Medicare and same-sex couples

I received an interesting question recently regarding Medicare eligibility for same-sex couples. Sherri Weintrop, a financial planner with Wealth Management Advisors in St. Louis, wrote to me with a question about her client, Bob.

Bob plans to retire at age 65 in May. He's in a domestic partner relationship, and his partner, Jim, also turns 65 in May, but plans to work a few more years. Jim will continue to be covered by his company health insurance plan, and Bob is eligible to be covered under the same plan as a domestic partner.  The cost of the employer plan is significantly less than what Bob would pay to enroll in Medicare Part B and buying a supplemental policy.

“However, Bob was told that if he did not sign up for Medicare Part B at 65, he would be penalized in higher-cost Medicare premiums when he did eventually apply after Jim retires,” Sheri wrote.

“I can find nothing to point to the accuracy of what my client was told,” she added. “Do you have any knowledge you can share with regards to this scenario?”

Although many workplace health plans offer coverage for employees’ domestic partners, Medicare doesn't offer domestic partners the same benefits as legal spouses, according to AARP.

On June 26, 2015, the Supreme Court issued a decision in Obergefell v. Hodges that held same-sex couples have a constitutional right to marry in all states and have their marriage recognized by other states.

As a result of that Supreme Court ruling, the Social Security Administration now recognizes same-sex couples’ marriages in all states in determining entitlement to Social Security and Medicare benefits. But SSA’s position on nonmarital legal relationships, such as civil unions and domestic partnerships, is less clear and is generally determined by how individual states treat those nonmarital relationships.

Medicare Part A covers in-patient hospital costs and is premium-free to anyone who has earned the minimum of 40 quarters of coverage and paid FICA taxes during at least 10 years of covered employment. Spouses are also eligible for premium-free coverage.

Many people enroll in Part A at 65, even if they continue to work, because it's premium-free. However, once enrolled in Medicare, they can no longer contribute to tax-deductible Health Savings Accounts (although they can take tax-free distributions if funds are used to pay for qualified medical expenses).

Medicare Part B covers outpatient services and has a monthly premium, currently $170.10 per month in 2022, for most Medicare beneficiaries. High-income beneficiaries pay more.

In most cases, people who miss enrolling in Medicare Part B during their initial enrollment period, face lifelong delayed enrollment penalties of 10% per year for every year they were eligible to enroll but did not. This is the situation Sherri’s client Bob could face.

The initial enrollment period begins three months before one’s 65^th birthday, includes the birthday month, and continue for three months beyond the birthday.

There's one major exception to the Medicare Part B signup rule: continued group health insurance coverage through a current employer or through a spouse’s current employer. Employees and their spouses who have “creditable” group health insurance can delay enrolling in Medicare penalty-free for up to eight months after that employer coverage ends by taking advantage of a special enrollment period.

“If domestic partners in the same situation delay signing up, they are not entitled to that special enrollment period and will pay penalties for Part B, in the form of higher monthly premiums,” according to AARP. “Medicare officials will measure the late period from when you first become eligible. The longer the gap, the bigger the penalty.”

[More: Medicare rules differ for small business owners and employees]

AARP says domestic partners might qualify for a special enrollment period and avoid late charges if the couple lives in a state that recognizes common law marriages and the relationship meets the legal definition of common law marriage in that state.

The Social Security Administration encourages same-sex couples in nonmarital legal relationships to apply for benefits even if they are not sure if they are eligible as protection against any loss of potential benefits. However, guaranteed eligibility for Medicare benefits as a spouse may be one of the best arguments for tying the knot.

[Questions about Social Security rules? Find the answers in Mary Beth Franklin’s ebook at Maximizing Social Security Retirement Benefits]