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Whether opting out of Part A or Part B is a good idea depends on your circumstances. But it’s always something you should consider extremely carefully to avoid making a mistake that may cost you money and maybe coverage down the road.
When Social Security automatically enrolls you in Medicare — and this situation happens only if you receive (or are about to receive) Social Security or railroad retirement or disability benefits — it signs you up for both Part A and Part B and sends you a letter that gives you the option of declining Part B. In that case, you need to take action if you want to opt out.
On the other hand, if you must apply for Medicare A and B (because you’re not receiving retirement or disability benefits), it’s up to you to decide whether to opt in.
Strictly speaking, you can’t opt out of Part A if you’re receiving Social Security retirement or disability benefits. The only way you can do so is to withdraw your application for retirement or disability benefits at this time — or, if you’ve already been drawing those benefits, to repay the government for all the payments you’ve already received.
That’s sounds like pretty heavy stuff, and it’s already been the subject of a lawsuit (so far unsuccessful) against the U.S. government. But most people don’t even consider declining Part A. After all, why give up a benefit that’s free (no premiums) because you’ve already paid for it through taxes while working?
However, one situation comes with a very strong practical reason for opting out of Part A. That’s if you’ll continue to work when enrolled in Medicare and have from your employer a form of health insurance that combines a high-deductible health plan with a health savings account (HSA) funded by pre-tax dollars.
Under IRS rules, you can’t continue to contribute to a HSA if you’re enrolled in Medicare — which you’ll be automatically if you’re receiving Social Security payments.
If you’re entitled to Part A without paying premiums, you don’t get hit with a late penalty if you delay enrolling in Part A. But you do incur late penalties if you can buy into Part A services by paying premiums for them but don’t sign up at the right time.
