Understanding the Long-Term Costs of A Medicare Enrollment Mistake
A Medicare enrollment mistake is easy to make and can cost a senior thousands of dollars over a lifetime. Read on to see the top six Medicare enrollment mistakes and how to avoid them.
“I’m not retiring at 65 but plan to continue working and will keep my employer-sponsored healthcare plan. I don’t need to sign up for Medicare, do I?”
Well, that depends.
Based on assumptions and wrong information, seniors all too frequently make Medicare enrollment mistakes that can cost them thousands over the course of their lifetime.
The issue is that each senior’s life circumstances are different and there’s a Medicare regulation and enrollment period to accommodate each one. Miss the period that applies to you, and you may suffer long-term consequences.
Medicare Enrollment Mistake #1 – Signing Up at the Wrong Time
Generally, you will want to sign up for at least Medicare Part A when you turn 65. Medicare Part A comes to you at no charge as you have pre-paid this coverage through the FICA taxes paid during your working years.
If you are already receiving Social Security benefits, your enrollment will be automatic into both Parts A and B. Part B comes with a premium of $134 in 2017. Should you not want to keep Medicare Part B, you may decline coverage.
If your enrollment into Medicare isn’t automatic, you have a 7-month Initial Enrollment Period (IEP) within which you must complete your enrollment. This period begins three months prior to your birth month, includes your birth month and ends three months after your birth month. Should you miss this period, your next opportunity to enroll will be during the General Enrollment Period (GEP) from January 1 to March 31. If you wait until the Annual Election Period, your coverage will not begin until July 1, so you could find yourself going several months without coverage. In addition, if you don’t enroll when you are first eligible, you may be penalized 10% of your current premium for every year you were eligible but did not enroll.
Now for the exceptions
If Your or Your Spouse are Employed:
Although 65 is the age at which you become eligible to receive Medicare benefits, enrollment may not be necessary if you have medical coverage through your or your spouse’s employer. Check with your employer’s benefits representative to find out how your plan works with Medicare. (Some plans require that you sign up for Medicare coverage in order to receive benefits from the employer’s plan.)
Whether or not you must enroll in Medicare depends as well on the number of employees covered under your employer’s plan. If there are fewer than 20 employees covered, Medicare becomes the primary insurer and your employer’s plan takes second place. If you have not signed up for Medicare and have a medical event, you may well find yourself without insurance.
Employer plans with more than 20 workers become the primary insurer. If the drug coverage under your employer’s plan meets Medicare’s requirements, it is considered “creditable” and you need not participate in a Medicare Part D drug plan. If the coverage is not deemed to be creditable, it will be necessary to enroll in a Medicare Part D drug plan or face a penalty of 1% per month of the average Part D premium. This penalty is added to your then current premium for as long as you maintain Part D coverage.
When you retire from active employment, you have an 8-month window to enroll in Medicare part B. This window begins
- The month after employment ends
- The month after you lose coverage through your group health plan (based on current employment)
If You are Retired and Have Retiree Medical Coverage
A retirement medical plan does not qualify as a primary payer; retiree benefits do not replace Medicare. Therefore, it will be necessary for you to enroll in Medicare Parts A and B within the 8 months following your active employment.
If you have COBRA coverage
COBRA is a federal law that allows an employee to keep his employer group health plan after his employment ends or after a loss of coverage through this group health plan. COBRA coverage allows for the coverage of the worker’s dependents and, in many cases, this is an important consideration. COBRA, however, is not considered creditable coverage for the purposes of Medicare and is always secondary to Medicare unless you have End-Stage-Renal-Disease. (ESRD)
Medicare Enrollment Mistake #2 – Enrolling in the Wrong Plan
While Medicare is a robust program with comprehensive coverage, deductibles, copayments and coinsurance can add up. There is no maximum annual out-of-pocket amount for these expenses and a serious illness could wipe out a senior’s retirement savings. Two different options are available to cover these gaps: Medicare Part C – Medicare Advantage, or a Medicare Supplement Policy, also referred to as a Medigap Plan.
