Introduction
Medicare is a benefit that you’re entitled to as a retiree. In fact, you’ve been paying into the system for years, so it makes sense that you should receive a benefit.
You’re required to enroll at age 65, and failure to do so in a timely manner could result in penalties. It can get quite expensive if you don’t fill out your paperwork when you should—and there are other costly mistakes that you could end up making if you’re not careful.
In this article, we’ll look at some of the most common mistakes, including not maintaining Medicare coverage and other issues that can reduce your nest egg. Some of the main mistakes we’ll cover include:
- Not completing initial enrollment on time
- Enrolling without understanding different Medicare coverages
- Not reviewing your coverage each year
- Not using the special enrollment period when you’re eligible
- Ignoring how to coordinate your current coverage with your Medicare coverage
Mistake 1: Not completing initial enrollment on time
The government takes initial enrollment seriously and if you are not eligible for a special enrollment period you’ll be penalized if you don’t complete your paperwork on time. Before we review important timelines, here’s an overview of the possible penalties you could be subject to:
- Part A penalty: Most people qualify for $0 premiums for Medicare Part A, but if you do have a Part A premium, your monthly penalty can be up to 10% if you don’t enroll on time. You’ll pay this premium for double the years you were eligible, but neglected to sign up. For example, if you were eligible for Part A for a year, but didn’t sign up, you could pay a higher premium for two years.
- Part B penalty: This is a penalty that never goes away. It amounts to 10% extra for each 12 full-month period you should have enrolled but didn’t. You pay it on top of the standard premium. Let’s say you waited two full years beyond eligibility, leading to a 20% penalty. The 2024 standard monthly premium is $174.70, so your penalty is $34.94 (20%). Added together, and rounded to the nearest $0.10, your monthly premium with penalty is $209.60.
- Part D penalty: Prescription coverage is required when you enroll in Medicare Part A unless you meet certain criteria. Like the penalty on Part B, the penalty on Part D coverage is a lifelong increase in cost. You pay an extra 1% for each month not enrolled since you should have enrolled, multiplied by the national average drug cost. The national average drug cost does change every year and usually goes up, so will the penalty.
Medicare Supplement Insurance, better known as Medigap, comes with even stricter guidelines. You only get one guaranteed time to enroll and if you miss it you’ve missed out.
As you can see, the penalties start to add up.
How to avoid this mistake
Sign up for Medicare—which you’ll do through the Social Security Administration—during your initial enrollment period. You will usually need to sign up for Part A and Part B, unless you have qualifying coverage through your employer. You may also be able to avoid Medicare Part D if you have different drug coverage that meets certain requirements or if you qualify for the Extra Help program due to your income.
Before you decide to put off enrolling in Medicare (Part A, B, and/or D), double-check that you’re truly eligible to sign up at a later time. A Special Enrollment Period (see lesson 4) can help you avoid penalties, but you need to be absolutely sure you qualify.
Initial enrollment period
Your initial period for enrollment depends on the month in which you turn 65. In general, your initial enrollment period begins three months before you turn 65 and ends three months after you turn 65—a total of seven months.
For example, if your birthday is July 15, your initial enrollment period starts in April and ends in October. You must sign up for Medicare during this period to avoid penalties.
One exception is if your birthday is on the first of the month. Let’s say your birthday is July 1. In that case, your initial enrollment period starts four months before your birthday, beginning in March, and ending two months later, in September.
However, the total initial enrollment period is always seven months long, with your birthday the pivotal date that determines when your enrollment period begins and ends.
When does Medicare coverage start?
Generally, Medicare coverage starts on the first day of the month you turn 65. So, if your birthday is July 15, and you enroll during May, as part of your initial enrollment, your Medicare coverage will begin July 1.
As with your initial enrollment period, though, there’s an exception if your birthday is on the first day of the month. Your coverage would begin a month earlier. So, if your birthday is on July 1, and you enroll in May, your coverage will start June 1.
