Medicare is a complicated system that can have many different rules and regulations. It’s no wonder the majority of seniors make mistakes with their Medicare coverage.
This blog will discuss thirteen mistakes that can cost seniors big when it comes to health care coverage. Many people are unaware of the various available resources, but you’ll learn about them all in this article!
It’s crucial to note that Medicare is very complicated, so you can’t just do it independently. It takes thorough research and the help of an insurance agent who knows Medicare well.
1) “When am I eligible for Medicare?” – Not Understanding Medicare Eligibility Rules
How in the world did they ever come up with these rules? Can someone explain why rules for A+B do not match? They just do not seem to make sense and have been modified and changed so many times.
Earning 40 quarters by paying payroll taxes at work (about ten years’ work) qualifies you for a $0 premium for Medicare Part A services. You can also qualify for Part A benefits on your spouse’s work record, or you can pay premiums for them. Watch out, though, because if you wait to sign up until you’ve earned 40 credits, you may end up paying permanent late penalties.
On the contrary, work history is NOT considered for Medicare Part B and Medicare Part D eligibility – provided that you’re a US citizen and 65 or older. Non-US citizens who have lived in the United States for at least five years become eligible too.
2) Deciding Yourself If You Want To Start Medicare at 65
Signing up for medicare at 65 is a CHOICE you need to consider. If you do nothing, whether or not you get Medicare will be decided for you.
Someone from Medicare does not call you to say, “Hi, I am from the government, and I am here to help. I was looking at your file, and you may have overlooked something. Give me your SS#.”
Suppose you’re already receiving Social Security benefits. In that case, you’ll automatically be enrolled in Medicare Part A and Part B when you turn 65. You need to compare your options and decide if you should turn down Medicare Part B and sign up for it at a later date.
But, for people NOT receiving Social Security benefits, the government assumes you are still working and have coverage through your employer. In this case, you’ll need to take action to sign up for Medicare. Once you are 64 and 9 months old, you can sign up at Medicare.gov.
When you become eligible, you have a seven-month window around your 65th birthday to sign up. You can still defer Social Security to a later date if you wish.
You may still want to delay signing up for Part B if your spouse has coverage through your current employer. Be sure to compare the benefits and cost so YOU can decide which suits you better.
3) HSA and Medicare – Contributing to HSA after Medicare Starts
Since it is usually free, most people sign up for Part A at 65, although you may need to delay signing up if your existing plan is an HSA since Medicare will become primary and is not HSA compatible.
Contributions to an HSA plan are prorated for the year Medicare starts. If your Medicare starts On October 1st, you will be eligible to contribute 75% (9/12 months) of the full HSA contribution. Be careful; Medicare can backdate your Part A 6-months, so be sure you communicate that you have been contributing to an HSA.
Do not forget, if you work for a small company (fewer than 20 employees), they often require you to switch to a 65+ plan, and you need to sign up for Medicare A+B. Medicare will become your “primary insurance.”
DO NOT AUTOPILOT THESE DECISIONS! Be sure to ask your employer whether you can delay signing up; you’ll often have choices and should compare them.
4) Skipping Medicare Part B Enrollment: Getting Bit By A COBRA
When you turn 65, Medicare is typically considered your primary insurance. All other insurance you have is secondary – unless you or your spouse has coverage through a CURRENT (20+ employees) employer.
Insurance that is not considered primary after 65:
- Retiree coverage
- COBRA coverage
- Severance benefits
- Non-Traditional Coverage Options
If you do not sign up for Medicare, you will have periods without “credible coverage.” You will be obligated to pay a lifetime late-enrollment penalty of 10% for every year you should have been enrolled. Even worse than the penalty is potentially being without any insurance when your existing insurance ends.
When you miss the window for enrolling when you turn 65 (or eight months after leaving your job), you need to wait until January-March of the following year to sign up for Medicare, and coverage will start on July 1st.
If your COBRA ends in April, you may well have to wait until the following July for insurance, leaving you potentially uninsured for 15 months.
A helpful reference is the Medicare Rights Center’s Medicare Interactive page about the rules for job-based insurance after age 65.
