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Prepare to Navigate Medicare

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Medicare can be confusing, but some baseline knowledge can go a long way.

Medicare is a key piece of the insurance landscape, and not just for people over 65. But it is not an easy benefit to navigate. Enrollees must plan carefully in consideration of the coverage they need, coordination with other health benefits and the timing of enrollment to avoid late-enrollment penalties and/or a gap in coverage. Below, we provide answers to eight of the most commonly asked questions we hear from those who are beginning to think about Medicare.

1

I understand that Medicare is a federal health insurance program, but what exactly does it cover?

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. Across the four parts, you can get coverage for inpatient hospital stays, medical insurance and prescription drugs:

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

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

Medicare Part C (Advantage): 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): Coverage for prescription drugs. Although optional, it is advised to consider enrollment, even if not 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, if you’re prescribed even low-cost generic drugs, enrollment in Medicare Part D allows you to utilize the plan finder tool for assistance with finding the plan that will cover your specific drug(s), at 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.

2

What are “Medigap” plans?

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 can cover costs not covered by traditional Medicare, including deductibles, co-payments and, in some cases, limited emergency health care 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.

3

Is it true that if I am eligible to take Social Security, I am also eligible for Medicare?

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.

4

So, when should I enroll in Medicare?

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, 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): January 1 to March 31, annually.

5

What happens if I miss my enrollment period?

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 possibly a 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). Or if certain pre-existing conditions exist, you may be denied coverage altogether, be charged a higher premium or be subject to pre-existing waiting periods for those conditions to be a covered benefit.

6

What are the penalties for late enrollment in Medicare?

If you miss the seven month IEP, then 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 of 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 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 IEP. It is crucial that you visit or call the Social Security Administration, which administers Medicare enrollment, or visit www.medicare.gov, at least three months before you turn 65 to confirm your specific enrollment period and to avoid late enrollment penalties.

7

I am thinking about early retirement and am under 65. What are my insurance options?

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 is 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 and COBRA would be secondary coverage and 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.

8

I am turning 65 next year and am still working. Should I transition from private insurance to Medicare, and if so, how do I make the transition?

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. 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 IEP 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 the month after your company health insurance ends, whichever comes first.

If you are beginning to think about Medicare, talk to your advisors about the health care coverage that is right for you, and remember the following:

  1. Medicare eligibility typically happens when you turn 65 — not when you begin receiving Social Security benefits.
  2. It is crucial to review the www.medicare.gov website, and/or contact the Social Security Administration, which administers Medicare enrollment, at least three months before you turn 65, to avoid late enrollment penalties, or to determine the enrollment period that applies to your specific situation.
  3. If you are still working when you turn 65, and your company has more than 20 employees, you should be able to delay Medicare enrollment penalty-free.
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  1. These five options also may be relevant for a younger spouse. Many couples find that when one spouse begins to receive Medicare coverage, the other spouse must find an interim solution until they turn 65.

Disclosures

This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

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