Clients often ask us for help with Medicare planning. The rules can be confusing, and making assumptions can be costly. Cardan Capital Partners Co-Founding Partner Marti Awad recently teamed with Carol Janz Booth of Group Insurance Analysts Inc., to share some common missteps and tips to help you avoid them and make proactive choices when it comes to your Medicare coverage.
Forgetting that you must sign up for Medicare at age 65
Critical to Medicare enrollment is signing up at the right time. The consequences of not doing so include delayed coverage and late penalties. Understanding Part B (medical coverage) enrollment periods can prevent pitfalls. Many people mistakenly believe that Medicare enrollment is required only at Social Security full retirement age, or they assume enrollment is automatic. Unless you have employer-coverage through your job or your spouse’s job, it is critical that you sign up for Medicare during the seven-month window that begins three months before the month you turn 65. For example, if your 65th birthday is on Nov. 15, you should enroll sometime between Aug. 1, 2020 and March 1, 2021. If you fail to do so, your monthly Part B premium will go up 10% for each full 12-month period that you did not enroll in Part B. You will pay this additional penalty for as long as you have Medicare Part B (the “lifetime penalty”).
Forgetting about the Part B enrollment deadline after retiring
Failing to pay attention to this step may trigger the lifetime penalty and cause you to go without coverage for several months. You have eight months to enroll in Part B from either the date your employment ends or the month after the group plan insurance ends based on your current employment.
Not signing up for Part B if you have retiree or Cobra coverage
Neglecting this step also may result in coverage gaps and imposition of the lifetime penalty. Why? Retiree and Cobra coverages, unlike regular employer-sponsored coverage, are NOT considered “primary” coverage after age 65.
Signing up for Medicare Part A (hospital coverage) if you want to contribute to a health savings account (HSA)
Pay attention to the rules if you wish to contribute to your HSA after age 65. If you enroll in Medicare Part A and/or B, you can no longer contribute pre-tax dollars to your HSA. As explained above, you can delay signing up for Parts A and B if you or your spouse have employer- sponsored coverage. Additionally, your contribution to an HSA will be pro-rated in the year you leave employment and enroll in Medicare. Note that you may continue to withdraw money from your HSA after you enroll in Medicare to help pay for medical expenses, such as deductibles, premiums, copayments, and coinsurances.
Making financial moves that boost your Medicare premiums
A sliding scale surcharge is added to premiums under both Part B and Part D (drug coverage) for individuals whose Modified Adjusted Gross Income, as reported in the most recent tax return, exceeds certain thresholds. You should consult with your financial advisor if you are close to the income thresholds that could raise your Part B and Part D premiums. Items that could increase your Modified Adjusted Gross Income include but are not limited to Roth conversions, large tax withdrawals from tax-deferred accounts and capital gains.
Not contesting the high-income surcharge for the year you retire
While the Social Security Administration will use the Modified Adjusted Gross Income on your last tax return as a default, you may request a reduction of the surcharge if your income has decreased due to specific life-qualifying events, such as marriage, divorce, death of a spouse, retirement or reductions in work hours.
Buying the same Part D plan as your spouse or keeping your part D plan on auto pilot
It’s easy to base your decision about Part D coverage on familiarity with the provider name, cost of the premium, or word of mouth. But it is critical that you pick a drug plan and review it every year based on the specific drugs you take. Not all plans cover all drugs, and co-pays differ and determine how much you pay out of pocket. Do not base your decision on the monthly premium alone. Each year, conduct a Part D review with your updated medications. Your trusted broker can facilitate this analysis along with using the Plan Finder on Medicare’s website.
Going out of network in your Part C (Medicare Advantage Plan coverage)
Each year, you also should conduct a review of your Medicare Advantage Plan if you have one. Perform your due diligence, and check with your doctors, hospitals and providers to make sure they participate in your plan – in network – each year. This due diligence may help you avoid higher co-pays and having coverage denied.
Not switching Medicare Advantage Plans midyear, if needed
If you move out of your plan’s service area, you qualify for a special enrollment period to purchase new coverage. This means you can choose another plan and do not have to wait for the Annual Enrollment Period (AEP) that runs each year from Oct. 15 to Dec. 7 for the Jan. 1 effective date coverage. Not all Medicare Advantage plans are available outside the annual enrollment period. For example, in Colorado, there is only one eligible Medicare Advantage plan to switch to year-round. Check your state of residence to verify which plans are eligible to you. Note: new rules in place as of 2019 now allow you also to switch Medicare Advantage plans between Jan. 1 and March 31, and you do not need to wait for the annual enrollment period detailed above. Consult your trusted broker to see if you are a candidate for the circumstances described above. You also may visit Medicare’s Plan Finder website as a resource.
Missing the Medigap Open Enrollment Period
Buyer beware! If you buy a Medicare Supplement Plan (also called Medigap) within six months of enrolling in Part B or other special circumstances, the insurance company cannot deny coverage based on your pre-existing medical conditions or rate your premium higher. Outside these time frames, you may be subject to both unless you reside in a handful of states that have additional protections. Colorado, for example, is not one of these states, so the rules apply. Note that you have the choice to purchase either a Medicare Advantage Plan or a Medigap Plan — but not both. A number of factors must be considered when choosing between the two. We will discuss the considerations in future blog posts.
- Kimberly Lankford, contributing editor, “11 Common Medicare Mistakes,” Kiplinger Report (February 24, 2015).
The content contained in this article is meant for educational purposes and is not an endorsement of Group Insurance Analysts Inc. Information presented is not meant to be a complete discussion of Medicare, and no plan-specific benefits are included. All expressions of opinion are as of its publishing date and are subject to change.