Medicare Enrollment: Do You Know What to Do?
Author: Dan Kline, Director, Financial Planning
If you’re nearing age 65, it’s time to start thinking about Medicare enrollment. Medicare is a federal health insurance program that covers care provided by inpatient hospitals, skilled nursing facilities, hospice, medical providers and more. It’s an important plan to help cover medical costs as you age, but, similar to an employer-sponsored health plan, it’s important to pay attention to your annual enrollment period to help avoid potential penalties or other issues down the line.
We recommend that anyone nearing enrollment age, as well as current retirees, speak with a trusted advisor to navigate the enrollment process. Here is what you need to know to get started.
When You Should Apply for Medicare and Why It Matters
Anyone aged 65 or older is eligible to enroll in Medicare, unless you are still covered under an employer plan, a spouse’s employer plan or by another creditable policy. You may enroll for coverage up to three months before you turn 65 and three months beyond your 65th birthday.
It’s important to understand when your enrollment period starts and ends because the government assesses penalties if you miss the timeframe and must enroll later. For instance, if you miss your Medicare Part A enrollment window, you could be charged a premium increase of 10%.
The penalty remains in effect for every 12-month period you were not enrolled after becoming eligible, times two. In other words, if you delayed enrolling in Part A until you were 67–two years beyond the age at which you became eligible–you would be required to pay the increased premium for four years.
Speaking of Part A, the alphabet soup of Medicare coverage confuses many people. In short, Medicare Part A covers hospitalization or services provided by other in-patient or at-home care, including hospice. For most people, Part A is covered by the Medicare tax you paid while working.
Additional options, such as Medicare Part B or Part D, are supplemental and have a separate premium. Since Part B covers services like doctor appointments, and Part D helps to cover the cost of prescription drugs, both are important components of your overall healthcare plan.
Then there are Medicare Advantage plans (Part C). Medicare Advantage differs from Medicare in a few primary ways.
First, Medicare is offered directly through the federal government, while Advantage plans are provided through private insurance carriers. Medicare Advantage is required to offer the same coverage as the federal plans, but carriers may impose different rules and restrictions or offer additional services not provided through traditional Medicare, such as PPO plans.
This is where we come back to Medicare enrollment. For anyone already enrolled in a Medicare plan, you can make changes to your coverage each year during the fall open enrollment period, from Oct. 15 to Dec. 7. This includes changing to a Medicare Advantage plan or adding and dropping options, such as Part B or Part D. Those enrolled in a Medicare Advantage Plan, can change to another Advantage Plan or change to the government’s Medicare plan from Jan. 1 to March 31.
Often, people fail to add Part D coverage during their initial enrollment because they aren’t taking any prescription drugs. Years later, when a doctor prescribes a new medication, they are unpleasantly surprised to learn they will be assessed a penalty for not enrolling during their initial enrollment window at age 65.
Additional Things You Need to Know about Medicare
Medicare can be an important part of your retirement plan, helping you manage healthcare expenses. But it is important that you manage your coverage. For example, unanticipated Medicare cost increases can disrupt your income strategy. This can happen when your income tax return shows an increase in your adjusted gross income, requiring you to pay surcharges on Part B and D coverage.
Fortunately, it’s a situation that can be prevented with the proper guidance. We recommend having yearly conversations with your insurance or wealth management professional. Local State Health Insurance Assistance Program (SHIP) volunteers also are available to offer education and unbiased information free of charge.
Remaining aware of your Medicare enrollment period and touching base with a trusted advisor will help you avoid unexpected surprises, and that’s a good thing. After all, no one wants to be surprised when it comes to healthcare coverage.
About the Author
Dan Kline is a Financial Planner with the Private Client Advisory and Financial Planning teams within the Wealth Management group at First National Bank of Omaha. He specializes in providing comprehensive personalized financial planning incorporating investment, tax, protection, retirement, and estate planning strategies.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.