So, you’re almost eligible for Medicare. For many who have struggled with expensive, high deductible, limited option health insurance plans, going on Medicare is a step up.
As with any healthcare program, there are decisions to be made about your Medicare coverage. Make the wrong decisions, and you could be hit with high Medicare premiums, big out-of-pocket costs, and penalties that last the rest of your life. Here are Medicare mistakes to avoid.
Not signing up for Medicare when you’re 65
There’s a common misconception that you don’t have to sign up for Medicare until you reach Social Security Full Retirement Age (FRA). For most people, that’s between 66-67. But enrolling in Medicare happens at age 65.
If you’re already receiving Social Security at 65, you’ll be enrolled in Medicare Parts A & B automatically and the monthly premium for Part B will be deducted from you Social Security check. Generally, there’s no cost for Part A.
But if you aren’t getting Social Security at age 65, you have to initiate enrollment, usually online, although you can get paper applications if you’re more comfortable enrolling that way. You have a seven-month Initial Enrollment Period (IEP) that runs three months before the month you turn 65, the month you turn 65, and three months after the month you turn 65.
If you fail to enroll in Part B during the IEP and later decide to enroll, you’ll be hit with a penalty of 10% for every 12-month period you could have had Part B but did not. That penalty will last for as long as you have Part B coverage.
Missing the Special Enrollment Period
An exception to enrolling at 65 occurs if you or your spouse continue to work and you are covered by a qualified employer health plan, defined as a plan covering 20 employees or more. When employer coverage ends, you have eight months, called the Special Enrollment Period (SEP), to sign up for Medicare without penalty. If you don’t enroll during that eight-month window, you may have to wait until the next enrollment period, January 1-March 31 with coverage beginning July 1, which could leave you without coverage for several months and
throw you into the 10% lifetime late enrollment penalty.
Not signing up for Part B if you have Retiree or COBRA coverage
At some companies, health coverage changes at age 65. Medicare becomes the primary insurance and all other coverages—retiree, COBRA and severance benefits—become secondary meaning the employer health insurance will pay only after Medicare pays its part. So, even if you have those coverages, if you don’t sign up for Medicare at 65 you may have gaps in coverage and be subject to the lifetime late enrollment penalty.
The only exception is if you have coverage through a current employer, as discussed in the previous section. To find out the provisions of your employer plan, talk to your benefits manager or the human resources department.
Not signing up for Part D at 65
Medicare Part D is prescription drug coverage. You are eligible to enroll in Part D at age 65, just like Parts A & B. If you don’t sign up during your Initial Enrollment Period and later decide to, you’ll receive a lifetime late-enrollment penalty. Medicare calculates the penalty by multiplying 1% of the national base beneficiary premium times the number of full months you didn’t have Part D or creditable coverage. The national base beneficiary premium may change each year, so your penalty amount may also change each year.
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 guidelines.
Choosing Part D coverage that doesn’t fully and affordably cover your drugs
This applies whether you choose stand-alone Part D coverage or it’s embedded in a Medicare Advantage plan. It’s essential that you compare plans. Learn the rules of each plan. Make sure your prescriptions are covered and what will it cost you.
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 plan, find out if your drugs are on the formulary and whether the plan places any restrictions on drugs you take. For example, does the provider require you to get prior approval before it will pay for that drug. Or are you required to go through step therapy, which means you have to try other less expensive drugs before the plan will pay for a more expensive one.
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.
Leaving your Part D plan on autopilot
It’s common among Medicare recipients to choose a Part D drug plan and never change. Set-it-and-forget-it is not a good idea. You need to review your Part D plan every year. Part D providers can increase your premiums, increase the amount you’re required to pay for each prescription, change the rules about covering certain medications, or change which pharmacies you’re required to use.
If another Part D plan makes more sense for your situation, you can change plans during the annual Open Enrollment Period (OEP) which runs October 15-December 7 each year. You can compare plans available where you live on the Medicare Plan Finder. You can enter your drugs and dosages and the finder will show you how much you’ll pay for plan premiums and copays.
Buying the same Medicare Part D plan as your spouse
When it comes to Part D prescription drug plans, one size does not fit all. Different Part D providers pay differently for the same drug. And since it’s likely that you take different prescriptions than your spouse, you need to find the Part D plan that gives you the best deal on the drugs you take.
And don’t forget to look at a Part D provider’s list of preferred pharmacies. It’s not uncommon for your Part D plan to require you to use one of their preferred pharmacies to get the best prescription prices. Your spouse’s plan may have different preferred pharmacies. It may be more convenient for you to go to the pharmacy your spouse uses, but if it’s out of your Part D network you may end up paying a lot more for your drugs.
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 80% of Medicare-approved expenses. You can purchase a Medicare Supplement plan (Medigap) to cover the other 20 percent. There is a separate monthly premium for a Medigap plan in addition to the monthly Part B premium.