5) Not Reviewing Your Medicare Plan
I get it; shopping for Medicare is not fun! You did it five years ago, and you are fine with the plan you selected. You never want to go through that torture again.
Open enrollment for Medicare Part D and MA plans runs from October 15th through December 7th every year, but what do you know about your options? What premiums are expected in the coming years are different than they were last time around? New plans can be added, old generics covered that weren’t before, or prescriptions could be dropped from the formulary.
It’s easy to compare all of the Medicare plans available.
Go to the Medicare Plan Finder and enter your prescriptions and dosages to see which plans cover them and how much you’d pay for premiums plus co-payments for plans in your area.
6) Medicare Spouse Coverage – Assuming both spouses need to be on the same plan
Unfortunately, there are no spousal discounts for Medicare. One program may have much better coverage for your medications, but another may include hearing aids, have your doctors as “in-network,” and dental coverage too. There’s unlikely to be a plan that fits both parties perfectly.
Each person has their own health profile and doctor list medications they need to be covered. Perhaps one plan would fit both spouses, but likely you will benefit by making your own choice.
Be mindful if you and your spouse sign up for programs with different “preferred pharmacies”—some plans only give you the best deals if you use their contracted “preferred pharmacies.” You could end up not getting discounts or having to go to two different pharmacies each month.
You can look up your Rx using the Medicare Plan Finder to estimate annual out-of-pocket expenses for both of you for all the plans available in your area.
7) Not enrolling in Part D because you don’t take any prescriptions.
Why pay Part D costs if you don’t require any medicine? Because we do not have a crystal ball and can’t predict whether or when we will acquire an unexpected illness or suffer a catastrophic accident requiring costly medications. (Some cancer medicines can cost hundreds of dollars each month.)
Unlike traditional insurance, Medicare Part D does not allow you to delay signing up until you need it. You also risk late penalties being added to your Part D premiums if you do not enroll within the three-month deadline. If you don’t have “creditable” drug coverage from another source, consider selecting the Part D plan with the lowest price.
8) Not understanding how to qualify for “Extra Help.”
Medicare insurance comes with various expenses (copays, premiums, deductibles) that many retirees find hard to afford. If you live on a fixed income or have trouble with these expenses, be sure to learn about two programs that can help reduce those costs.
- Each state offers a “Medicare Savings Program” that pays for your Part B premiums and potentially some other expenses.
- Under the federal “Extra Help” program, you get low-cost Part D prescription drug coverage.
To learn if you qualify for either program, contact your state’s health insurance assistance program (SHIP), which provides free counseling on Medicare issues.
To find its toll-free phone number, go to shiptacenter.org and select your state.
9) Medicare Advantage Plan – Going Out-of-Network
If you choose to get your Medicare insurance through a private Medicare Advantage plan, which covers both medical expenditures and prescription drugs, you’ll almost certainly have to utilize the plan’s network of physicians and hospitals. To receive the lowest co-payments, you’ll have to use the plan’s approved network of physicians and hospitals. Some plans won’t cover out-of-network providers at all, except in an emergency.
It’s critical to check that your doctors, hospitals, and other providers are covered year after year in any PPO or HMO policy.
You can switch Medicare Advantage plans throughout open enrollment each year from October 15 to December 7, and you may compare out-of-pocket costs for your drugs and general health condition under the plans accessible in your region using the Medicare Plan Finder. Contact the insurance and your doctor once you’ve reduced down the list to a few possibilities.
10) Medicare and Preexisting Conditions – Assuming You Can Switch Plans AFTER You Get Sick
Suppose you have original Medicare and choose to add a Medicare supplement plan when FIRST eligible (within the first half-year of enrolling in Medicare Part B). You can enroll in any program in your area without answering any medical questions, even if you have a pre-existing medical condition.
Beware, if you try to switch plans after that, insurers in most states can reject you or charge more because of your health. It’s essential to understand the rules in your state.
Some states let you switch to specific plans regardless of your health, and some insurers allow you to change to another one of their plans without medical questions. Find out about your state’s specific rules, and see the plans available at your state insurance department Website.
