NOW! It Is Never Too Early To Educate Yourself!
It is never too early, but a few years before you turn 65 you should definitely have started your research. And if 65 is just around the corner and now you feel behind, give me a call!
The intersection of health and wealth—it’s the foundation of a happy and successful retirement. A major component in that equation will be your retirement health care coverage provided through Medicare.
While not an overly complicated benefit, initially signing up for Medicare can be an overwhelming and anxiety-inducing process. Medicare consists of an alphabet soup of plans, coverage choices, premium levels and enrollment rules. All that said, there are a few key decisions you will be required to make regarding your Medicare coverage:
- What components of Medicare should you choose to sign up for and how much can they expect to pay for the coverage?
- What are your’ options if they plan to keep working beyond age 65?
- When will they need to enroll?
Decision No. 1: Which Coverage Option?
Rather than waiting until the last minute to begin researching coverage options, the time to start planning is now—even if you are still several years away from your 65th birthday. Begin by reviewing the different parts of Medicare and what each component covers:
- Part A (hospital coverage) covers things like inpatient hospital stays, some home health care, skilled nursing facility care and hospice; requires no out-of-pocket annual premiums; but has both annual deductibles and copays.
- Part B (medical coverage) covers things like doctor visits, outpatient services, X-rays and lab tests, as well as preventive screenings; carries both annual deductibles and copays; and requires monthly premium payments.
- Part C (Medicare Advantage) is a private all-in-one alternative to Medicare that covers the services associated with Parts A and B (and usually Part D). On the plus side, these bundled plans tend to be more affordable and may offer broader coverage (for example, vision, hearing and dental. Providers must be Medicare-approved. But the plans typically come with greater restrictions, and most plans act as HMOs and require plan participants to go to their network of doctors and health care providers.
- Part D (prescription drug coverage) is an optional add-on prescription drug coverage that requires monthly premiums, annual deductibles and copays. You will need to enroll in an approved plan and be covered under both Medicare Parts A and B (or Part C).
- Medigap is offered by private insurers to help fill any coverage gaps in Part A and Part B such as copayments, coinsurance, deductibles and potentially foreign travel health emergencies. There are 10 different types of Medigap plans—some cover more out-of-pocket costs than others.
When considering Medicare elections, try to factor in your anticipated future health care needs. Do you have any preexisting conditions or a family history of chronic disease? If so, you may want to explore more robust coverage options such as a Medigap policy.
Medicare is generally available to anyone age 65 or older (as well as to younger people with qualifying disabilities). Part A is available premium-free if you paid Medicare taxes for at least 10 years (40 quarters) of your working life. If you have fewer work credits than that you’ll be required to pay a monthly premium. For 2021, the premium would be $259/month if you had 30–39 quarterly credits or $471/month if you have fewer than 30 quarterly credits.
High-income earners may also need to factor income-related monthly adjustment amount (IRMAA) surcharges into your Medicare cost calculations. Depending on your modified adjusted gross income (AGI) from two years prior and your tax filing status, they may fall into one of five income brackets that are subject to incrementally higher surcharges.
For example, a married filing jointly taxpayer had a 2019 modified AGI of $500,000. For 2021, this income amount falls in IRMAA Bracket 4 ($330,000 to $750,000), so your monthly Part B premium would increase from $148.50 to $475.20, and you would be subject to a $71 surcharge in addition to what you pay for your Part D coverage.
Any Part B IRMAA surcharges are added to your Part B premium, while Part D IRMAA surcharges are paid separately to Medicare. It’s important to note that Medicare treats IRMMA payments the same as any other premium bill. If you don’t pay the surcharge on time, they could potentially lose your coverage.
Decision No. 2: Employer Plan or Medicare?
If you are working past age 65 and covered by your employer’s health plan, they can choose to defer signing up for Medicare without incurring any penalties. In this case, you’ll be required to enroll for Part A and/or Part B during your special enrollment period (SEP) that begins the month after your employment or group coverage ends (whichever comes first) and lasts for eight months. If you choose to continue your employer health coverage under COBRA, however, it won’t delay the start of your SEP enrollment window.
