Prepare to Navigate Medicare

U.S. citizens and permanent residents who are age 65 or older, disabled (regardless of age) or have end-stage renal disease can get their health insurance through the Medicare program. Although many believe that Medicare has no cost, premiums actually vary depending on an enrollee’s eligibility, income and assets.

Medicare has four parts:

Medicare Part A (Hospital): Covers inpatient hospital stays, some limited-skilled and home nursing care, and hospice care.

Medicare Part B (Medical): Covers other services such as doctors’ visits, laboratory, radiology and durable medical equipment.

Medicare Part C (Advantage): A managed care enrollment option. Requires enrollment in both Medicare Part A and Part B and rolls into a plan offered by a private insurance company that provides supplemental-type coverage, potentially with some extra benefits such as dental, vision, hearing benefits and, in some cases, prescription drugs.

Medicare Part D (Drug): Includes coverage for prescription drugs. Although optional, it is advised to consider enrollment, even if you’re not currently taking prescribed drugs, to avoid late-enrollment penalties. Choose a plan in your area with the least expensive premium if you’re not currently taking prescribed drugs. However, even if you’re prescribed low-cost generic drugs, enrollment in Medicare Part D allows you to utilize the plan finder tool to find the plan that will cover your specific drug(s) from your preferred pharmacy at the lowest total annual out-of-pocket cost.

As a Medicare participant, you choose between traditional Medicare (A, B, D, Medigap/Supplement) or a Medicare Advantage plan.

Medigap plans, also called “Supplements,” are supplemental insurance plans for those who enroll in traditional Medicare. Although Part A can cover up to 100% of services, Part B covers only 80% of Medicare-approved charges. Medigap plans provide supplemental benefits to Medicare Part B and can cover up to the remaining 20% balance that would otherwise be the responsibility of the patient. Some plans include limited emergency health care administered outside the U.S.

Medigap policies can be easier to shop for because they are standardized. For example, if two companies each offer a Medigap “Plan G,” both plans will provide identical benefit coverage. Only the premium cost of the plan and the financial soundness of the insurer will differ.

This commonly held belief is not true. You can start your Social Security retirement benefits as early as age 62 or as late as age 70, but Medicare’s Initial Enrollment Period begins when you turn age 65. A person’s enrollment period may differ per their specific situation, such as if they’re still an active employee or a spouse of an active employee of a company with over 20 employees and enrolled in the employer group health/drug plan. Just because you are receiving Social Security does not mean that you are eligible to receive Medicare. Some confusion arises because the Social Security Administration also handles the Medicare enrollment process.

If you are collecting Social Security retirement benefits before you turn 65, you will automatically be enrolled in Parts A and B upon turning age 65. If you are not yet receiving Social Security payments, it is very important to enroll during the enrollment period that is applicable to your personal situation. The enrollment periods are:

Initial Enrollment Period (IEP): Your Medicare initial enrollment period starts three months before the month you turn 65 and lasts for a total of seven months. Be aware, however, that if you do not sign up in the three months before you turn 65, your Medicare start date could be delayed.

Special Enrollment Period (SEP): Some individuals qualify for a special enrollment period, based on various scenarios such as whether the insured or their spouse continue to actively work past age 65 and remain enrolled in a qualifying employer group plan. A SEP can vary from two months to eight months, again based on specific situations.

Annual General Enrollment Period (GEP): This is open annually from January 1 to March 31.

A common pitfall for early retirees is late enrollment in Medicare. Even if you have public or private health insurance, it is often imperative that you sign up for Medicare at the earliest possible date to avoid a penalty or a possible lapse in coverage. Signing up for Medicare means that you enroll in Parts A and B. Again, this is true even if you want to choose a Medicare Advantage plan now or in the future. You also should enroll in Part D or have other qualifying prescription drug coverage to avoid a penalty.

Additionally, if you miss the Medigap open enrollment period, you may have to pass medical underwriting to be accepted into a new plan by answering questions about your health history (this does not apply in Connecticut, Maine, Massachusetts or New York, where enrollment is always guaranteed). If you have certain pre-existing conditions, you may be denied coverage altogether, be charged a higher premium and/or be subject to pre-existing waiting periods for those conditions to be a covered benefit.

If you miss the seven month IEP, you can generally sign up for Part A at any time if you have earned premium-free Part A through payroll contributions made during your or your spouse's employment history (at least 10 years). If you're not eligible for premium-free Part A, then a premium is charged for coverage. Enrollment should still occur when turning age 65 or late enrollment penalties will apply, and you would only be able to enroll in Part A and B during the next annual GEP period from January 1 to March 31.

Unless you qualify for enrollment during a SEP, when a late enrollment penalty would be waived, you would incur a Part B late enrollment penalty. Note that the Part B late enrollment penalty is not a one-time payment. Instead, the penalty applies every month that you have Medicare Part B for your lifetime. Your monthly Part B premium could go up as much as 10% for each 12-month period that you were eligible to have Part B but did not.

Additionally, there is a Part D late enrollment penalty if, after your IEP, you go without creditable prescription drug coverage for 63 consecutive days or more (Drug coverage can be a Medicare Part D plan, a Medicare Advantage plan, employer group, or Veterans Administration coverage that meets creditable coverage requirements). If you exceed 63 days without coverage, your Medicare Part D premium will increase.

This is a common concern. In this situation, you generally have a few health insurance options.¹

Employer sponsored plan: Some employers offer medical plans for their retirees. Check with your employer to see whether this is an option. When you turn age 65 and become eligible for Medicare, be aware that Medicare acts as primary coverage. The retiree plan would act as secondary coverage and will only pay as if Medicare paid first.

A spouse’s plan: If your spouse is working and has health insurance, you might be eligible for coverage through their employer plan.

COBRA: The Consolidated Omnibus Budget Reconciliation Act (COBRA), is a 1985 law that allows individuals and families to stay on a company’s group health insurance plan, even after voluntary or involuntary job loss. Companies with 20 or more employees must allow employees to continue coverage under COBRA, but only for a period of 18 to 36 months. When you turn age 65 and become eligible for Medicare, COBRA is not a reason to qualify for an SEP. Medicare is primary coverage and COBRA would be secondary coverage,  and it will only pay as if Medicare paid first.

Private insurance through a federal or state marketplace: The Affordable Care Act created insurance marketplaces.

Private insurance through a private marketplace: Many insurance companies sell health insurance directly to consumers. An insurance broker also can help you find the right coverage.

If you fail to enroll in Medicare during your IEP, you may face Part B penalties, Part D penalties and Medigap underwriting, as described above. It would seem logical that you should enroll in Medicare as soon as you are eligible, regardless of whether you are still working and are covered by your company health insurance plan. But, this is not necessarily true.

If your company has less than 20 employees, you may need to enroll in Medicare during the IEP that starts three months before the month you turn 65, if the small employer plan is not designated as a "multi-employer group" plan. If your company has 20 or more employees, you should be able to delay Medicare enrollment penalty-free. If your employment ends or employer provided medical coverage ends, you have eight months from whichever of these events comes first to enroll.