Enrollment in Medicare can be difficult to navigate due to its complexity and the unintended financial consequences that result from certain missteps in the process. Understanding the details of enrollment as well as the options available to you can help ease the transition into Medicare coverage. Here are some helpful tips you should be aware of to avoid permanent premium penalties.
Medicare Part A
Typically, Medicare Part A entitlement, or commonly referred to as hospital insurance, begins on the first day of the month you turn age 65. The initial enrollment period once you become entitled to Medicare benefits begins on the first day of the third month prior to your 65th birthday and ends seven months later. Unless you are receiving Social Security, survivor benefits, or railroad retirement benefits prior to reaching age 65, you must file an application with the Center for Medicare and Medicaid Services to begin receiving Part A entitlements.
A late enrollment penalty surcharge of 10% would be assessed to you if enrolled in Medicare Part A 12 months or more after the end of your initial 7-month enrollment period. This penalty is likely to last for twice the number of years you could have had Part A but you did not sign up. The late enrollment penalty can be avoided by enrolling in Part A during your initial enrollment period or during the Special Enrollment Period which is usually available to you if you or your spouse is working and you are covered by a group health plan through the employer. The Special Enrollment Period is typically an 8-month period which begins the month after employment ends or the group health plan coverage ends.
Enrolling in Medicare Part A within the initial enrollment period while you are employed and covered by an employer group health plan with 20 or more employees results in Medicare Part A acting as a back-up to the primary health plan. This would not be the case with coverage under a small group health plan with less than 20 employees where Medicare would serve as your primary health plan and the group plan secondary.
Medicare Part B
While Medicare Part A entitlement costs are generally covered by FICA taxes, Medicare Part B premiums are paid by you upon enrollment and covers physician services, medical supplies, and other outpatient services. In most situations, Part B enrollment is automatic when you enroll in Part A coverage therefore, you must elect to decline Part B enrollment if you wish to forgo outpatient Medicare coverage.
Medicare Part B premiums are also subject to a permanent penalty in the form of an increase to your monthly premium by 10% of the standard premium for each full 12-month period you could have had Part B but did not sign up. If you choose not to enroll in Medicare Part B coverage during the initial 7-month enrollment period discussed earlier, you have an opportunity to enroll, or to re-enroll if Part B is ever terminated, during the annual general enrollment period from January 1st to March 31st.
Enrollment in Part B coverage during the general enrollment period results in coverage beginning on the following July 1st. You may unenroll and re-enroll in Part B an unlimited amount of times, however, you must be aware of the permanent increases in Part B premiums if you are late to enroll or terminate coverage and re-enroll later.
The 8-month Special Enrollment Period discussed earlier also applies to Medicare Part B coverage if you are currently covered by an employer group health plan. In this case, you may enroll in Medicare Part B coverage up to eight months after the termination of your participation in the employer group health plan usually without incurring late enrollment permanent premium increases.
Medicare Part D
Like Medicare Part B physician and outpatient services coverage, Part D prescription drug plan coverage will cost you a monthly premium which is also subject to a permanent premium increase for late enrollment or termination and re-enrollment later. The permanent premium increase is calculated by multiplying 1% of the national base beneficiary premium times the number of full, uncovered months you did not have Part D or creditable coverage and then added to your monthly Part D premium. Over time, this penalty can become more significant because the national base beneficiary premium is likely to increase into the future. To avoid the penalty, you can either join a Medicare drug plan during your initial enrollment period or special enrollment period, or do not go 63 days or more without a Medicare drug plan or other creditable drug plan coverage.
Common pitfalls related to Medicare enrollment can be avoided with sound planning as you approach Medicare age. Being aware of the Medicare initial enrollment period and the permanent premium penalties if you are not eligible for the special enrollment period is important.
Having a financial planner to help guide you through the critical times in your life can certainly help you avoid the pitfalls at each step throughout your journey. Please feel free to contact us with questions related to your transition to Medicare.