- There is no prescription drug coverage with Original Medicare. 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) or Part C Medicare, 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. Some MA plans may also provide nontraditional services, such as paying for wheelchair ramps, meals delivered to your home and transportation to medical appointments.
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.
- MA plans have an annual out-of-pocket limit, which Original Medicare does not.
- The cost of services varies from plan to plan.
- If you’re enrolled in a Medicare Advantage plan you cannot buy a Medigap policy.
Choosing Original Medicare or Medicare Advantage depends on your health, your budget and your location and it will require research on your part to find the best option for your situation.
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.
Not every doctor accepts every Medicare Advantage plan and things change from year to year. If you’re signing up for Medicare for the first time, check with all your health professionals to see if they accept the MA plan you’re considering.
If you’re already using a MA plan and it works well for you, you still want to check with your healthcare providers near the end of the year to see if they will accept that plan the following year.
Going out of your Medicare Advantage plan network
Medicare Advantage plans usually have their own network of doctors and hospitals. By using those providers and facilities you get the lowest copays. But if you go out-of-network, your costs go up substantially. In fact, some plans won’t cover any out-of-network services, except in cases of emergency.
Not switching Medicare Advantage plans if necessary
If you find a Medicare Advantage plan that will work better for you, you’re not stuck with the plan you have. You can change your plan during the Open Enrollment Period (OEP) which happens every year, October 15-December 7. This is the time to compare plans, out-of-pocket costs and new benefits.
If you miss the OEP, you can switch to a different MA plan during the General Enrollment Period (GEP) January 1-March 31.
Under certain limited situations, you can switch Medicare Advantage plans outside of enrollment periods. For example, you can switch if you move to an area that’s not in your current MA plan service area or if you find a five-star rated plan in your area.
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 widow 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.
However, if you try to buy a supplement outside your Initial Enrollment Period, Medigap providers may require a health exam and you will be subject to medical underwriting. Based on the results, the company may rate you and issue a policy at a higher premium or decline you for coverage all together.
Some states have their own rules governing Medigap policies, so if you made this mistake and didn’t sign up during your enrollment period, check with your State Health Insurance Assistance Program (SHIP)at shiptacenter.org to ask about state-specific Medigap rights.
Not understanding your out-of-pocket costs
If you choose Original Medicare, Parts A & B, the program covers 80% of your costs. Without a Medigap plan that leaves you responsible for quite a bit in premiums, deductibles, copayments and coinsurance.
Premiums
- Part B Premium-There is generally no cost to Part A because you’ve paid for it with the Medicare taxes that have been deducted from your check during your working career. However, there is a monthly premium for part B and that amount changes every year. If you’re receiving Social Security benefits, that monthly premium is deducted from your SS payment. If you’re not receiving SS benefits, you have to pay the monthly Part B premium directly.
- Medicare Advantage Premium-While many MA plans have no cost, there are options that provide additional benefits and you do pay a monthly fee for those plans.
- Part D-If you have Original Medicare and choose to purchase a prescription drug plan, you will pay a monthly premium for the drug coverage.
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 do not cover the Part B deductible.
Copayment
- This is a fixed amount you pay for specific services. For example, under MA plans you may have a copay of $25to 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 cover your 20 percent share.
If you have Original Medicare and see a doctor who doesn’t accept Medicare, the physician 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.
Making financial moves that increase your Medicare premiums
Most people pay a monthly premium for Part B. But if your income goes above a pre-determined limit, which changes every year, you have to pay a high-income surcharge. If you’re close to the income threshold, some of the things that could push you over the limit include converting a traditional IRA to a Roth or making large withdrawals from tax-deferred accounts such as IRAs, retirement plans or annuities.
Not contesting the high-income surcharge for the year you retire
The Social Security Administration uses your most recent tax return on file to determine whether you’ll have to pay the high-income surcharge. Sometimes Social Security will reduce the surcharge if your income goes down because of life-changing events like marriage, divorce, death of a spouse, retirement or a reduction in work hours. You can petition Social Security for the reduction but you’ll have to provide documented proof.
Assuming you can’t afford Medicare
People with limited income often assume they just can’t afford premiums, deductibles, copayments and coinsurance. They mistakenly leave themselves open to doing without essential medical care, and it doesn’t have to be that way. Assistance is available.
Medicare Savings Programs (MSPs) help pay the monthly Part B premium and may help with Medicare cost sharing. Your State Health Insurance Assistance Program can tell you if you’re eligible. Contact your SHIP at shiptacenter.org
“Extra Help” is a federal program that helps with the costs of Medicare Part D. You can learn more by calling the Social Security Administration at 800-772-1213 or online at ssa.gov.
Some states offer State Pharmaceutical Assistance Programs (SPAPs) to help eligible individuals pay for prescriptions. You can find that information at shiptacenter.org.
Disclaimer
This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at [email protected].