Even if you are still working and covered by an employer’s plan, you may want to enroll in Medicare Part A when they turn age 65 because it’s usually premium-free. The only real downside is that you will no longer be eligible to contribute any additional pre-tax dollars to your employer health savings account (HSA). Generally, you should stop contributing to an HSA six months before they enroll in Medicare. If you decide to enroll in Medicare at 65 and stop contributing to an HSA, they can continue to use your HSA for qualified medical expenses for as long as they have funds in your HSA. You’ll therefore already be signed up and can simply add Part B and D (or choose a Medicare Advantage plan) during your SEP to postpone paying the monthly premiums until they actually need the coverage.
Decision No. 3: How to Meet Deadlines and Avoid Penalties
For most people, Medicare coverage begins the first day of the month they turn age 65. If you have already started receiving Social Security benefits, you’ll automatically be signed up for Medicare Part A and Part B. If you haven’t yet made a Social Security benefit claim, you’ll need to submit a Medicare application.
To avoid any coverage gaps or potentially higher premiums, if you’re not still covered by your employer’s plan, they must sign up during your seven-month initial enrollment period (IEP) spanning the three months preceding and following the month in which they turn age 65.
In addition to the seven-month IEP and the SEP eight-month enrollment period that kicks in after they leave your employer’s plan, here are other annual enrollment dates you’ll want to be aware of:
- General enrollment period: Those who missed their IEP and SEP can sign up during Medicare’s General Enrollment Period (Jan. 1 to March 31) with coverage taking effect on July 1.
- Open enrollment period: You can join, switch or drop a plan each year from Oct. 15 through Dec. 7 with new coverage taking effect the following Jan. 1.
- Part C open enrollment period: If you enrolled in a Part C Medicare Advantage plan, you can change plans each year between Jan. 1 and March 31.
Unlike Social Security, which rewards individuals for delaying their benefits, depending on the circumstances, you could be penalized with higher monthly premiums if they fail to enroll in Medicare on time. While the penalties for Part A and Part D are small, the penalty for Part B can be substantial.
- Part A: You may be assessed a 10% increase in your monthly premium if they don’t qualify for premium-free coverage and fail to enroll when they’re first eligible. This penalty will be assessed for twice the number of years they delay signing up. So, if you wait two years beyond your first eligibility to enroll, you’ll be required to pay the higher premiums for four years.
- Part D: While typically small, penalties for late enrollment in a Medicare prescription plan are assessed for as long as individuals have coverage. The amount is calculated as 1% of the “National Base Premium ($33.06 in 2021) for the total number of months of delay enrolling in Part D. For the same two-year (24-month) delay above, it would translate into a $7.90/month penalty (0.24 x 33.06).
Here’s where the penalties can become quite steep:
- Part B: For failing to enroll in Part B, the penalty is 10% for each 12-month period of delay. Let’s say you turned age 65 in March of 2014 but didn’t enroll in Medicare until March of 2021 (and had no employer plan during that time). Your monthly premium will be 70% higher for as long as they have coverage.
There is no late enrollment penalty for Part C or Medigap insurance (although you could be subject to underwriting and Medigap rates may go up dramatically if they delay signing up). Additionally, you’ll have an opportunity to dispute any penalties and/or surcharges that are assessed by filing an appeal with the U.S. Centers for Medicare & Medicaid Services. Forms can be found on their website at www.cms.gov.
In most instances, the entire Medicare enrollment process can be completed online at www.medicare.gov. The site provides extensive information along with resources to help you select the right coverage for your circumstances.
After reading all this, if you weren’t feeling overwhelmed or anxious, you may be now. That’s why we’re here. Give us a call. We can walk you through the process and get you in touch with other resources as well.
And if you have a friend or family member in their 60’s who might need this information – let us know. We’re honored to help those that you care about.
