions at least six months before you plan to enroll in any part of Medicare. Existing HSA funds can still pay tax-free for qualified medical expenses, including Medicare premiums, after enrollment. And remember: applying for Social Security triggers automatic Part A, which starts the retroactive clock.¹³

The Special Enrollment Period After Coverage Ends

Once your employment or group health plan coverage ends, whichever comes first, you have an eight-month Special Enrollment Period to sign up for Part B with no late penalty.⁵ Eight months goes quickly. Miss it and you’re stuck waiting for the General Enrollment Period (January 1 through March 31), coverage doesn’t start until July 1, and the permanent penalty attaches.

For Part D, the window is only two full months after losing creditable drug coverage.¹⁴ Put both dates on a calendar as soon as HR notifies you of any coverage change.

You’ll need two forms. The CMS-40B is your application for Part B; you fill it out with your Medicare number and personal information.¹⁵ The CMS-L564 goes to your employer, where a company official documents your dates of employment and group health plan coverage and signs.¹⁶ Submit both together to your local Social Security office. Get the CMS-L564 signed before you leave the company if you can. Tracking down a former employer’s signature months later is a headache.

What Late Enrollment Actually Costs

The Part B penalty adds 10% to your standard monthly premium for every full 12-month period you were eligible but not enrolled and didn’t have qualifying coverage. Waiting three years without a valid reason means a 30% surcharge. Against the 2026 base of $202.90, that’s an extra $60.87 per month, and because the percentage applies to each year’s new base premium, the dollar amount grows over time. The surcharge lasts as long as you have Medicare.²

The Part D penalty accrues monthly: 1% of the national base beneficiary premium per full month uncovered. At the 2026 base of $38.99, 24 months of no creditable coverage adds about $9.40 per month going forward, adjusted each year as the base moves.¹² Both penalties are permanent.

TRICARE Changes the Calculation

Military retirees have to enroll in Part B at 65 to keep TRICARE for Life, which is the supplement covering most costs Medicare doesn’t. Skip Part B and you lose TRICARE for Life entirely.¹⁷ The only exception is active-duty service members and their family members, who can stay on TRICARE Prime or Select without Part B while the sponsor is on active duty. When active duty ends, Part B is required to remain TRICARE-eligible. If you’re a military retiree with employer coverage, weigh the TRICARE for Life requirement against the Part B savings before deciding to defer.

1
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
2
Medicare.gov. Avoid Late Enrollment Penalties
3
Social Security Administration. Compilation of the Social Security Laws – Section 1837(i)
4
Centers for Medicare & Medicaid Services. Small Employer Exception
5
Medicare.gov. When Does Medicare Coverage Start
6
Medicare.gov. Working Past 65
7
Centers for Medicare & Medicaid Services. Original Medicare (Part A and B) Eligibility and Enrollment
8
Medicare.gov. How to Drop Part A and Part B
9
Medicare.gov. How Do I Sign Up for Medicare
10
Centers for Medicare & Medicaid Services. Creditable Coverage
11
Medicare.gov. Notice of Creditable Coverage
12
Centers for Medicare & Medicaid Services. 2026 Medicare Part D Bid Information and Part D Premium Stabilization Demonstration Parameters
13
Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
14
Medicare.gov. Special Enrollment Periods
15
Centers for Medicare & Medicaid Services. Application for Enrollment in Medicare Part B (Medical Insurance)
16
Centers for Medicare & Medicaid Services. CMS-L564 Request for Employment Information
17
TRICARE Newsroom. Q&A: How Does TRICARE for Life Work With Medicare