Although Medicare has been around for over 50 years, every new retiree must navigate the system for the first time. Because the Medicare system is notoriously complex, the experience is a little bit like learning how to drive on a Formula 1 race course. You will probably make it to the finish line, but not without a few bumps and dents.
For those who hope to complete their Medicare enrollment in a smooth and financially-smart way, here are five common first-timer mistakes to avoid.
If you are already receiving Social Security benefits, I have good news: your Medicare Part A enrollment is automatic. However, don’t wait for your Social Security enrollment to file your Medicare paperwork. That’s because Medicare and Social Security enrollment ages don’t always match.
How does the Medicare deadline work? You must sign up for Medicare Part A within the Initial Enrollment Period, which begins three months before your 65th birthday month, includes your birthday month, and covers the subsequent three months. So, if you turn 65 on July 10th of this year, your Initial Enrollment Period would start on April 1st and go through October 31st.
There are a few exceptions that can qualify you for delaying your Medicare enrollment, such as being employed and covered under your current employer’s health insurance plan. Without a valid exception, failure to enroll on time can result in penalties or potentially having to wait, without health care coverage, for the next open enrollment period. I recommend marking your Initial Enrollment Period on your calendar so that you don’t miss it. If you want to go one step further, you could mark your calendar for two months prior to that date to tell yourself when to start doing your research on Medicare choices.
Missing out on Medigap
Medigap is a supplement to Medicare Part A (hospital insurance) and Part B (medical insurance). It helps you cover some of the costs that would otherwise be your out-of-pocket responsibility.
Those who wish to add Medigap to their overall coverage should know that their best option is to sign up within a six-month open enrollment period, which begins on the first day of the first month that you are both 65 years old and enrolled in Medicare Part B. If you turned 65 on July 10th of this year and enrolled in Medicare Part B as of August 15th, your Medigap open enrollment runs from September 1st to February 28th.
During the open enrollment period, you can choose any Medigap plan available in your state without medical underwriting and without an upcharge related to preexisting conditions. If you miss the deadline, you may be denied a Medigap policy or it may cost significantly more.
Not enough due diligence on Medicare Part D
Medicare Part D covers prescription medications. There are dozens of plans out there and analyzing which one is best for you can be overwhelming. Many retirees choose the path of least resistance and simply pick the plan that their spouse (best friend, neighbor, etc.) has selected. Mistake!
Your prescription needs and projected expenses are as unique as your fingerprint. Even though reading the fine print and compiling your personal list of medications is a chore, it’s the only way to ensure that your choice gives you the greatest financial advantage. You will need to do this chore every year if your health and/or prescriptions change.
Ignoring gross income calculations
Some Medicare premiums are driven in part by your Adjusted Gross Income or AGI. If your AGI plus tax-exempt interest income exceed $85,000 for an individual or $170,000 for a couple, you may be charged a higher Medicare Part B premium. This surcharge is known as the “income-related monthly adjustment amount” or IRMAA.
If your income is close to the cut-off, see a financial planner before you make any financial moves that could push you across the line. These include but are not limited to rolling a traditional IRA to a Roth IRA or having a higher salary.
Not fighting the IMRAA surcharge
Many retirees don’t realize they can challenge the IRMAA surcharge. IRMAA is typically based on taxable income from two years ago. If your financial situation has changed through loss of a job, divorce, death of a spouse, etc., you can contest the IMRAA surcharge. The process involves making a request, gathering documentation, and stating your case. It takes time, but the financial outcome may be worth the effort.
Avoid common Medicare mistakes!
Some of the common Medicare mistakes, such as failure to sign up for Medicare Part A and Medigap on time, only come up once. Others, such as the need to re-assess Medicare Part D and monitor your AGI, must happen every year. Mark your calendar to keep them straight!