You don’t want to be late for certain events in life, such as your wedding day, a court appearance, or Medicare enrollment. Missing any of the aforementioned will cost you dearly.
For Medicare, the process of applying for benefits can be confusing. It is a government program after all. Being late on your application can cause you to pay higher premiums for the rest of your life. Here’s everything important that you need to know before you turn 65.
Medicare Has Four Parts
Medicare provides healthcare insurance benefits to eligible participants, usually those age 65 and above. If you or your spouse has paid Medicare taxes for at least 10 years, you qualify for benefits. People with disabilities or end-stage renal disease are also eligible, but today, we’ll focus on retirees.
Medicare has four parts:
- Part A: Hospital insurance,
- Part B: Medical insurance,
- Part C: Medicare Advantage plans, and
- Part D: Prescription drug coverage.
Part A covers inpatient care, skilled nursing home care, home healthcare, and hospice care. This coverage typically has no premium costs, although deductibles and co-insurance do apply.
Part B covers doctors’ visits, labs, outpatient surgery, and preventative care. Cancer treatments, kidney dialysis, and durable medical equipment are also covered. Part B does have a monthly premium which is means-tested. In 2021, the premium starts at $148.50 per month and increases based upon your last two years’ taxable income. Together, Parts A & B are considered “original” Medicare.
Part C isn’t actually a “part” of Medicare. Instead, Part C is a type of optional, Medicare-approved private health insurance. Part C plans, known as Medicare Advantage Plans, incorporate Parts A, B, and usually D, into their coverage – but you deal directly with the insurance company instead of Medicare. These are managed care plans that include HMO and PPO options. We’ll discuss these plans in more depth momentarily.
Part D covers prescription drug costs. This is optional coverage, so you will not be enrolled automatically as you would with Parts A and B in some cases. It’s important to note that some, but not all, of Part C plans do include prescription drug coverage. If you choose to go that route, be sure to read the fine print on your policy.
Medicare Enrollment: When to Apply
Medicare has three different enrollment periods, each with its own three-letter acronym (TLA):
- The Initial Enrollment Period (IEP),
- The Special Enrollment Period (SEP), and
- The General Enrollment Period (GEP).
The Initial Enrollment Period (IEP) for Medicare is a seven-month window that centers around the month of your 65th birthday. For example, if your birthday is September 21st, then your initial enrollment period starts on June 1st and ends on December 31st – a period of seven full months.
If you’re already receiving Social Security, you’ll automatically be enrolled in Part A and Part B when you turn 65. Be sure to look out for a welcome package from Medicare, which will include your Medicare card. However, if you want to enroll in Part D, or sign up for a Part C plan, you will not be enrolled automatically – you’ll need to apply proactively during your Initial Enrollment Period.
What if you’re not receiving Social Security benefits (or don’t plan to) within four months of turning 65? If that’s the case, then we have two potential scenarios. In the first scenario, you are still eligible for a group health insurance plan through your employer (or your spouse’s employer). If so, you do not have to sign up for Medicare during your Initial Enrollment Period.
Instead, you’ll need to apply during a Special Enrollment Period (SEP), which is an 8-month enrollment period that starts when you or your spouse stop working. Why eight months instead of seven? Your guess is as good as mine.
Just to make things interesting, some employer health insurance plans allow workers to retain group coverage after they’ve applied for Medicare. In this case, there are plenty of rules to determine which insurance pays first. If you think this may apply to you, please consult with your benefits coordinator at work.
If you’re not on a group health insurance plan and you’re not receiving Social Security benefits, you’ll have to proactively apply for Medicare during your Initial Enrollment Period.
Here’s the catch.
If you miss your Initial Enrollment Period (or your Special Enrollment Period after you stop working), you will have to wait until the next General Enrollment Period, which runs from January 1st through March 31st each year. After applying, your coverage will begin on July 1st of that year.
If you miss your first opportunity to apply, you will owe a penalty on your Part B premiums. You could potentially pay up to 20% more per month for Part B premiums for the rest of your life! You’ll also be required to pay a penalty on your Part D premiums.
If possible, avoid signing up during the General Enrollment Period!
Because the stakes are so high, I highly recommend visiting the “When Can I Sign Up for Medicare?” page on Medicare’s website and answer the questions to determine when you need to apply.
Medicare Enrollment: How to Apply
There are three ways you can sign up for benefits:
- Online. Visit the Medicare.gov website and sign up online.
- Call. You can enroll by calling the Social Security Administration at (800) 772-1213.
- Go In Person. You can visit your nearest Social Security office and sign up in person. Please note: The Social Security Administration closed their offices during the Covid pandemic, so check to see if your local office is open first before visiting.
Big Decision 1: Part D Coverage
During the Medicare enrollment process, you’ll face two big decisions. The first is whether to apply for Part D coverage. Prescription drug costs aren’t cheap; almost 75% of all Medicare enrollees sign up for Part D coverage.
You will have the option to change your Part D plan in the future if needed. Of course, if you sign up for a Medicare Part C plan, your prescription drug coverage will most likely be included. Be sure and read the fine print, since not all Part C plans include prescription drugs.
Big Decision 2: Part C vs. Medigap Insurance
The second big decision to make regarding Medicare enrollment is whether to apply for a Part C Medicare Advantage plan. In reality, an overwhelming majority of applicants choose to decline Part C coverage. Instead, they purchase a Medigap policy to supplement their Medicare Part A, B, and D coverage. Medigap policies are regulated as well and deserve a separate blog post.
It’s easy to confuse Medicare Advantage Plans (Part C) with Medicare Supplement Insurance (the official name for Medigap policies). They are not made to work together. In fact, it’s illegal for an insurance company to sell you one type if you already have the other.
In essence, there are three paths you can choose as you begin the Medicare enrollment process:
- Medicare Only. This includes Parts A & B, with optional prescription drug coverage (Part D),
- Medicare Advantage Plan (Part C). Here, you choose a Medicare Part C plan, incorporates Parts A, B, and usually D.
- Medicare + Medigap. With this choice, you buy a Medigap policy to work alongside Medicare Parts A & B, with optional Part D coverage.
While there’s no right or wrong answer, most enrollees choose the Medigap route and add Part D coverage. If in the future, you find that your needs change, you do have the ability to switch from one path to the other, subject to a few rules, of course.
The truly important thing? Just don’t be late!
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As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.