If you enroll after you turn 65, your Medicare coverage will start the month after. Let’s say that, instead of enrolling before your birthday on July 15, you end up doing so in August. You’re still in the initial enrollment period, so you avoid the penalty, but your coverage won’t start until September 1.
Understanding when Medicare coverage starts relative to your initial enrollment can help you avoid the mistake of canceling other healthcare coverage before your Medicare kicks in, leaving you with a coverage gap.
Don’t make this mistake with your HSA
Finally, as you go through the initial enrollment period, don’t make the mistake of neglecting your Health Savings Account (HSA). If you’ve been contributing to an HSA, you need to make sure you stop before you have Medicare—or you could be hit with a tax penalty.
A good way to avoid this is to arrange to have your employer stop making HSA contributions on your behalf well ahead of time—six months before is a good rule of thumb. Your contributions should stop before your Medicare begins. If you find that some contributions have been made, you might be able to avoid a tax penalty by withdrawing the excess contributions plus interest from your HSA before the end of the tax year.
Mistake 2: Enrolling without understanding the different parts of Medicare
There are several different types of Medicare coverage: Parts A and B (aka Original Medicare), Part D prescription drug coverage, Medicare Advantage plans that combine the services of A and B, as well as Medicare Supplement Insurance (aka Medigap). If you don’t enroll in when you’re supposed to, that’s when you end up more likely to end up with a penalty. Not understanding the different parts of Medicare and what they cover—and when you must have them—can lead to more mistakes down the road, especially as you make more decisions.
How to avoid this mistake
Know your Medicare—By understanding the basics of the main Medicare coverages, you can avoid mistakes down the road. Let’s review what you’re required to enroll in:
Medicare Part A
- Hospital insurance covers inpatient care, as well as skilled nursing facilities and hospice. This is the insurance that will take care of lab tests, surgery, and necessary home health care.
- You must enroll in this coverage when you’re eligible.
- Depending on how long you (or your qualifying spouse) worked and paid Medicare taxes, you might qualify for premium-free Medicare Part A.
- Most people qualify for premium-free Medicare Part A. If you don’t qualify, the monthly premium in 2024 is either $278 or $505, depending on how long you or your spouse has paid Medicare taxes.
- For 2024, the deductible for Medicare Part A is $1,632 for each inpatient benefit period, meaning you might have to pay more than one deductible per year.
- Copayments are based on how long you stay in a hospital or skilled nursing facility, and after a period of time, you’re responsible for all costs.
- If you have an employer-provided health plan, check with your HR department to determine how to proceed when you become eligible for the initial enrollment period.
Medicare Part B
- Medical insurance, similar to what you see with “regular” health insurance. It covers your doctor visits, specialist care, various services and certain medical supplies.
- In general, you’re required to enroll in Medicare Part B when you enroll in Medicare Part A. However, you might be able to get a Special Enrollment period, or have the requirement waived if you meet certain conditions.
- If you’re still working and enrolled in an employer’s health plan, or if you’re getting health insurance through a working spouse, you might be able to put off Part B enrollment while avoiding a penalty.
- The premium is a set rate each month. In 2024, it’s $174.70. However, those with higher incomes might pay a higher monthly premium.
- Enrollees pay an annual deductible, which is $240 in 2024.
- Just like “regular” health insurance, Medicare Part B doesn’t include vision or dental coverage.
Medicare Part D
- Prescription drug plan.
- Sign up when you get Medicare Part A, unless you have a qualifying plan that meets certain criteria. If you have your own plan that covers at least what Medicare Part D does, or if you have another plan through work or individual coverage, or if you have other benefits, you can avoid a penalty for not enrolling in Medicare Part D.
- It’s possible to drop your Medicare Part D during open enrollment if you have what Medicare calls creditable prescription drug coverage.
- Premiums and deductibles vary based on your coverage and plan. There are caps on deductibles ($545 in 2024), and those with higher incomes usually also pay a higher premium.
- The Extra Help program is aimed at those on low incomes to reduce or eliminate the burden of Medicare Part D costs.
