If you’re on Medicare or turning 65 soon, you’ve probably got open enrollment on your mind.
The open enrollment period for 2019 coverage began October 15 and runs through December 7. Here are some potential pitfalls to watch out for!
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If you don’t sign up for Medicare at the right time, you’ll pay more — in some cases, forever
The Medicare landscape is littered with landmines that could blow your budget apart when you’re living on a fixed income.
One huge category of dangers is late enrollment penalties. Signing up later for Medicare programs often means you’ll be penalized in the short-term and have to pay higher premiums — sometimes for as long as you have coverage!
Your initial enrollment period for Medicare begins three months before your 65th birthday, includes the month you turn 65 and ends three months after the month you turn 65.
So you’ve got seven months in all around your 65th birthday in which to get signed up for Medicare without paying any penalties. Make a priority to get this done! Because if you don’t, here’s what will happen…
Part A late enrollment penalties
Part A covers inpatient care in hospitals, skilled nursing facility care, home health care and hospice care stays.
Most people get premium-free Part A coverage, but some who do not meet certain criteria do not.
If you are one of those people and you fail to sign up for Part A in a timely manner, you’ll have to pay a higher premium for twice the number of years you qualified but didn’t get coverage. Plus your monthly premium may go up by 10%.
See this illustration from the Medicare website for a real-life example:
Want to avoid the late enrollment penalty? Either enroll in Part A when you’re first eligible or see if you qualify for premium-free coverage.
Part B late enrollment penalties
Part B covers services from doctors and other health care providers, outpatient care, home health care, durable medical equipment and some preventive services.
Failure to sign up for Part B when you’re first eligible means you’ll have to pay a late enrollment penalty for as long as you have coverage.
In addition, your monthly premium may go up 10% for each increment of a full 12 months that you were eligible for, but chose not to get, Part B coverage.
Here’s an illustration of how this works from the Medicare website:
Fortunately, there are a couple of ways to make sure you don’t get hit with the late enrollment penalty for Part B.
First, you may be able to sign up during a Special Enrollment Period if you meet certain conditions. For example, if you’re covered under a group health plan through you or your spouse’s current employer, you have an eight-month period after employment ends to get enrolled without penalty.
And second, those with limited income may qualify for state assistance under any one of these 4 secret Medicare savings programs.
Part D late enrollment penalties
Part D offers prescription drug coverage.
Sixty-three is the magic number when it comes to Part D late enrollment penalties. If you go 63 days after your initial enrollment period ends without a Medicare drug plan or other creditable drug coverage (such as through an employer or a labor union), then you may owe a late enrollment penalty.
According to Medicare.gov, the penalty you pay is calculated by taking 1% of the “national base beneficiary premium” — which happens to be $33.19 for 2019 — and multiplying it by the number of full, uncovered months you went without Part D or other creditable coverage.
The number that results is then rounded to the nearest $0.10 and added to your monthly Part D premium.
To get a better idea of how this works in a real situation, see this illustration:
But keep this in mind: Because the national base beneficiary premium used in the calculation tends to rise annually, what you pay in Part D late enrollment penalties just keeps going up each year!
So now you know there are a variety of possible late enrollment fees you’ll want to avoid. Yet there are other Medicare open enrollment pitfalls you should keep in mind, too…
Don’t buy Medicare based on your current state of health!
If you’ve reached 65 and you’re feeling great, congratulations! Hopefully you have many more years of wonderful health and activity ahead of you.
But as with many things in life, it pays to take the long view when you’re enrolling for Medicare. What you should be doing is making those enrollment choices with the rest of your life in mind — not just the shape you’re in today.
Don’t forget to take your supplement insurance
Medicare coverage comes in two flavors: Original Medicare and Medicare Advantage aka Part C. (See the chart below.)
Let’s take a look at the first one for now.
Original Medicare, which is managed entirely by the federal government, comes complete with Parts A and B intact for hospital and medical coverage, respectively.
But you have the option to add-on Part D (prescriptions) and Medigap coverage, aka Medicare Supplement Insurance. The latter is sold by private insurance companies.
Supplement insurance is very important to consider purchasing because it will help pick up the tab for many of the out-of-pocket costs that Original Medicare won’t.
However, it won’t pick up everything. Among the things most Medigap policies won’t cover are long-term care, vision, dental, hearing aids, eyeglasses and private nursing.
Be sure to weigh the merits of Original Medicare vs. Medicare Advantage carefully
Now let’s take a look at that other avenue to Medicare coverage: Medicare Advantage (Part C).
Part C basically bundles together Parts A, B and D and is sold by private insurers, unlike Original Medicare that is managed by the government.
People tend to like Part C because it streamlines Medicare in their lives and may cover things like vision, hearing and dental that Original Medicare doesn’t.
But there is a trade-off; Medicare Advantage usually limits the number of doctors you can see to in-network providers only since it’s run by private insurance companies. (With Original Medicare, you can see any doctor that accepts Medicare.)
Consider this scenario: Let’s say you start with Medicare Advantage when you’re healthy, but later decide you want to switch to Original Medicare. Maybe you’ve developed a chronic condition and want access to many more, rather than fewer, doctors.
Steve Vernon, author of Retirement Game-Changers, says you might encounter a big roadblock when you try.
“While you’re permitted to switch to Traditional Medicare, you might not be able to purchase a Medicare Supplement Plan. That’s because most insurance companies apply medical underwriting, and can either deny coverage due to pre-existing conditions or charge a higher premium,” according to Vernon.
(Remember that Medicare Supplement Insurance is sold by private insurers as an add-on to Original Medicare.)
“As a result, newly eligible Medicare retirees should make their choice regarding a Medicare Supplement Plan or Medicare Advantage Plan with the rest of their lives in mind. They might not get the chance for a ‘do-over’ later if they change their minds,” Vernon says.
