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Managing Medicare's Costs

Medicare Problem Solving (2 of 2) – How to avoid costly enrollment snafus

Every year thousands of seniors discover that they must pay lifetime penalties because they missed a Medicare enrollment deadline. Others are surprised to learn that they have paid Part B premiums unnecessarily, in some cases for years, and have no chance of recovering their money. And still others pay costly penalties because they don’t understand the enrollment rules for prescription drug coverage, health savings accounts, and COBRA plans. All told, some 700,000 seniors now pay lifetime penalties for late enrollment, while thousands more pay Part B premiums who don’t need to.

The penalty for late enrollment in Part B is a 10% premium surcharge for every 12-month period that enrollment is late. The Part D penalty is a 1% premium surcharge for each late month. Those are lifetime penalties, and as premiums increase, the surcharge does also. A 12 month-late enrollment for Part B will cost you more than $3,000 over the next 20 years if premiums increase at an average annual rate of 3%.

The rules are tricky. It’s possible to miss your initial enrollment period by only one month and still be subject to a 12-month penalty. That’s because you can only enroll during designated periods.

If your initial enrollment period ended in February of this year and you realized your error in March, the earliest you can enroll in Part B is the next general enrollment period (or GEP), which runs from January through March each year (although coverage does not go into effect until July 1).

So even if you enroll at the next available time in January, the rules say that the late-enrollment clock will continue to run until the GEP ends March 31. And at that point your Part B enrollment is more than 12 months late and you are subject to a lifetime penalty.

At the center of retirees’ widespread confusion is a tangle of Medicare laws and regulations enacted at various times over the past 40 years. An example of the inconsistencies are the different enrollment timelines for people based on their ages. When you turn 65 you have a seven-month enrollment period that begins three months before the month in which you were born.

But if you are older than age 65 when you retire, you have an eight-month period to enroll in Part B and a two-month period to enroll in Part D. Those enrollment periods begin when you (or your spouse) retire and you or your spouse’s group plan is no longer your primary coverage. And then the enrollment timelines for disabled people under age 65 involve a third set of rules different from the other two.

Most people have to navigate Medicare enrollment only once, with two-thirds of them enrolling at age 65. It’s a good idea to understand the rules that apply to you at least three months before your 65th birthday. That’s true even if you do not plan to enroll until you’re older.

Call Social Security at 800-772-1213 if you have questions about your eligibility and initial enrollment. At that number you can also schedule an appointment at a nearby Social Security office. Whether you talk with someone by phone or in person, it’s a good idea to write down the name of the counselor you talk with as well as the date and time. If you are given incorrect advice that results in late enrollment, you can later appeal and have a good chance of success if you provide specifics about who advised you and when.

Other resources are the Medicare counseling programs, which go by various names in different states. Call 800-MEDICARE to be connected to the agency nearest you. The human resources department of the firm where you or your spouse works may also help you understand your options.

To test your knowledge of Medicare’s enrollment rules, see how you do on the following four questions – the first two of them fairly basic and the last two not so basic.

1) Will you be automatically enrolled in Medicare when you turn 65?

2) If at age 65 you are working and are covered by your employer’s group health plan, do you need to enroll in Part B?

3) Since it’s free, should you always enroll in Part A when you turn 65, even if you decline Part B?

4) You retire at age 68 and your boss gives you a handsome severance package that includes 18 months of paid-up health insurance. How long do you have to enroll in Part B and Part D of Medicare?

Answer to #1: If you have already started receiving Social Security benefits, you will be automatically enrolled In Part A and Part B when you turn 65 (at that point you can decline Part B if you choose). Your Medicare card will arrive in the mail several weeks before your 65th birthday and your enrollment goes into effect on the first day of the month in which you were born. That’s unless your birthday happens to be on the first day of the month, in which case the first day of the preceding month is the effective date.

But if you haven’t yet started receiving Social Security benefits, you will not be automatically enrolled. You should contact Social Security and enroll three months before your 65th birthday.

Answer to #2: You do not need to enroll in Part B if the company you work for has 20 or more employees. But if it has fewer than 20 employees, you need to enroll in Part B. The same rule applies if you are retired and are covered by your currently working spouse’s group plan. If the company your spouse works for has 20 or more employees, you don’t need to enroll in Part B at age 65. But if it has fewer than 20 employees, you should enroll in Part B (and in some cases Part D).

Answer to #3: The only time you might not want to enroll in Part A is when you or your spouse is currently working for a company with 20 or more employees, you are covered by a high-deductible health plan from that job, and you want to continue your contributions to the company’s health savings account. But if you no longer want to contribute to your health savings account, you should enroll in Part A. The reason for this confusing rule is that health savings accounts must be paired with high-deductible health plans, and Medicare (even Part A) is not considered a high-deductible plan.

Answer to #4: The same timeline applies as if the company did not give you the paid-up health insurance. You must be currently working in order to delay Part B enrollment. That also applies to COBRA coverage. If you’re older than 65 you have eight months to enroll in Part B and two months to sign up for Part D. In almost all cases, it’s best to have your Medicare coverage start immediately after your or your spouse’s last day at work. You can, though, keep your pre-paid insurance as supplemental coverage since it may have benefits like dental and vision care that are not covered by Medicare, Medigap policies, and many Advantage plans. ◊◊

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