Under Medicare Advantage, Medicare assigns the senior’s care to a managed care organization and pays that carrier a monthly stipend for the senior’s care whether or not the senior receives services. Medicare Advantage has its own deductibles, copayments, and coinsurance, but the maximum annual out-of-pocket expense is capped in 2017 at $6750.
The government, in conjunction with the National Association of Insurance Commissioners has developed and regulates 10 Medigap policies. These policies cover a range of the gaps in original Medicare and come in a range of prices. Because they are prescribed and regulated by the government, the plans must include the identical benefits from one company to another. The only difference between companies is the price they charge for the plan.
A major Medicare enrollment mistake many seniors make is to choose the same plan that a neighbor or family member has. Each senior, depending on their health and finances, has unique circumstances and a plan that works well for one person may not be a good fit for another. Be sure to shop the plans with an independent agent to select the plan that offers the best benefits for you.
Medicare Enrollment Mistake #3 – Delaying Enrollment in your Medicare Supplement Plan
If you enroll in a Medicare Supplement Plan within 6 months of both turning 65 and enrolling in Medicare Part B, the insurer may not take into consideration your health status or any pre-existing
conditions. After that 6-month window, it will be necessary for a senior to answer medical questions and go through underwriting to qualify for coverage.
The issue of Medicare Supplement Open Enrollment during this 6-month period is extremely critical for that senior who may have serious health problems. This is the one opportunity to be able to purchase a Medicare Supplement policy because acceptance is guaranteed during this period. And once the coverage is in place, the senior will never lose coverage as long as the premiums are all paid on time. An insurer may not dis-enroll a senior due to any medical issues.
Medicare Enrollment Mistake #4 – Assuming Medicare is a Family Plan
A Medicare plan covers only one person; two spouses must each have their own plan. And while both may choose to enroll in the same Medicare Advantage or Medicare Supplement Plan, they may find that different Medicare Part D Drug Plans work better for them.
The net cost of your Part D Drug plan is a calculation of the plan’s premium, any deductible, the plans formulary and tier structure, and the senior’s list of medications. Given the variety of medical conditions at can affect two seniors and the variety of medications that may be prescribed to treat them, it is possible that a plan that may be a good fit for one spouse may not work at all for the other. Your independent agent can help you sort through that available plans to find the one that can give you the most comprehensive coverage at the lowest cost.
Medicare Enrollment Mistake #5 – Putting Your Plan on Cruise
Medicare Advantage Plans and Medicare Part D Drug Plans change every year. It’s not good enough to do your homework, settle on a plan, and then just let it ride from year to year. Advantage
Plans may change the providers in their network and you may suddenly find that your doctor is no longer available to you under your current plan. Part D Drug Plans may change their formulary or shift the drugs they cover from one tier to another. This could have a significant impact on the availability or cost of your medications.
Medicare Open Enrollment runs from October 15 to December 7 every year. During this period, work with your agent to ensure that the plan you’re in remains the best option for your coverage. You may find that another plan offers better, or less expensive, coverage.
Medicare Enrollment Mistake #6 – Taking the High-Income Surcharge on the Chin
Most seniors in 2017 will pay $134 for their Part B coverage, but those earned $85,000 as a single $170,000 jointly will have to pay a surcharge which can range from $187.50 to 428.60. The Social Security Administration uses the amount listed on your tax return from two years prior in figuring this charge, so in 2017, the return from 2015 would be used. However, when a senior retires, there is often a significant drop in income and you may be able to get the surcharge reduced based on one of a number of life-changing events such as reduction or work hours or retirement, death of a spouse, marriage, or divorce. Should this be the case, you can ask that Social Security use your 2016 return instead. You will need to submit proof of the change such as pay stubs or a signed statement of retirement from your employer, or a marriage or death certificate.