What Common Medicare Faux Paus Should I Avoid?

Greeves & Roethler, PLC

If you don’t make the right choices to fill in the health coverage gaps, you could end up with high Medicare premiums and big out-of-pocket costs.

Medicare covers most of your health care costs when you turn 65. However, Medicare’s rules can be confusing and mistakes can be costly. AARP’s recent article entitled “11 Costly Medicare Mistakes You Should Avoid Making” gives us some common Medicare mistakes to avoid.

Keeping Your Medicare Part D Plan on Autopilot. Open enrollment for Medicare Part D and Medicare Advantage plans goes from October 15 to December 7 every year. This is a good time to examine your options. The cost and coverage can vary a lot from year to year, and some plans boost premiums more than others.

Purchasing the Same Medicare Part D Plan as Your Spouse. There are no spousal discounts for Medicare Part D prescription-drug plans, and most spouses don’t take the same medications. One plan may have much better coverage for your drugs, and another plan may be better for your spouse.

Going Out-of-Network in Your Medicare Advantage Plan. If you opt to get your coverage through a private Medicare Advantage plan that covers both medical expenses and prescription drugs, you usually need to use the plan’s network of doctors and hospitals to get the lowest co-payments. Some plans won’t cover out-of-network providers, except in an emergency. Be sure that your healthcare providers are covered in your plan from year to year.

Not Switching Medicare Advantage Plans Mid-year, If needed. Even though open enrollment for Medicare Advantage plans runs from October 15 to December 7, you also have from January 1 to March 31 to switch to a different Medicare Advantage plan. You can also switch plans outside of open enrollment, if you have certain life changes.

Not Selecting the Right Medigap Plan. If you buy a Medicare supplement plan within six months of enrolling in Medicare Part B, you can get any plan in your area even if you have a preexisting medical condition. However, if you attempt to switch plans after that, insurers in most states can reject you or charge more because of your health. So, choose your plan carefully.

Forgetting That You Can Sign Up for Medicare at 65. If you’re already receiving Social Security benefits, you’ll automatically be enrolled in Medicare Part A and Part B when you turn 65 (although you can turn down Part B coverage and sign up for it later). However, if you aren’t getting Social Security benefits, you’ll need to act to enroll in Medicare. If you’re at least 64 years and 9 months old, you can sign up online. You have a seven-month window to sign up—from three months before your 65th birthday month to three months afterward (you can enroll in Social Security later).

Failing to Enroll in Medicare Part B, If You Have Retiree or COBRA Coverage. When you turn 65, Medicare is generally considered to be your primary insurance, and any other coverage you have is secondary—unless you or your spouse has insurance through a current employer with 20 or more employees. However, note that the coverage must be with a current employer. Other employer-related coverage, like retiree coverage, COBRA coverage, or severance benefits isn’t considered to be primary coverage after you turn 65. As a result, if you don’t enroll in Medicare, you may have gaps in coverage and be subject to a lifetime late-enrollment penalty of 10% of the current Part B premium for every year you should have been enrolled in Part B but were not. You may also have to wait to get coverage.

Forgetting the Medicare Part B Enrollment Deadline After Leaving Your Job. If you have coverage through an employer with 20 or more employees, you don’t have to sign up for Medicare at 65. You can elect to keep coverage through your employer, so you don’t have to pay the Part B premiums. However, you need to enroll within eight months after you leave your job, or you may have to wait until the next enrollment period (January through March, for coverage to begin on July 1). That means you could go for several months without coverage. You may also see the 10% lifetime late-enrollment penalty.

Making Financial Moves that Increase Your Medicare Premiums. Most seniors pay $148.50 per month for Medicare Part B premiums in 2021. However, if you’re single and your adjusted gross income is more than $88,000 (or more than $176,000 for joint filers), you’ll have to pay from $207.90 to $504.90 per month this year. You will also have a high-income surcharge for your Part D prescription-drug coverage. That can boost your premiums by $12.30 to $77.10 per month. If you’re close to the income cutoff, remember that financial moves could up your adjusted gross income and make you subject to the surcharge. This includes thigs like rolling over a traditional IRA to a Roth or making large withdrawals from tax-deferred retirement accounts.

Failing to Contest 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 you’re single or $176,000 if you’re married filing jointly. The Social Security Administration uses your most recent tax return on file to determine if you’re subject to the surcharge. But note that you may be able to get the surcharge reduced if your income has dropped since then because of certain life-changing events, like marriage, divorce, the death of a spouse, retirement, or a reduction in work hours. If so, you can ask Social Security to use your more recent income instead.

Enrolling in Medicare Part A, If You Want to Contribute to an HSA. Remember that you can’t contribute to a health savings account (HSA) after you sign up for Medicare. However, that doesn’t necessarily mean that you have to stop making HSA contributions when you hit 65. If you or your spouse has health insurance through your current job, you can delay signing up for Part A and Part B and keep contributing to an HSA. However, you can’t do this if you’ve already signed up for Social Security or your employer has fewer than 20 employees. If so, you can’t delay signing up for Part A.

Reference: AARP (June 30, 2021) “11 Costly Medicare Mistakes You Should Avoid Making”

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