9 Medicare Potholes That Can Cost You Big Time

So, you’re almost eligible for Medicare. For many who have struggled with health insurance since Congress passed Obamacare in 2010, going on Medicare is a step up from the expensive, high deductible, limited option plans available to them. But Medicare can be problematic too if you don’t know what to look for. Here are 9 of the most common Medicare potholes and how to avoid them.

Not signing up on time

Some people get confused about when they should sign up for Medicare and they think they have to wait until their Social Security Full Retirement Age (FRA). The reality is, you sign up for Medicare at age 65—that’s when you become eligible—NOT at your Social Security FRA.

You sign up during your Initial Enrollment Period (IEP). It’s a seven-month window that runs from three months before the month you turn 65, the month you turn 65, and three months after the month you turn 65. If you miss your IEP, you can enroll during the General Enrollment Period which runs January 1 through March 31 every year and your coverage begins July 1 of that year. But because you didn’t enroll when you were first eligible, your monthly premiums for Medicare Part B, which covers doctor visits and other outpatient services, will be assessed a late enrollment penalty that will last for as long as you have Part B coverage. The penalty is 10% for every 12-month period you could have had Part B coverage but did not.

Missing the Special Enrollment Period

If you’re 65 or older and you get your health coverage from an employer, if you’re still working, or from your spouse’s employer, the Medicare rules are different. When you lose that employer coverage, you get a Special Enrollment Period (SEP) that allows you to sign up for Medicare without penalty.

You can use the SEP to enroll while you’re still covered by the employer or for eight months after you no longer have employer-based insurance coverage. But keep this wrinkle in mind: Medicare does not recognize retiree health insurance or COBRA as employer health insurance. That may mean you need to enroll in Medicare at 65 even if you’re still working.

Delaying enrollment when employer insurance is second in line

At some companies, the health coverage changes at age 65. The employer coverage becomes secondary and Medicare becomes your primary coverage, meaning the employer health insurance plan will only pay after Medicare pays its part. If that’s the case where you work then you need to enroll in Medicare when you turn 65. To find out the provisions of your employer plan, talk to your benefits manager or the human resources department.

Not understanding Part B and Part D late enrollment penalties

As mentioned above, if you don’t enroll in Part B Medicare when you’re eligible, either at 65 or when you lose employer coverage, you get hit with a late enrollment penalty that lasts as long as you have Part B. The same thing applies to Part D prescription drug plans.

The penalty for Part D is a little different than the one for its cousin, Part B. You’ll be charged a late enrollment penalty of 1% per month for every month you could have had Part D coverage but did not—and you’ll pay that penalty for as long as you keep Part D overage.

You won’t have to pay the penalty if you can prove you had drug coverage as good or better than what you could have received from a Part D plan. Employers or their healthcare providers send letters to employees every September showing whether your drug coverage meets Medicare’s guidelines.

Not fully comparing Original Medicare with Medicare Advantage Plans

You can receive Medicare in two forms, Original Medicare and Medicare Advantage plans.

Original Medicare consists of Part A hospital coverage and Part B doctor visit and outpatient services. Original Medicare pays for 80% of Medicare-approved expenses. You can purchase a Medicare Supplement plan (Medigap) to cover the other 20 percent. There is no prescription drug coverage. If you want that coverage you have to buy a Part D plan. You can see any doctor that accepts Medicare. Original Medicare has no limit on your out-of-pocket costs.

Medicare Advantage Plans (MA) are offered by private insurance companies. MA plans are also called all-in-one plans because they provide the same Part A & B coverage as Original Medicare and may also offer vision, dental, hearing, and prescription drug coverage as well as other benefits. MA plans may have different rules and costs than Original Medicare. Many Medicare Advantage plans charge zero premiums, but you still have to pay your monthly Part B premium. MA plans generally have their own network of physicians and providers. You can see doctors outside the network, but the cost is higher.

Choosing Original Medicare or Medicare Advantage depends on your health, your budget, and your location and it will require you to do some homework to see which fits your situation.

Waiting to buy a Medicare Supplement (Medigap) policy

Medicare supplement policies pay the 20 percent of Medicare-approved expenses not covered by Original Medicare. The best time to buy a Medigap policy is during your open enrollment period—the 6-month window that begins when you turn 65 and have enrolled in Medicare Part B. Enrolling during that window means you can buy the best Medigap plan available at the best price, even if you have health issues. If you try to buy a Medigap plan outside that window, you will most likely have to answer health questions and be subject to medical underwriting which could result in a higher premium or possibly being declined for coverage.

Not understanding out-of-pocket expenses

While Medicare will pay for 80% of Medicare-approved expenses, don’t be fooled into thinking that you don’t have to pay anything. For example:

Premium: Each part of Medicare may have its own monthly premium. Most people have no premium for Part A, which covers hospital services. You will be responsible for the Part B premium, which will be deducted from your monthly benefit if you are collecting Social Security. If you enroll in a Medicare Advantage (MA) plan or a Part D plan, you may also owe a monthly premium, depending on the plan you select.

Deductible: Before Medicare starts paying for the cost of your care, you may have to pay a flat amount, called a deductible. Parts A and B in original Medicare have annual deductibles, and some MA and Part D prescription drug plans also have deductibles. Medigap policies often cover original Medicare deductibles.

Copayment: This is a fixed amount you pay for specific services. For example, under MA plans you may have a copay of $25 every time you see a doctor or get another medical service.

Coinsurance: This is where your plan will charge you a percentage of the cost of a medical visit or service. If you have original Medicare, you will owe 20 percent of the cost of the service. So, if you get a blood test that costs $100, Medicare will pay $80 and you’ll be responsible for $20. Medigap policies usually cover your 20 percent share.

If you have Original Medicare and see a doctor who doesn’t accept Medicare, they can charge 15% above what Medicare will pay, and that comes out of your pocket. If you have a Medicare Advantage plan and use a doctor outside the plan’s network, you will have to pay the difference in cost.

Choosing a Medicare Advantage plan not accepted by your healthcare providers

It sounds simple, but people make this mistake. They enroll in a Medicare Advantage plan that sounds great and is just what they’re looking for, but their healthcare providers don’t accept that particular MA plan. As stated above, if you use a healthcare provider that’s outside the network of your MA plan, the costs are higher and it comes out of your pocket. Check with your providers before you enroll in any Medicare Advantage plan.

Choosing a drug plan that doesn’t cover what you need

Part D plans and Medicare Advantage plans have a list of covered drugs called a formulary. If your drug is not on the formulary, you may have to pay the cost of that drug out-of-pocket. So, before enrolling in any drug plan, find out if your drugs are on the formulary and whether the plan places any restrictions on drugs you take. Not all drug plans are created equal. Some may restrict a prescription while other plans may not. Take the time to learn the rules of plans you’re considering.