Personal Finance

Retiring overseas? How Medicare may (or may not) fit into your plans

Key Points
  • Basic Medicare does not cover medical services you get outside the U.S. and its territories, except in very specific situations.
  • If you or your spouse work overseas and you have qualifying insurance (as defined by the U.S. government), you generally can avoid late-enrollment penalties if you sign up for Medicare later than age 65.
  • However, if you don't meet an exclusion and you don't sign up during your initial enrollment period, you face life-lasting penalties if you change your mind later.

For Edd and Cynthia Staton, reaching age 65 while living in Ecuador meant making a decision about Medicare.

The retired couple already had health insurance through that country's national health plan, and Medicare generally provides no coverage overseas. Yet the Statons knew that if they someday faced an unplanned relocation back to the U.S. and tried to sign up at that point, they would pay a steep price in the form of late-enrollment penalties.

"People may expatriate with thoughts of not going back to the States, or of visiting on a limited basis, but you never know what the future holds," said Edd Staton, 70, who along with wife Cynthia, 66, operate a website for people considering a retirement abroad. They said they have not yet used their Medicare benefits, despite paying monthly premiums and visiting the U.S. multiple times a year.

Cynthia and Edd Staton say an unusual strategy saved their retirement.
Courtesy: Edd and Cynthia Staton

Exactly how many U.S. expats are retirees is hard to come by. In 2016, the State Department estimated that roughly 9 million non-military Americans were living overseas, according to various reports. Separately, Social Security Administration data show that about 692,000 monthly checks go to overseas addresses.

For many people, living abroad means access to cheaper health-care coverage. The Statons, for instance, said they pay $81 monthly for coverage through Ecuador's national health plan. It comes with no deductible and no restrictions for pre-existing conditions.

Once expats reach age 65, though, things can get a little messy.

That's the age when you become eligible for Medicare. And depending on how long you remain overseas and whether you are working there, it may make sense to be on Medicare — even though it won't be any help while you're on foreign soil.

Retiring abroad: 3 things to know before you go
Retiring abroad: 3 things to know before you go

"The question is, what is your intention?" said Roger Luchene, a Medicare agent with Hammer Financial Group in Schererville, Indiana. "Are you moving back, or going back and forth between that country and the U.S.?

"If either are the case, you should probably have Medicare," he added.

While you can tap your Social Security benefits as early as age 62, you become eligible for Medicare at age 65. You get an initial enrollment period, as it's called, which starts three months before your 65th birthday and ends three months after it (seven months total).

Basic Medicare consists of two parts. Part A, which provides hospital coverage, is free as long as you or your spouse has at least a 10-year work history of paying into the system. Part B (outpatient care) has a premium. In 2019, the base amount is $135.50, although higher earners pay more.

"You have the responsibility of applying for Parts A and B when you turn 65 unless you've been collecting Social Security early, in which case you're auto-enrolled unless you opt out," said Elizabeth Gavino, founder of Lewin & Gavino in New York and an independent broker and general agent for Medicare plans.

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Basic Medicare does not cover medical services you get outside the U.S. and its territories except in very specific situations. That includes when you're on a ship within the territorial waters adjoining the country — within six hours of a U.S. port — or you're in, say, Alaska, and the closest hospital to treat your emergency is in Canada.

The general rule is that unless you have qualifying coverage (as defined by the U.S. government), you face a late-enrollment penalty if you sign up for Part B after your initial enrollment period. That amounts to a 10% higher monthly base premium for each 12-month period you could have been enrolled but were not. And, those penalties are life-lasting.

That rule applies to people living overseas, as well. According to Medicare expert Patricia Barry, author of "Medicare for Dummies," if you miss your initial enrollment period at age 65, these are the circumstances when you would be entitled to what's called a special enrollment period — which comes with no late-enrollment penalties:

  • You work for an employer (American or foreign) that provides you with private group health insurance.
  • You work for an employer with no special health benefits, but are covered under the national health system of the country in which you live.
  • You are self-employed and covered under the national health system of the country in which you live.
  • You are the spouse of anybody in the above three categories, with the same coverage.
  • You are volunteering abroad and have health coverage from an approved sponsoring organization, such as the Peace Corps.

Otherwise, you can expect to pay late-enrollment penalties if you miss your initial enrollment period.

Be aware that you'd also need to prove that you had qualifying coverage while working overseas, Barry said. That means you should hold onto things like tax returns, pay stubs, medical statements, and records of doctor visits and bills.

You also need to be aware that different situations come with different enrollment times if you're signing up late for Medicare, whether you live overseas or not. For instance, if you get a special enrollment period because you had qualifying coverage and were employed, that window starts when you lose that coverage (or employment, whichever is first) and lasts eight months. In that situation, your coverage begins the month after you sign up.

However, if you don't have a qualifying health plan and sign up late for Medicare, you can only enroll in the general enrollment period, which lasts from Jan. 1 to March 31. Then you have to wait for coverage to be effective July 1.

Getty Images

Separately, if you live overseas and don't qualify for free Part A, and you sign up for Medicare later than age 65, you get a three-month window once you move back to the U.S. to enroll. In that situation, there are no late penalties.

Meanwhile, Medicare Part D is prescription drug coverage and is sold through private plans — either as a standalone policy or as part of an Advantage Plan. Like basic Medicare, it provides no overseas coverage.

For people living abroad who sign up for Part D upon returning to the U.S., there is no late-enrollment penalty as long as you get coverage within a certain time frame of relocating (either two or three months, depending on the specifics of your situation).

If you miss your window, you'll face a life-lasting penalty of 1% for each month that you didn't have coverage but should have, along with a possible delay in when coverage is effective. That penalty amount is based on the "national base premium," which in 2019 is about $33.

For people already on Medicare and heading overseas for a set amount of time, you could consider travel medical insurance for coverage while abroad.

Such options are priced based on your age, the length of the coverage and the amount of it. On top of providing coverage for necessary health services, a policy typically includes extras such as non-medical required evacuation, lost luggage and even dental care required due to an injury.

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