How to Avoid the Big Surprise Medicare Gaps

Most people don’t know there’s a penalty for enrolling in Medicare late. While Medicare is optional, if you don’t enroll in it when you’re first eligible, enrolling in it later will cost you for the rest of your life.

The Medicare enrollment deadline apparently isn’t well-known, because the number of people paying the penalty for late enrollment increased 14% from only 2013 to 2017. Your initial enrollment period for Medicare is a seven-month window that begins three months before you turn 65. It doesn’t matter if you’re still working. Whether or not you’re receiving Social Security retirement benefits also doesn’t matter. Late enrollment in Medicare potentially carries two penalties.

The first penalty is that when you later decide to enroll in Medicare you might not be able to obtain coverage right away. When you miss the initial enrollment period at age 65, you can sign up from Jan. 1 through March 31 each year. But when you enroll during that period, Medicare Part B coverage won’t take effect until July 1 in most cases.The second penalty is you’ll pay higher Medicare premiums the rest of your life. Your Part B premiums will be 10% higher than the standard amount for every year you delayed enrolling. Similar penalties apply if you’re late in buying a Part D Prescription Drug insurance program.There are a few exceptions to the penalty.

If you’re still working and have qualified employer or union coverage, you can delay enrolling in Medicare without a penalty until after you leave employment. But not every employer or union plan qualifies. The employer must have more than 20 employees for the coverage to qualify for the exception. Note that COBRA continuation coverage doesn’t qualify for the exception.

Many people who work after age 65 don’t sign up for Medicare because they have employer-provided medical insurance. They assume they’re qualified to delay enrollment without a penalty. But many of them are wrong.You need to check with your employer or its insurance carrier to verify that the coverage qualifies you to delay enrolling in Medicare. You also can check with your State Health Insurance Assistance Program, which helps with this issue.

Traveling or living outside the United States is another trap for many people. Medicare doesn’t cover any medical care received outside the United States.

If you’re traveling and have a medical emergency, you’re on your own for paying the bills. Medicare also doesn’t pay for a medical evacuation service that will bring you back to the United States. If you’re in an Advantage plan, before traveling check with the plan to see if you’re covered.

Many Medicare Advantage plans do cover medical care received outside the U.S. on an emergency basis and medical Unexpected and uncovered medical expenses reduce the financial security of many retirees. Yet, the most common Medicare surprises are easily avoided once you understand Medicare.

When you’re in original Medicare, you also should have a Medicare supplement (or Medigap) insurance policy. Many of these policies cover care received outside the United States and medical evacuation. Check with the insurer to see if you’re covered.If you aren’t covered by one of those options, you can buy travel health insurance or short-term medical insurance plus trip evacuation coverage every time you travel outside the United States.

When you’re living outside the United States, you need to buy insurance in that country or be covered by its national medical care program. But don’t drop out of Medicare unless you’re certain you’ll never move back to the United States. If you don’t enroll in Medicare or drop the enrollment, if you re-enroll later, you’ll owe the late enrollment penalty. A trap for some people is sprung when they try to make coverage changes after the initial Medicare enrollment. Changes sometimes are costly or difficult.

You have a range of choices when first enrolling in Medicare. You can enroll in original Medicare or Medicare Advantage. When in original Medicare, you can choose to add one of many Part D Prescription Drug policies and Medicare supplement policies. Technically, you always can change your choices each year during open enrollment. But there can be obstacles to changing.Medicare supplement plans must issue you a policy at the same premium as everyone else when you take out the policy during the initial enrollment period. But this guaranteed issue rule doesn’t apply after that.

If you want to change to a different Medicare supplement policy, the insurers can use your health history to deny you a policy, charge you a higher premium or limit coverage related to any preexisting condition. Likewise, insurers can do the same if you switch from Medicare Advantage to original Medicare and shop for a Medicare supplement policy. Also, medical coverage can change in the following years. Advantage plans and Part D prescription drug policies can change their terms each year. The terms of Medigap policies can be changed at any time.

You might find that coverage you had and liked no longer is available. You’ll have to shop for different coverage during the next open enrollment period. You might not qualify for similar coverage, it might not be available or it might cost more.

This is something to keep in mind when you’re about to be enticed by a heavily advertised Medicare plan or policy that looks very attractive. The terms of that plan or policy can be changed next year, or it might not even be available.

Prescription drug coverage is another trap for many Medicare beneficiaries.

Original Medicare Part B doesn’t cover prescription drugs. When enrolled in Medicare, prescription drugs are covered through Advantage plans or Part D policies. Many people are used to employer policies that tend to cover whichever drugs their doctors prescribe. The Medicare plans don’t always work that way.

People often are surprised to find that routine treatments, such as the shingles vaccine, aren’t covered either by Part B or by some Part D policies. Also, many plans cover only one drug for a medical condition when there are several drugs on the market, unless you try the one covered drug and it doesn’t work for you or you have a reaction. Be aware that when a Medicare plan or policy covers prescription drugs, that doesn’t mean it covers all prescription drugs.

When you take certain medications, you need to read the details of a plan or policy to ensure that it covers your needs. You also must be aware that the coverage can change each year. Prescription drugs are the major medical expense of most retirees. You must get prescription drug coverage right if you don’t want to face a major gap in your retirement finances. The many uncovered medical services also surprise Medicare beneficiaries.

The most-used uncovered medical services are vision, dental and hearing aids. There’s also a 20% unlimited deductible on most covered expenses. There are other coverage gaps in Medicare. That’s why you need an Advantage plan or, if you’re in original Medicare, both a Medigap and a Part D policy.