Retirement is a time of transition and new beginnings. That’s a nice way of saying it’s when most people first tangle with the federal government on health care.
Age 65 is generally when you become eligible for Medicare, the federal health care insurance program. But the rules, options and ramifications of when and how you sign up for the program are complex.
Following are a few pitfalls you might encounter if you fail to sign up correctly at the get-go. Read on to avoid big hassles and and serious fees.
Pitfall No. 1: You miss your Initial Enrollment Period
Generally, you become eligible for Medicare when you turn 65. But failing to enroll on time can trigger permanent financial penalties — we’ll get to those shortly — or delay benefits.
Medicare gives you a seven-month Initial Enrollment Period, which includes the month you turn 65, the three months before and the three months after.
If you miss that window, you generally must wait to apply during the annual general enrollment period that runs from Jan. 1 to March 31. As a result, Medicare.gov says:
“Your coverage won’t start until July 1 of that year, and you may have to pay a higher Part A and/or Part B premium for late enrollment.”
If you are collecting Social Security benefits when you turn 65, you’ll get Medicare automatically, so you don’t need to sign up. The Medicare program will reach out to you.
If you are working when you turn 65 and have medical insurance coverage through your employer, you may be able to keep your employer’s medical plan.
“In most situations, you will be better off keeping your employer health insurance,” writes Phil Moeller, PBS’ “Medicare Maven.”
In any case, proceed carefully. Don’t drop employer coverage before you understand the pros and cons.
Need help? Contact your State Health Insurance Assistance Program (SHIP) for free one-on-one Medicare counseling.
Pitfall No. 2: You have to pay more for signing up late
If you miss your Initial Enrollment Period and don’t have other qualifying medical coverage, like employer insurance, you’re looking at financial penalties.
How much? It depends on how long you waited and which part of Medicare we’re talking about:
- Part A (which primarily covers inpatient hospital stays): Most people get Medicare Part A without premiums. But if you aren’t eligible for premium-free Part A and fail to buy this coverage when you first become eligible, your premiums could be 10% higher for twice the number of years you didn’t sign up. Signing up two years late, for example, means higher premiums for four years.
- Part B (which covers doctors’ services and other outpatient care): Failing to sign up for Medicare Part B when you first become eligible generally triggers a permanent penalty. Your premiums could go up 10% for each 12-month period you waited to enroll — with that premium hike applying for as long as you have Part B.
- Part D (optional coverage for prescription drug costs): You may want Medicare Part D if you choose Original Medicare rather than a Medicare Advantage plan (more on that on the next page). But if your Initial Enrollment Period passes and then you go without Part D, Medicare Advantage or other drug coverage for any period of 63 continuous days or more, you may owe a Part D late enrollment penalty. The amount of that penalty depends on how long you went without drug coverage.
Pitfall No. 3: You confuse Original Medicare with Medicare Advantage
There are two main types of Medicare: Original Medicare and Medicare Advantage.
Original Medicare: This is traditional Medicare, offered directly through the federal government. It generally includes Parts A and B. There are also two types of optional add-on coverage for seniors with Original Medicare:
- Part D (prescription drug coverage)
- Medigap (supplemental insurance coverage for costs that Original Medicare doesn’t cover)
With Original Medicare, you don’t need to choose a primary care doctor and generally don’t need a referral to see a specialist. One downside is that there are no yearly limits on what you’ll pay out of pocket.
Medicare Advantage: This is all-in-one coverage offered by private health insurance companies that are approved by the federal government program. Medicare Advantage plans include Parts A, B and usually D.
Medicare Advantage plans must follow rules set by the federal Medicare program and must cover all of the same services that Original Medicare covers. But those rules can change annually, and Medicare Advantage plans are allowed to cover additional services.
As a result, coverage and costs can vary widely from one Medicare Advantage plan to the next.
You can switch from Original Medicare to a Medicare Advantage plan, or vice versa, but only during certain enrollment periods.
Also, there are possible downsides to switching — such as losing access to a preferred doctor or becoming ineligible for a Medigap policy you had with Original Medicare, as we detail on the next page. So, tread carefully and do your research before switching.
Pitfall No. 4: You lose your Medigap policy
There’s an important risk to think about if you use Original Medicare with a Medigap supplemental policy.
If you switch to a Medicare Advantage plan from Original Medicare — here’s Medicare.gov’s guide for switching — you can drop your supplemental insurance. But there are risks to doing that.
Only during an initial Medigap enrollment period are you guaranteed coverage by Medigap plans in your area. Then and only then are insurance companies forbidden from denying you coverage or charging you more money because of pre-existing conditions, says Reuters.
Afterward, in most states, the door opens for insurers to ask about your health status.
So, depending on your health and where you live, if you lose your initial Medigap coverage, you could end up paying significantly more for a Medigap plan later. Or you could be barred from certain plans.
Marilyn Lewis contributed to this post.
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