Here's something you may not know: You don't have to sign up for Medicare. The catch? If you don't enroll when you're first eligible, you could pay some serious financial penalties later in life.
With all the talk about forcing people to have health insurance, and the number of people who apparently don’t want any part of it, maybe you’ve wondered: Do you have to sign up for Medicare?
Basic Medicare hospital coverage (Part A) is free for most Americans. You’re covered whether you want it or not, as long as you have more than 10 years (or 40 quarters) of Medicare-covered employment, according to Medicare.gov.
But the rest of Medicare — for doctor visits (Part B) and prescription drugs (Part D) — is voluntary. Which means, when you turn 65, you have some decisions to make. AARP explains:
Medicare has a seven-month period in which you can sign up for Part B, which covers doctor bills and other outpatient medical costs. This period begins three months before the month of your 65th birthday, includes the month you turn 65 and ends three months after your birthday month.
The catch? If you don’t sign up at that point, you could pay some serious financial penalties later in life.
All this has nothing to do with Obamacare, by the way. If you’re eligible for Medicare, Obamacare doesn’t apply to you.
We just said you must sign up around your 65th birthday or pay penalties later. There’s one exception: If you’re eligible for Medicare, are working and have health insurance through your company or your spouse’s employer, you can hold off on signing up.
“Based upon your circumstances, you don’t have to sign up for Medicare at age 65 and there will not be a penalty if you follow the rules,” Gail Buckner wrote at Fox Business.
Before deciding, talk with your insurance agent or your employer’s human resources office. Also make sure, if you decide to skip Medicare prescription drug coverage, that your plan qualifies with Medicare as “creditable.” You’ll find more information in this Medicare publication.
The penalty: Part B
Say you’re 65, no longer working, and don’t want to pay premiums for Part B Medicare insurance (for doctor visits) or Part D (prescription drug coverage). That’s OK. But if you opt out, the costs will be higher if you want to get back in.
The reason: Insurance plans work because people who don’t need the coverage pay premiums along with those who need it. Insurance plans go broke when the only people paying in are those using it.
Suppose you’re 72 today. You became eligible for Medicare seven years ago, in 2006. But you waited until now to sign up for Part B. If you want to get into Medicare Part B today, your monthly premiums will include a penalty of 10 percent for each year you were eligible but didn’t enroll, added to your premium forever, says Linda Williamson, an agent in Bellingham, Wash., with Vibrant USA, an independent insurance agency that specializes in Medicare.
Part B premiums are $104.90 a month in 2013, so your monthly cost will be $104.90 plus 10 percent ($10.49) for every year missed, Williamson says. You missed seven years, so you’ll pay an extra $73 — about $178 a month in all.
The penalty: Part D
And then there’s the question of drug coverage, Medicare Part D. Likewise, if you opt out now, the insurance will cost you more later. The penalty is 1 percent of the premium each month for every month you are eligible and don’t enroll, says Williamson.
“After you join a Medicare drug plan, the plan will tell you if you owe a penalty, and what your premium will be, says Medicare.gov’s explainer on Part D penalties.
One woman’s story
Williamson sees firsthand the costs for people who want Medicare now after skipping coverage in their younger years. She tells the story of an elderly friend who decided not to get Medicare prescription drug coverage when it was first offered in 2006.
“This friend went on Medicare in 1992,” Williamson says. “There was no drug plan then. Come 2006, she determined that, since she doesn’t take drugs, ‘Why would I spend the money?’ She just refused to sign up for any drug plan.”
Today the friend, who is 86, needs a daily prescription drug for a serious condition. She paid for it herself until the price rose to about $100 a month recently, Williamson says.
Finally, with the help of her caregivers, she signed up for a Medicare Part D prescription drug plan. The insurance reduced the cost of her medicine to “something like $3.65 for her drug — very cheap,” Williamson says.
The insurance premium is $28.80. But, because she waited to sign up, she also pays about $25 a month in penalties. That brings her total monthly premium, including the penalty, to about $53.
“The penalty can hurt you,” says Williamson. “But there are a lot of people who say, ‘Yeah, I’m paying a big penalty now but look at what I saved over the years by not having to pay.'”
Making the decision
She has other customers who don’t use prescriptions but do buy Medicare prescription insurance as protection against what the future may bring. “Basically, they say, ‘What’s the cheapest drug plan out there?’ Then they’re not subject to the penalty and if they need it they have it.”
For personalized guidance on the costs and benefits, contact your State Health Insurance Assistance Program for free Medicare counseling, either by phone or face-to-face. Find your state’s program here, at Medicare.gov, or by calling (800) MEDICARE.
The counselors also can help you decide whether to buy additional private insurance in the form of Medicare supplement (Medigap) plans or Medicare Advantage plans. These insurance plans pay Medicare’s deductibles and co-pays.
If your income is low, you might qualify for what Medicare calls “Extra Help” paying your premiums. “In 2013, you may qualify if you have up to $17,235 in yearly income ($23,265 for a married couple) and up to $13,300 in resources ($26,580 for a married couple),” says Medicare.gov, which shows state resources for help, too. Or call Social Security at (800) 772-1213.
Opting in, opting out
Here, in a nutshell, are the Medicare plans and the penalties for opting out.
Part A: Hospital care
- Cost: Nothing (because you paid for it while you were working).
Deductible: For 2013, the deductible is $1,184 ($1,216 in 2014) for any hospital stay 60 days or less. After 60 days there are co-pays:
- 61 to 90 days: $296 per day.
- 91 to 150 days: $592 per day (the limit is 60 of these high-deductible days in your lifetime).
- More than 150 days within a single benefit period: full cost.
- Can you opt out? No, but why would you? It’s free.
Part B: Doctor visits
- Cost: $104.90 a month, provided your income is below $85,000 for a single person, $170,000 if married and filing jointly. If your income is more, you’ll pay more.
- Deductible: $147 per year. Once you’ve met that, however, you’ll still have to pay 20 percent of the Medicare-approved amount. (See what’s covered.)
- Can you opt out? Yes.
- Penalty for opting out: 10 percent per year for each year you skipped is added to your Part B premium.
Part D: Prescription drugs
- Cost: These are private plans, offered in conjunction with Medicare, and costs vary. (Medicare explains about costs here.)
- Deductible: It varies depending on the plan, but the maximum deductible allowable for 2013 is $325. In 2014, it drops to $310. (Find plans that cover your drugs.)
- Can you opt out? Yes
- Penalty for opting out: A formula is used, based on how long you’ve been eligible and without coverage. Medicare explains how the penalties are calculated.
How do you deal with the deductibles and co-pays?
Does paying $592 per day for hospital stays over 90 days or 20 percent of doctor visits sound frightening? That’s why there’s such a thing as Medigap and Medicare Advantage plans. These plans fill the gaps left by basic Medicare coverage.