Prepare to Navigate Medicare

US 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 is always free, premiums actually vary depending on eligibility, income and asset levels.

Medicare has four parts. Across the four parts, you can get coverage for inpatient hospital stays, outpatient treatment, and prescription drugs:

Medicare Parts A (Hospital) and B (Medical) work together, while Medicare Part C (Advantage) covers both inpatient and outpatient care and, in some cases, prescription drugs. As a Medicare participant, you choose between traditional Medicare – the original program offered through the federal government – and a Medicare Advantage plan. Many people who are accustomed to employer-based health insurance choose Medicare Advantage, because it is private insurance with a network of providers, resembling a familiar PPO or HMO plan. Note that if you choose Medicare Advantage, you still must enroll in Medicare Parts A and B.

Medigap plans, also called “supplemental insurance plans” or “supps,” are Medicare supplement insurance plans for those who enroll in traditional Medicare. Although Part A (Hospital) can cover up to 100 percent of services, Part B (Medical) only covers 80 percent of Medicare-approved charges. Medigap plans can cover costs not covered by traditional Medicare, including deductibles, co-payments and healthcare administered outside the U.S.

Medigap policies are easy to shop for because they are standardized. For example, if two companies each offer a medigap “Plan G,” both plans will provide identical 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 benefits as early as age 62 or as late as age 70. But Medicare eligibility typically happens when you turn 65. 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 many Medicare administrative functions.

If you are collecting Social Security retirement benefits before you turn 65, you will automatically be enrolled in Parts A and B. If you are not yet receiving Social Security payments, 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.

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. 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 find yourself answering uncomfortable questions about your health history due to medical underwriting, or a review of your medical history.

If you miss the seven month initial enrollment period altogether, then you generally can sign up for Part A at any time. But you will pay a Part B late enrollment penalty unless an exception applies. 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. Your monthly Part B premium could go up as much as 10 percent for each 12 month period that you could have had Part B but did not.

Additionally, there is a Part D late enrollment penalty if, after your initial Medicare enrollment period, you go without prescription drug coverage for 63 continuous days or more. (Drug coverage can be a Medicare Part D plan, a Medicare Advantage plan or private coverage that meets coverage requirements.) If you exceed 62 days without coverage, your Medicare Part D premium will increase.

Remember: Medicare will not contact you to remind you of your initial enrollment period. It is crucial that you call the Social Security office, which administers Medicare enrollment, at least three months before you turn 65 to avoid late enrollment penalties.

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

1. Employer sponsored plan: Some employers offer medical plans for their retirees. Check with your employer to see whether this is an option.
2. A spouse’s plan: If your spouse is working and has health insurance, you might be eligible for coverage through his or her employer plan.
3. COBRA: COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. This 1985 law 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.
4. Private insurance through a federal or state marketplace: The Affordable Care Act created insurance marketplaces.
5. 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 initial enrollment period, you may face Part B penalties, Part D penalties and medigap underwriting, as described above. The logical conclusion is 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 should enroll in Medicare during the initial enrollment period that starts three months before the month you turn 65. If your company has 20 or more employees, you should be able to delay Medicare enrollment penalty-free. You will have a special Medicare enrollment period that begins one month after you stop working or, if earlier, the month after your company health insurance ends.