There are not many advantages to getting old—hair thins, wrinkles show up at an accelerated rate and there’s a cornucopia of new aches and pains we’re introduced to. As crazy as it sounds, for many, one benefit to getting older is having access to Medicare.
When Congress passed Obamacare in 2010, healthcare in the United States was thrown into turmoil. I know people whose health insurance rates went up almost 350%. I know others who paid more for mandated health insurance than they paid for their mortgage. Deductibles went through the roof and people had to make choices, often foregoing medical treatment unless it was absolutely necessary. So, eligibility for Medicare solves some healthcare problems people have had for almost a decade.
As with any healthcare program, there are decisions that must 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 your 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 your 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 the rest of your life.
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
Another costly mistake is thinking that retiree coverage is your primary healthcare coverage. When you turn 65, Medicare is considered to be primary insurance and all other coverage—retiree, COBRA, and severance benefits—becomes secondary. 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.
Not signing up for Part D at 65
Medicare Part D is prescription drug coverage. You’re 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.
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.
You also want to find out if a plan places restrictions on any of the drugs you take and what those restrictions are. 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?
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
Original Medicare is Parts A & B only. It’s Medicare offered through the federal government. Part A covers hospitalization while Part B covers doctor visits and outpatient services. Parts A & B cover 80% of those healthcare costs. The rest comes out of your pocket or you can buy a Medigap plan to pay those out-of-pocket expenses. Medigap has a separate monthly premium in addition to the monthly Part B premium. Original Medicare does not include Part D prescription drug coverage.
Medicare Advantage (MA) is offered by private insurance companies and is an all-in-one plan that covers all of Parts A & B, plus Part D, as well as vision, dental, and hearing along with 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 have an annual out-of-pocket limit. MA plans and costs vary.
If you’re enrolled in a Medicare Advantage plan you cannot buy a Medigap policy.
Just the same as Part D plans, do your homework to find what works best for you.
Choosing a Medicare Advantage plan that doesn’t include your health providers
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 next year. I recently talked to a doctor’s office that had accepted the Medicare Advantage plans from a large, well know national provider, but the doctor’s office would not accept those plans in the coming 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.
Not picking the right Medigap plan
Medigap is the plan your purchase if you choose Original Medicare, Parts A & B, for your health coverage. Original Medicare covers 80% of your costs. Medigap, also known as Medicare Supplement plans, makes up the difference. If you buy a Medigap plan during your initial enrollment plan when you enroll in Medicare Part B, you can choose any supplement plan available in your area and be accepted, even if you have pre-existing medical conditions, and the Medigap provider has to sell you the plan at the best available rate.
However, if you try to buy a supplement outside your Initial Enrollment Period, Medigap providers may require a health exam. Based on the results, the company may refuse to sell you a policy. If they do agree to cover you, the policy may be rated because of your health conditions and you’ll pay a lot more for the coverage.
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.
- 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.
- 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.
- 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.
- 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 also usually cover your 20 percent share.
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, you have to pay a high-income surcharge. In 2021 the monthly Part B premium is $148.50. You’ll pay the surcharge if you are single and your modified adjusted gross income is more than $88,000, or more than $176,000 for joint filers. The monthly premium plus surcharge means you’ll pay between $207.90-$504.90 per month. You’ll also pay a high-income surcharge for your Part D prescription drug coverage. The surcharge for 2021 can increase premiums by $12.30-$77.10 per month.
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
Your Part B and Part D premiums are higher if you earned more than $88,000 if single or $174,000 if married filing jointly. The Social Security Administration uses your most recent tax return on file to determine whether you’ll have to pay the 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.