Every government program has its technical requirements and details. Make a mistake or overlook a key point, and you lose some benefits or pay a penalty. Medicare is no different, but the consequences of an error can be very expensive. Here are some frequent mistakes to avoid.
Medicare wants you to sign up when you’re eligible. Fail to sign up within your initial enrollment period and you’ll pay a higher Part B or D premium every month for life. This can be a real problem if you’re a higher income individual, because Medicare premiums now are based on income. The higher your income, the higher the premiums. The penalty for signing up late will be computed on the higher premiums not the base premium.
For Parts A, B, and D the initial enrollment period stretches from the three months before you turn 65 to the three month afterwards. It doesn’t matter if you’re not receiving Social Security yet. The only reason to delay enrolling that won’t be penalized is that you’re working and covered by an acceptable employer or union plan.
When you delayed enrolling in Medicare because you were covered by an employer plan, you must sign up for Medicare within eight months after the end of your group or employer coverage ends. When you’re phasing out work or have sold a business but still have a consulting or other relationship, you could fall into a gray area and unwittingly be hit with the penalty. If the employer reports you as retired or inactive to Social Security, then you’ll owe the penalty when you finally sign up for Medicare unless you can prove to Medicare that you were covered by an eligible plan.
Keep in mind the premium penalty also applies when you sign up late for Medicare Part D prescription drug coverage. Some people who sign up for traditional Medicare don’t sign up for Part D coverage right away, because they aren’t taking prescription drugs regularly. But if you decide you want Part D later in life, you’ll owe the penalty. It’s better to sign up for a bare bones coverage plan that charges a low monthly premium. Later, if you want broader coverage, you might be able to switch plans during the annual enrollment period.
Medicare Advantage members also need to be aware of a recent rule change. The traditional rule is you choose a plan for the following year during the Nov. 15 to Dec. 31 annual enrollment period. That’s still in effect. But you also could switch from one Medicare Advantage plan to another or switch from Advantage to traditional Medicare between Jan. 1 and March 31. That right has changed.
Now, your switch period is limited to Jan. 1 through Feb. 14. In addition, you can’t switch from one Advantage plan to another during this period. You can choose only to switch from Advantage to traditional Medicare.
Another trap is that Medicare plans other than traditional Medicare are geography-based. Advantage plans, Part D prescription plans, and Medicare supplement plans (Medigap policies) are priced and coverage is determined based on the residence of the enrollee. They assume your principal residence is in a particular state, and sometimes in a particular region of a state.
Once your residence changes, your coverage under these types of plans often ends. You won’t receive a warning or a grace period. Once the insurer learns your principal residence changed, it must end your coverage. When you suddenly are submitting claims or payments from medical providers or pharmacies in an area other than your principal residence, an insurer usually will assume you moved and terminate coverage automatically.
When you plan to move during a calendar year, be sure to consider your Medicare coverage. See if you’re eligible to transfer coverage during the year and be sure there is coverage you want and can afford in the new location you’re considering.
Many people still aren’t fully aware of the higher Medicare premiums imposed on higher income beneficiaries. These apply under Part B and indirectly under Medicare Advantage plans. We’ve covered the higher premiums in past visits. Briefly, there’s a two-year lag between your income and the higher premiums. Your 2011 premiums were determined by your 2009 tax return. You can appeal for a lower premium when there’s been a change in your life that reduces income, such as loss of a job, death of a spouse, and similar events.
One-time increases in adjusted gross income can raise Medicare premiums two years later. Roth IRA conversions, sales of assets, and other events can trigger higher premiums for one year. You need to keep this in mind during your tax planning once you reach age 63. The premium level is re-determined each year based on your income tax return of two years earlier. A one-time surge in income will raise premiums only for one year.
Another mistake is not to seek help when you need it. Medicare offers a web site, publications, and telephone assistance, all for no additional cost. Each state also has an agency that offers free counseling. The service might be over the telephone or in an office, depending on the state and where you live in it. When you’re looking at Medigap, Part D, or Advantage plans, insurance agents and brokers will provide advice and answer questions for no charge. Finally, there are financial planners and other consultants who will work with you for a fee to answer questions and help you choose the right Medicare coverage.
RW April 2011
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