What happens to Medicare when you suspend Social Security bennies?

You don't lose your health care coverage -- unless you opt out.

I received some great questions from InvestmentNews readers following my recent post on how to voluntarily suspend Social Security benefits once you reach your normal retirement age of 66 as a way to earn delayed retirement credits.

Duane asked: “What happens to Medicare benefits when you voluntarily suspend Social Security benefits?” Nothing.

“Voluntary suspension applies only to Social Security benefits,” said Dorothy Clark, a spokesperson for the Social Security Administration. “It does not apply to Medicare.”

That means you can voluntarily suspend your Social Security benefits at age 66 or later and earn 8% per year in delayed retirement credits up to age 70 when you can restart your benefits at the new higher amount.

But don’t confuse a voluntary suspension of benefits, which can only be done between your normal retirement age and age 70, with a withdrawal of Social Security benefits.

Under a rule that went into effect in December 2012 [two years ago], you now have [an] a once-in-a-lifetime opportunity to withdraw your application for Social Security benefits and that must be done within 12 months of first claiming them.

When you withdraw your Social Security benefits by filing Form SSA-521, you must repay all the benefits that you and your family — such as your spouse or dependent minor children — have received based on your earnings record.

If you are already entitled to Medicare at the time of withdrawal, you may choose to withdraw your Medicare coverage, too, but you don’t have to.

If you withdraw your Medicare Part A coverage, which pays for hospitalization, you must repay all Medicare Part A benefits paid on your behalf. As there is no premium for Medicare Part A, there is no premium to repay. You would only have to repay benefits if you were hospitalized, received skilled nursing services or home care covered by Medicare Part A during the period before you withdrew your application.

If you withdraw the Medicare Part B coverage that you already have, your coverage would continue for the current month and the next month before it ends. Most beneficiaries pay a premium of $99.90 per month for Part B coverage in 2012. But if you withdraw from Medicare Part B and re-enroll at a later [day] date, your premium may increase by 10% for each 12-month period you were eligible to enroll in Part B but did not.

If you are enrolled in a Medicare Advantage plan (Part C), and you withdraw from Medicare Part A or Part B (or both), your enrollment in your Advantage plan will automatically end.

If you withdraw from Medicare Part A and Part B, you will no longer be eligible for Medicare Part D prescription drug coverage.

Another reader posed a question with an interesting twist: Could he opt out of Medicare Part A and keep his Social Security benefits?

No, he can’t

The reason for his unusual request was that he is [older than] 66, continues to work and is covered by his employer’s health plan. He wants to keep shoveling tax-deferred dollars into his Health Savings Account, but he can’t contribute to an HSA if he is enrolled in Medicare. Now that he is 66 and can earn as much as he likes without losing any Social Security benefits to the earnings cap, he wants to file for retirement benefits but he doesn’t want to participate in Medicare.

Eligibility for Medicare Part A Hospital Insurance is tied to monthly Social Security benefits. “Any individual establishing entitlement to monthly benefits cannot decline Medicare Part A if he or she is age 65 or older,” said Ms. Clark. “The only way to avoid Part A entitlement is through withdrawal of the monthly Social Security benefit application,” she said.

As explained above, withdrawing your application for Social Security benefits within 12 months of first claiming means not only would your monthly payments stop, but you would have to repay Part A benefits, if any, that had been paid on your behalf. in this reader’s case, he shouldn’t file for Social Security benefits or Medicare coverage.

If you are enrolled in a Medicare Advantage plan (Part C), and you withdraw from Medicare Part A or Part B (or both), your enrollment in your Advantage plan will automatically end.

If you withdraw from Medicare Part A and Part B, you will no longer be eligible for Medicare Part D prescription drug coverage.

Another reader posed a question with an interesting twist: Could he opt out of Medicare Part A and keep his Social Security benefits?

No, he can’t

The reason for his unusual request was that he is older than 66, continues to work and is covered by his employer’s health plan. He wants to keep shoveling tax-deferred dollars into his Health Savings Account, but he can’t contribute to an HSA if he is enrolled in Medicare.

Eligibility for Medicare Part A Hospital Insurance is tied to monthly Social Security benefits. “Any individual establishing entitlement to monthly benefits cannot decline Medicare Part A if he or she is age 65,” said Ms. Clark. “The only way to avoid Part A entitlement is through withdrawal of the monthly Social Security benefit application,” she said.

As explained above, withdrawing your application for Social Security benefits within 12 months of first claiming means not only would your monthly paments stop, but you would have to repay Part A benefits, if any, that had been paid on your behalf.