Avoid the Medigap vs. Medicare Advantage mistake
Medicare Parts A and B are sometimes called Original Medicare. Some services, as well as services like vision and dental, aren’t included in Original Medicare. As a result, you might need to purchase additional coverage if you want help sharing these costs.
One big mistake some retirees make is not understanding the difference between Medigap and Medicare Advantage.
- Medigap is supplemental to your Original Medicare. It’s sometimes called Medicare Supplemental Insurance. You might also have access to a Medigap policy known as Medicare SELECT. These policies are regulated by states and offered by private insurers. Check different prices and deductibles to determine what is likely to work best for you. Also, remember that if you decide to switch from a Medicare Advantage to a Medigap plan after your initial enrollment period, you will be subject to medical underwriting, which means that the insurance company could deny you a policy if you don’t meet their medical underwriting requirements.
- Medicare Advantage combines all your Medicare coverages into a plan offered by private insurance. It’s a replacement for Original Medicare. However, it’s important to note that, like other private insurance policies, there might be restrictions on in-network providers.
It’s a lot of terminology, but knowing about Original Medicare, and its parts, as well as supplemental insurance and Medicare Advantage can provide you with a basic understanding that can be a foundation for more informed decisions later.
Mistake 3: Not reviewing your coverage each year
It can be convenient to “set it and forget it” and allow your Medicare plan to automatically renew each year. However, this might be a mistake, as what worked in the past year might not work in the coming year.
As circumstances change, you might need access to different services or you might have cost considerations.
How to avoid this mistake
Review your coverage needs each year. There are two main open enrollment periods to know about, depending on your situation:
- Medicare Open Enrollment: From October 15 - December 7 every year, you can join, drop, or switch to another Medicare Advantage Plan (or add or drop drug coverage), switch from Original Medicare to a Medicare Advantage Plan or vice versa.
- Medicare Advantage Open Enrollment: From January 1-March 31, you can switch your Medicare Advantage plan, go from Original Medicare to an Advantage plan or switch back to Original Medicare from Advantage.
Carefully consider what’s likely to work best for you, depending on your situation.
Take the time each year to review your healthcare needs and costs, and evaluate whether your current coverage is adequate at a price in your budget. If necessary, make a change that fits your pocketbook and your health needs.
Mistake 4: Not using the special enrollment period when you’re eligible
Just signing up for everything when you reach age 65 might be a costly mistake, especially if you’re eligible for a Special Enrollment Period. Don’t assume that you have to do everything all at once.
If you can put off the costs associated with Medicare Parts B and D due to special enrollment, that can be one way to stretch your nest egg.
How to avoid this mistake
Familiarize yourself with special enrollment periods so you can decide when the best time to start Medicare benefits is for you.
Here are some ways to put off enrolling in certain parts of Medicare due to special circumstances:
- Have coverage through an employer: If you’re still working at age 65 and your employer offers coverage that’s cheaper than what you’d pay through Medicare Part B, you may be able to put off enrollment while avoiding the penalty. You’ll have eight months from the time your group health coverage ends or you leave employment, whichever is first. This also applies if you’re covered under a working spouse’s plan.
- Missed a chance to sign up: In some cases, such as incarceration, natural disaster or getting inaccurate information from your health plan, you might not have had a chance to enroll. You’ll have extra time to sign up for Original Medicare parts without worrying about penalties, as long as you have documentation.
- Moving: In some cases, you lose access to some plans, such as those through Medigap or Medicare Advantage, when you move. In that case, you have a special enrollment period to change plans, depending on where you are.
Medicare Part D coverage penalty mistake
Don’t forget that if you go more than 63 days in a row without creditable drug coverage, you could be subject to a Medicare Part D penalty. If you qualify for special enrollment, make sure you get your Part D—or an alternative—in place in order to avoid a penalty[/callout]
You can also access Medicare early—before age 65—in certain circumstances, such as if you have renal failure, ALS or some other disability. Check to see if you qualify for this special early enrollment based on your health status.
Mistake 5: Ignoring how your current coverage and Medicare coordinate
Medicare interacts with different coverages in specific ways, so not realizing this can be a mistake that can potentially cost you in the long run.
