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Medicare’s confusing enrollment rules

These days Medicare counselors often rely on checklists, diagrams and matrix charts to help them keep the enrollment rules straight. There’s one set of rules for people younger than 65, another for those turning 65, and a third for those older than 65.

Frequently the rules are confusing, as in this example: if Sally continues to work past age 65 and is covered by her employer’s plan, when she eventually quits work she will have an eight-month special enrollment period to sign up for Part B. But if at that time she also needs a Part D plan, she has only two months to acquire it. Otherwise she will pay a lifetime penalty of 1% for each month she delays enrollment beyond her second month of retirement.

The enrollment maze has been slowly constructed over decades as Congress has added new benefits, timelines, and exceptions. There are now more than 20 Special Enrollment Periods (SEP’s) for Parts B, C, and D, plus another 7 guaranteed issue rights that allow people to switch their coverage to Medigap policies in a few specific situations (some states tack on their own guaranteed issue rights).

For many people, missed opportunities and lifetime penalties are the result. At some level it seems unfair to levy lifetime penalties against seniors who didn’t know about an obscure rule. While Social Security doesn’t release statistics about the number of people who pay lifetime penalties, there are a sufficient number of them that journalists have no trouble in finding real-life examples for articles about the various enrollment land mines.

Lifetime penalties were designed to be a form of mandate. Without Medicare’s late enrollment penalties, the reasoning goes, some healthy 65-year-olds would delay Part B until they need more healthcare. Then they would enroll. Congress wanted Medicare premiums paid by healthy as well as less healthy people and so it included the penalties in Medicare’s original design.

The government will waive a lifetime penalty if someone can prove the government gave him incorrect information that caused the error. Congress decided in 1966 it was only fair to give equitable relief to those who were misled. To be approved for equitable relief, people need to give the name of the government official who gave them the wrong information, the date and time of the conversation.

When Congress included late enrollment penalties in the original Medicare law, it applied only to Part B late enrollment. At the time, Part C, Part D, COBRA coverage, and Medicare for disabled people did not exist. As Congress added these and other benefits over the next 40 years, each of them had its own enrollment rules and in some cases penalties.

If there’s a silver lining for seniors, it’s that Medicare enrollment is usually a one-time challenge. Most people sign up at age 65 for Part B and (if they need it) Part D, after which they are done. Even without late penalties, very few seniors and virtually no disabled people would delay their Part B enrollment.

For one thing, Medicare has a much richer benefit package today than it did in 1965. Where else can seniors pay $1,260 a year for benefits that include free preventive tests, screenings, immunizations, wellness visits, and 80% coverage that’s accepted by 95% of the country’s physicians? Nowadays most people eagerly await their Medicare eligibility dates, which they red-circle on calendars.

Even though they are usually only a one-time challenge, the complex enrollment rules are costly. Armies of government-trained volunteers and thousands of paid experts exist mainly to answer questions about Medicare eligibility, enrollment, and deadlines. Giving technical advice is often tricky, and counselors spend sizable amounts of their time in training classes that are paid for by the government. Moreover, the time that counselors spend explaining the rules to their clients could be better used to discuss financially important matters such as the estimated out-of-pocket costs for each type of supplemental coverage the client is considering.

Because nobody knows the true cost of Medicare’s enrollment complexity, nobody seems overly concerned about fixing today’s rules. None of the major proposals for redesigning Medicare attempts to simplify the rules, and some of the proposals would further complicate them.

So it seems likely that seniors will continue to muddle through, most of them bouncing back from their initial bewilderment. Meanwhile, it’s good for those who have yet to enroll in Medicare to know the basic rules and when the time comes, where to find assistance. Here are two common pitfalls and five resources to help seniors sidestep the enrollment confusion.

Pitfall # 1: But I thought my COBRA plan was employer coverage. COBRA is an acronym for the 1985 law that enables people who are laid off or quit work to purchase health insurance at the employer’s group rates for a period of time, usually 18 months. Medicare does not consider COBRA coverage to be an employer plan (typically the insured person pays the entire premium plus a 2% administrative fee). That means the Part B and Part D exceptions and special enrollment periods for employer plans do not apply to COBRA coverage.

Newspapers and other publications frequently have articles about educated and successful retirees who get this rule wrong and therefore will pay lifetime penalties. The AARP Public Policy Institute devoted an article to this one enrollment error The article said that 21% of the calls to the Medicare Rights Center about Part B enrollment problems dealt with COBRA coverage, and it mentioned that AARP and others have advocated that this confusing rule be done away with. Until it is, seniors with COBRA should follow Medicare’s rules for people who do not have employer plans.

Pitfall # 2:I didn’t understand that I had to be currently working. A 62-year-old college professor in central Michigan accepted an early-retirement package that included health coverage to age 70. As described in an article at Kiplinger.com, when the retired professor and his wife eventually signed up for Part B they learned that the two of them would pay lifetime late-enrollment penalties that at the time were almost $1,000 a year. Medicare’s rule is that seniors must enroll in Part B at age 65 unless they are currently working or have employer coverage from a currently working spouse.

Resource #1: A good starting point for people who will soon turn 65 is to read Chapter 2 in the current Medicare & You manual, which can be downloaded here.

Resource #2: Social Security administers the Part A and Part B enrollment process. Seniors who have not yet begun taking their Social Security payments should call 800-772-1213 to enroll in Parts A and B or to schedule an appointment at a nearby office to do so. If they already receive Social Security benefits, they’ll be automatically enrolled at age 65. It’s a good idea to write down the name of the person they speak with, the date and time of their conversation.

Resource #3: The Medicare Rights Center has a national telephone helpline (1-800-333-4114) that’s available weekdays.

Resource #4: State health insurance programs (SHIP’s) are funded by Medicare to answer questions. They have the best information about local coverage options, state Medigap rules, and Medicaid. These agencies, which are staffed by professionals and volunteers, have various names (HICAP, SHIBA, Area Agency on Aging, etc.). People can find their local agency by clicking on the “Find a Counselor” link at this site.

Resource #5: Your employer (former employer if you’re retired) is best suited to explain any employer-sponsored retirement benefits you may have and how these coordinate with Medicare. Although employer representatives are typically not Medicare experts, they will know whether you need to sign up for Part D. ◊◊


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