11) Not Coordinating Your Medicare Agent With Your Financial Planner – Your financial planner is the QB of your financial team.
They help you coordinate your mortgage broker, real estate agent, estate planner, and accountant but then shrug their shoulders when you ask about Medicare advice.
I am sure your financial plan has a line item for healthcare in retirement, but where are the strategies to actually reduce the projected costs?
12) Not Paying Attention to AGI and Medicare Surcharges
What you pay for your Medicare Part B is based on your income – high and low.
In 2021, the standard rate is $148.50 per month for Medicare Part B premiums. A single tax filer with an AGI (adjusted gross income) greater than $88,000 ($176,000 for joint filers) must pay $207.90. As the income increases, the premiums can reach $504.90 per month.
Additionally, there is a high-income surcharge for your Part D prescription drug coverage, increasing what you pay by $12.30 to $77.10 every month.
As you plan your retirement income or one-time withdrawals, beware of where AGI will land and its impact on Medicare premiums. Going over by $1 could cost you $5,000 of surcharges.
If it looks like your income will fall near the cutoff, be mindful of financial moves that could increase your AGI.
When analyzing financial moves, you must consider their impact on Medicare premiums. Some examples that could increase your income include:
- Converting over a traditional IRA to a Roth
- Making significant withdrawals from tax-deferred retirement accounts rather than more tax preferential accounts
- No tax-loss harvesting
- Rebalancing a non-retirement account resulting in capital gains.
To stay below the limits, consider:
- Learn about Thrive’s Tax Control Triangle
- Spreading your Roth conversions over several years
- Withdraw money from Roth IRAs rather than just from tax-deferred accounts
- If you have highly appreciated assets, consider rebalancing your tax-deferred accounts and only sell stocks with gains that you can offset with losses.
13) Medicare Surcharges – Assuming the “High-Income” Surcharge Determination is Final
The Social Security Administration determines your income from your most recent tax return on file (generally 2019 for 2021 premiums). For the year you retire, they will not be aware that your income may be significantly lower. If your income has dropped since then, you may be able to get the surcharge reduced.
Life-changing events that the Social Security Administration consider include:
- Marriage
- Divorce
- Death of a spouse
- Retirement
- Reduction to part-time work or consulting
- Sale of a business
- Selling an income property
- A settlement
- Severance package ending
If your income is reduced enough, you can ask Social Security to use your more current income instead (you’ll need to provide evidence of the life-changing event, such as a signed statement from your employer that you retired).
See the Social Security Administration’s Medicare Premiums: Rules for Higher-Income Beneficiaries for more information.
Getting Ahead of Life’s Big Transitions
I have helped countless people work through the Medicare onboarding process as a licensed Medicare insurance agent. However, I’m also a full-time family financial planner working in the Greater Boston Area. There’s a narrative theme woven into many of my client’s stories, and that’s they all wish they had sought help and advice earlier.
Whether they’re young adults just joining the labor force (who also might be advising their aging parents on these issues), or retirees signing up for Medicare, outside guidance is always helpful. The anxiety of the unknown is something people live with for much longer than they have to. I consult with people at all stages of their lives and believe me when I say it’s never too early to get ahead with planning and perspective.
Medicare Mistakes – Putting Together the Puzzle Pieces
Medicare is so confusing because it can be difficult to navigate all the different rules. Unfortunately, many retirees make mistakes with their coverage that they might not even realize are costly until it’s too late. Hopefully, this article has helped you learn about THIRTEEN common pitfalls of Medicare coverage- don’t let these Medicare mistakes happen to you!
Visit our Youtube page for a 35-minute Ultimate Guide to Medicare and a video walking you through free tools available to everyone.
Contact us for a free consultation if you want help figuring out how your health care options will fit into your retirement plan!
We can help you walk through steps one by one; we’ll never leave you in the dark again. Just ask us anything – no question is too small because every detail matters when making these decisions.
Securities offered through LPL Financial. Member FINRA/SIPC
The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.
The content is developed from sources believed to be providing accurate information.
