Medicare: How to Time it Right and Avoid Penalties

Are you turning 65? Or are you age 65+ and retiring? Or are you assisting a parent or friend who is in this situation? There are a few important decisions to make regarding Medicare. Get started today reviewing your coverage options, specific medical needs, employment plans, and enrollment time windows. There are important dates you don’t want to miss!

What is Medicare?

Medicare typically refers to Medicare Part A and B, or Original Medicare. Since its inception, coverage options have been added including Medigap, Part D Prescription Drug Coverage, and Medicare Advantage aka Part C.

The process of choosing Medicare options can be overwhelming. But it is a very important process, and one that should be prioritized, as you seek to best meet your needs in a new phase of life. Some decisions can be changed. Some cannot. And some come with penalties if you don’t make a decision!

Medicare Coverage Options

There are several different coverage options.

• Part A (Hospital Coverage) – Part A is designed to cover the cost of treatments such as inpatient hospital stays, some home health care, skilled nursing facility care, and hospice. This requires no out-of-pocket annual premiums if you or your spouse paid Medicare taxes for 10 years/40 quarters of working life. But it does have both annual deductibles and copays.

• Part B (Medical Coverage) – Part B covers “outpatient medical services” like doctor visits, outpatient surgeries, X-rays and lab tests, outpatient therapy, chemotherapy/radiation, as preventive screenings, and more. It includes both annual deductibles and copays; and carries a base monthly premium payment, which increases for higher earners.

• Part C (Medicare Advantage) – Medicare Advantage is the private alternative to Medicare bundling the services of Parts A and B (and often D). These plans are offered by government-approved insurance providers. Some of these plans even have $0 premiums. However, you have to remain in-network and you may have to change doctors, as most plans are similar to HMOs in restrictions.

• Part D (Prescription Drug Coverage) – Part D is an optional add-on prescription drug coverage that requires monthly premiums, annual deductibles, and copays. You have to be enrolled in an approved plan and be covered under both Medicare Parts A and B (or Part C).

• Medigap – Medigap plans are purposed to fill in the gaps in coverage of Part A and B. These gaps include copayments, coinsurance, deductibles, foreign travel health, etc. Medicare pays 80% and the plan you choose pays the rest. Medigap premiums are approximately $150 per month in addition to Medicare Part B and prescription costs. Note: you have 6 months after your enrollment window to buy a Medigap contract without consideration of pre-existing conditions. As long as you pay the premium, your provider cannot cancel your insurance.

Considerations When Evaluating Medicare Coverage Options:

• Is my current physician available under the plan?

• Are my medications covered?

• Do I have any upcoming major health procedures I need coverage for?

• Do I need any non-medical, health-adjacent benefits? (ex: meal delivery, doctor appointment transportation, etc.)

• What will my needs be in 15 to 20 years, and what options do I have for changing any coverage?

• Do I have pre-existing conditions that will affect my future eligibility for Medicare supplements?

• Will I be charged an income-related monthly adjustment amount (IRMAA) surcharge for Part B? View surcharges by annual income here.

• Can Medicare work with my other insurance?

Deadlines and Penalties: Not on Employer Coverage at Age 65

Many people choose to delay receiving Social Security in exchange for the increased benefits in the future. However, Medicare, unlike Social Security, does not reward late filing. In fact, it penalizes it. It’s important to be aware of deadlines and potential penalties for missing them.

If you are already receiving Social Security benefits, you are automatically enrolled in Part A and B at age 65. If not, you need to apply for Medicare in a timely manner.

For those who are unemployed/retired or elect not to continue their employer coverage, there is a 7-month time period in which you can enroll penalty-free (Initial Enrollment Period, or IEP). The period is 3 months prior to and 3 months after the month in which you turn 65. (Example: If your birthday is June 14, you have from March 1st until September 30th to complete.)

• Part A: There is a 10% increase in monthly premium for twice the number of years you were eligible and unenrolled.

• Part B: The premium increases by 10% for every 12 months of delay. The penalty is paid for the entirety of your future coverage.

• Part D: The penalty is calculated by multiplying 1% of the national base beneficiary premium by the number of uncovered months for which you were eligible. The penalty is paid for the entirety of your future coverage.

Deadlines and Penalties: Continuing Employer Coverage After Age 65

What if you are still employed? Do you have to sign up for Medicare anyway?

If you plan to continue working past 65, you have the option to stay covered by your employer’s health plan; or you can sign up for Medicare. Delaying Medicare sign up will not result in penalties for as long as you are covered by your employer. However, as soon as your employer coverage ends, you have 8 months to enroll, during your Special Enrollment Period (SEP), before penalties are incurred.

A third option is to remain covered by your employer’s plan but to supplement with Medicare Part A once you turn 65. You can no longer make HSA contributions once enrolled but you do get Medicare Part A premium-free (usually).

Note: COBRA does NOT delay the start of the SEP enrollment window. According to Medicare, COBRA enrollment does not equal active employer coverage. You can still enroll in COBRA, just make sure you also register for Part B to prevent penalties.

If you do fail to enroll during the SEP, the penalties are the same as those above.

Other Enrollment Periods:

• General: If you miss the IEP or SEP, you can sign up during General Enrollment which is January 1 – March 31 every year. Coverage starts July 1.

• Open: You can make changes, first-time enroll, or drop a plan every year during Open Enrollment from October 15 to December 7th. Coverage takes effect January 1. It’s important to review your plan every year as things can change!

• Part C Open: Part C Medicare Advantage has a special Open Enrollment period from January 1 to March 31.

Start Planning Today!

If you are nearing 65 or are over 65 and retiring soon, get started planning today! And if you know someone in this situation, call them and encourage them to plan to avoid penalties and coverage gaps. Remember that your situation is different from your friends’ and neighbors’ – your medical needs, your AGI, your timing will all affect your plan. Do your research or call your adviser – at Kings Path, we serve our clients as trusted thought partners through every life phase. Give us a call today to discuss your financial future!

Most of this process can be done by visiting Medicare.gov. Remember to be aware of Medicare fraud. Medicare will never visit you and will never call or email without you initiating the communication.