How to avoid this mistake
Learn about the ways that Medicare interacts with other coverages, especially existing health insurance and Medicaid.
If you have health insurance through work
First, if you are eligible for premium-free Part A, you may not have to sign up for Medicare when you turn 65 if you’re still working and getting health insurance from your company. However, those who will have to pay a premium for Part A might need to sign up for Medicare during the original initial enrollment to avoid penalties. Talk with your HR department to learn more about how this works.
Finally, realize that COBRA doesn’t qualify as employer-provided health insurance. If you leave your work, or if your employer terminates the plan and offers a COBRA option, you will need to make sure you sign up for Medicare during your special enrollment period (or your initial enrollment period, if this takes place during that time).
If you qualify for Medicaid
For dual eligibility, you’ll be able to get coverage through both Medicaid and Medicare. Even if you have Medicaid, you can still use Medicare Advantage, if you decide that’s a better choice for you than Original Medicare.
However, Medicare will pay first. Things that aren’t covered by Medicare are Medicaid-eligible, that’s when Medicaid will kick in.
Additionally, some states offer arrangements that make it easier for those eligible for both Medicare and Medicaid to get consolidated management. These plans are sometimes called Medicare-Medicaid Plans. You might also qualify for Special Needs Plans.
Finally, PACE plans are available for the elderly who need all-inclusive care outside of a nursing home. If you qualify for PACE, you might get help with costs for various types of care, as well as the management of various programs designed for healthcare.
Don’t make the mistake of not using your HSA
While not technically another type of coverage, your Health Savings Account might be a way to reduce your current costs. If you’ve saved and invested in an HSA, you can use the money on healthcare costs—tax-free–but remember that there are rules around how HSAs work with Medicare.
HSA funds can reimburse you for Medicare Part A, B and D premiums, as well as Medicare Advantage premiums (Medigap isn’t included), cover your deductibles and account for out-of-pocket costs.
But watch out for tax pitfalls when using your HSA with Medicare. If you’re still contributing to your HSA and plan to start Medicare coverage the month you turn 65, make sure you end all HSA contributions (your own, or from your employer) before your 65th birthday month. If you’re going to work after age 65, stop making HSA contributions up to six months before applying for Medicare or beginning your Social Security benefits. That way you can avoid the 6-month lookback excise tax.
The good news is that the 20% penalty on non-qualified HSA distributions no longer applies after you turn 65.
Summary
Avoiding common Medicare mistakes takes knowledge and planning. At least six months before you turn 65, consider learning some of the basics so you aren’t caught by surprise.
- Learn when your initial enrollment period is, and find out whether you might be stuck with premium Part A, so you don’t miss your initial enrollment and potentially end up paying penalties.
- Familiarize yourself with the basics of different Medicare plans and parts so you have a working understanding of the terminology.
- What you need depends on your circumstances, which can change. Review your needs prior to general enrollment each year and switch as needed.
- Know when special enrollment periods can benefit you. Double-check to see if you qualify to put off enrolling in Medicare, especially Parts B and D.
- Don’t forget that working longer and accessing employer health plans, using your HSA or seeing if you qualify for plans like Medicaid or programs like PACE can help you manage Medicare costs.
We're Hear to Help
It can be overwhelming to keep up with all these terms, dates and deadlines. But we have you covered. It can be very helpful to work directly with an agent in Michigan who is licensed and educated in the Medicare market and can help you choose the plan that is right for you.
Your partners at Silvur Insurance are here to help and can meet with you one-on-one in your local MSU Credit Union Branch, over the phone, or even virtually - all, at no cost to you! To schedule a meeting with one of our agents, click HERE or call (888) 372-3999.
Sources:
https://www.ssa.gov/medicare/sign-up
https://www.medicare.gov/what-medicare-covers
https://www.medicare.gov/basics/get-started-with-medicare/sign-up/when-does-medicare-coverage-start
https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties
https://www.medicare.gov/health-drug-plans/medigap
https://www.medicare.gov/health-drug-plans/health-plans/your-health-plan-options
