It’s easy to get confused about health care costs in retirement—and they’ll be a major part of your budget after you turn 65. The good news is Medicare is the primary health insurance for seniors, and most Medicare enrollees are very satisfied with their coverage. If you’re nearing retirement and Medicare age, here are some of the most important features of Medicare you should know so you don’t make potentially costly mistakes.
Missing your initial enrollment period
Everyone has his own initial enrollment period (IEP). Your seven-month IEP is based on when you turn 65. For example, if your 65th birthday is on July 17, 2020, then your IEP will start on April 1, 2020, and will end on October 31, 2020.
During your IEP, you should enroll in Medicare Part A, Part B, and Part D (if you aren’t enrolling in a Medicare Advantage, or Part C, plan that includes Part D).
If you enroll during the first 3 months of your IEP, your start date will be the first day of your birthday month. If you apply during your birthday month or during the last 3 months of your IEP, you will have a delayed start date.
If you don’t enroll when you are first eligible, and don’t have creditable coverage (see below) through another source such as an employer or union health plan, you’ll pay a late enrollment penalty with your monthly premium. This monthly penalty applies for as long as you have Medicare coverage—it can definitely add up over time.
A side note: If your birthday is on the 1st of the month, you get an extra month added to the beginning of your IEP, and your start date will be the 1st of the month before your birthday month.
If you have creditable coverage, you can delay your Medicare enrollment until after your existing coverage ends. You likely have creditable coverage if you work past 65 for a large employer (20+ employees) and are enrolled in their health plan. Although you can delay all parts of Medicare during this time, most people choose to enroll in premium-free part A if they qualify. However, if you’re contributing to a health savings account, or HSA, you may need to delay Part A until your contributions end.
Missing your Medigap Open Enrollment
This one could cost you a lot. Medigap plans cover some or all of your Part A and Part B out-of-pocket expenses with Original Medicare. If you enroll during your Medigap Open Enrollment Period, which begins the month you are both age 65 or older and enrolled in Part B, you can buy any plan available in your area and you can’t be turned down or charged more for a pre-existing condition. Wait, however, and you will have to pass medical underwriting in order to buy a plan. If you have any serious or chronic health conditions, you may be turned down for coverage, or charged much more for your plan due to your health.
If you do decide to enroll in Medigap, get the coverage today you’ll want 10 years from now. Unlike Medicare Advantage and Part D plans, which you can switch every year if you’re not happy with your coverage, you have no right to switch Medigap plans, and it may be impossible to upgrade your coverage later.
Not considering your coverage options
Another common mistake new retirees make is defaulting into Original Medicare without considering their needs and available options. There is no cap on out-of-pocket costs with Original Medicare, and deductibles, copayments, and coinsurance amounts add up, especially if you have a chronic health condition or serious health crisis.
It’s a good idea to consider Medicare Advantage plans when you make your coverage decision. In many cases, out-of-pocket costs are lower with Medicare Advantage plans, and you may find a plan with coverage for routine vision and dental care, something not available with Part A and Part B. Most have Part D prescription drug coverage, too, so you get all your Medicare benefits in one easy-to-manage plan.
Remember, you can always switch your Medicare Advantage and Part D plans every year, so you’re not locked into coverage you don’t like. You can even switch back to Original Medicare without penalty.
You should also keep in mind that you and your spouse don’t have to buy the same plan. That means you can shop for the plan that best suits your particular health situation and your spouse can do the same.
Not using a Medicare broker to shop plans
When you go through an insurance agent, you are committed to only plans available from one particular carrier. In fact, you may be limited to a single plan from that one carrier. You likely won’t get the whole picture.
A Medicare broker, on the other hand, represents several different carriers and plan types, so you can compare all your options in one place, including Medicare Advantage and Part D prescription drug plans.
Of note, Medigap plans are a bit different than other Medicare plans. Benefits for Medigap are standardized at the federal level, so a Plan C from one company will be essentially the same as Plan C from another company—the only difference is the premium, and of course, the company’s reputation.
Your Medicare broker can help you evaluate all your options and make the best decision for you.