Medicare is the main medical expense insurance plan for retirees, and it’s also among the most complicated programs. Most retirees and pre-retirees don’t know much about the program, which is revealed in many surveys. The enrollment rules trip up many people. Mistakes here trigger extra premiums for the rest of their lives. Others miss the open enrollment period for switching plans.
You should know the Medicare enrollment periods, whether you’re already a beneficiary or are approaching the period when you’ll be eligible to join.
Medicare has four parts. Part A covers primarily hospitalization. Part B is traditional Medicare, covering primarily doctors’ services and other non-hospital care. Part C is Medicare Advantage, which is an alternative to Part B and Part D. Part D is prescription medicine coverage.
Unless you’re disabled, you aren’t eligible for Medicare until you turn 65. When you’re already receiving Social Security, you’ll be enrolled automatically in Parts A and B when you turn 65.
When you weren’t already receiving Social Security at 65, you need to enroll during your “initial enrollment period.” Miss signing up during this period and you’ll pay higher premiums for life. You can sign up online at www.medicare.gov if that’s your preference.
The initial enrollment period for all four parts begins three months before you turn 65 and ends three months after you turn 65, giving you a seven-month period. Medicare encourages you to enroll in the three months before 65 so your coverage will begin the first day of the month you turn 65, or the first day of the previous month if your birthday is on the first of the month. When you don’t sign up before turning 65, your enrollment is delayed. The length of delay depends on how long you waited to enroll.
The initial enrollment period is extended in some cases.
For Parts A and B, the initial enrollment period is extended when you are employed, the employer has 20 or more employees, and the employer or union offers group coverage. In that case, you can delay enrolling until after your employment ends. There’s no reason to delay enrolling in Part A, since there’s no premium for it. But you avoid Part B and D premiums when you delay enrolling.
When you’re employed and the employer has fewer than 20 employees, you should enroll in Medicare at the initial enrollment period. The employer medical plan usually will assume you join Medicare when first eligible, and it won’t cover expenses that are covered by Medicare.
The same applies when you’re self-employed. Join Medicare during the initial enrollment period. Self-employed people can deduct Medicare premiums as a business expense, including their spouses’ premiums.
When your initial enrollment period is extended because you are covered by an employer plan, you need to enroll shortly after you stop working. The special enrollment period for you is the eight months following your final day of employment.
This is important, because many people get this wrong. The enrollment deadline isn’t related to when your coverage ends and isn’t extended by severance medical benefits or your purchase of COBRA coverage. The deadline begins the day your employment ends.
Another potential mistake is that retiree medical coverage also doesn’t delay the Medicare enrollment period. For many this isn’t a problem, because the retiree coverage assumes you’ll join Medicare, and the retiree plan covers only care not covered by Medicare. But if you don’t sign up for Medicare during the initial enrollment period and later the retiree coverage is reduced or ended, you won’t qualify for a special enrollment period. You still can enroll in Medicare, but you’ll pay the penalty for missing the initial enrollment period.
For Part D prescription drug coverage, the special enrollment period rules are a bit more expansive. You can join Part D without penalty when you leave coverage from an employer or union, including COBRA coverage. The special enrollment period also applies when you had drug coverage that was as good as Medicare and you involuntarily lose it or it changes so that it no longer is as good as Medicare. There are other special enrollment periods, such as when you move out of the area covered by the current policy, but these are the main ones.
But the Part D special enrollment period isn’t as long as for Parts A and B. It lasts only for two months after you lose the previous coverage.
The penalty for missing your initial enrollment period or special enrollment period is high. For Part B you pay an extra 10% of the Part B premium for each full 12-month penalty you delayed enrollment. That penalty applies for every month for as long as you’re enrolled.
For Part D, the penalty potentially is higher and depends on how long you didn’t have prescription drug coverage. The penalty begins with the “national base beneficiary premium” which was $31.08 for 2012. The penalty is calculated by multiplying 1% of the NBBP times the number of full months you were eligible for Part D but didn’t join and weren’t covered by a comparable plan. The result is rounded to the nearest $0.10 and added to your monthly premium. The penalty has the potential to increase each year, because the NBBP could increase.
Example. Max Profits was first eligible for Part D on May 1, 2008. He joined a Part D plan effective Jan. 1, 2012, going 43 months without coverage. His penalty is $13.40 times 43 or $13.36. It’s rounded to the nearest $0.10 for a total of $13.40. That is the additional monthly premium.
Each Medicare Part also has an open enrollment period each year during which you can switch from one plan to another. In 2012 this is from October 15 ? December 7 for Parts C and D. There’s another time to make some limited changes for all Parts from Jan. 1 ? February 14, 2013.
RW November 2012.
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