By: Elaine Floyd, CFP®
Back in the day, when full retirement age for Social Security was 65 and most people retired and claimed benefits then, Medicare basically took care of itself. Enrollment was automatic along with the Social Security application, and many employers offered retiree health insurance to supplement Medicare. Those who didn’t have retiree insurance could buy a Medigap policy to cover prescription drugs (Part D did not yet exist), and some of the gaps left by Medicare, primarily the Part A deductible and the Part B 20% coinsurance. Medicare Advantage did not yet exist. Once a person was on Medicare with their retiree insurance or supplement, there was very little for them to think about. Medical bills were paid behind the scenes and the occasional bill they did receive was easily paid out of pocket.
Medicare is much more complicated today. If you are not receiving Social Security at age 65 (which, hopefully, you are not), you will not automatically be enrolled in Medicare. If you are working past age 65 and staying on your employer plan, you will have to figure out when and how to make the transition to Medicare, also taking your spouse’s insurance into consideration. With medical costs now so high and fewer employers offering retiree coverage, private insurance plays a much bigger role than it did before. This opens up many more choices and complications, all of which hinge on your individual health status and expected health care usage both now and in the future.
Financial advisors are often called to help with Medicare, even though it is clearly outside their financial wheelhouse. But because HR people who are helping employees with the rest of their retirement don’t really understand Medicare (and how it interacts with COBRA), and because you are being bombarded with marketing messages from private insurers who don’t have your best interests in mind, a little direction from your financial advisor can go a long way. It is not necessary for them to pry into your personal health situation, but by receiving a few tools and resources you should be able to navigate Medicare on your own.
Medicare enrollment periods
There are specific times a person can enroll in Medicare. In fact, the Medicare application asks a series of questions to determine if the person is currently in one of the enrollment periods. If not, they will not be allowed to proceed with the application.
The first is when they turn 65. This is called the initial enrollment period. A person can enroll in Medicare up to three months before their 65th birthday. Coverage will start the first of the month they turn 65. If they’re a little late it’s okay—they can apply up to three months after their 65th birthday. Coverage will start the first of the month after they enroll.
The second is called the special enrollment period and it’s for people who want to stay on an employer plan (based on active employment of self or spouse) after age 65. As long as they maintain continuous coverage under the employer plan, they can switch over to Medicare at any time. Most commonly the transition to Medicare is done when they leave employment. But they can do it anytime after age 65 (i.e., while still working) and up to eight months after termination. There is really no reason to utilize the 8-month grace period, though, because it could result in coverage gaps. COBRA pays secondary to Medicare for anyone age 65 or older, so even if a person takes COBRA (too expensive!), they will have to enroll in Medicare.
The third enrollment period is the general enrollment period, from January 1 to March 31 of each year, with coverage starting the month after enrollment. This is for anyone who missed one of the other Medicare enrollment periods. If there has been a gap in coverage, there may be a late-enrollment penalty: 10% of the Part B premium for every 12-month period they went without health insurance after age 65. This penalty will be assessed every year.
Part A and Part B enrollment is through SSA
The Social Security Administration handles Medicare enrollment. The easiest way to enroll is to do it online. Or people can call the main number: 800-772-1213. They’ll need to provide their Social Security number and place of birth as well as current health insurance information. It will not be necessary to prove insurance if they are enrolling during their initial enrollment period. But if they are enrolling after age 65, during their special enrollment period, in order to avoid penalties they’ll need to have their employer sign CMS Form L-564 attesting to their continuous health insurance coverage. If their initial enrollment period overlaps with their special enrollment period, the initial enrollment period takes precedence.
What Clients Need To Know About Opening and Managing Their Social Security Account
Go to Medicare.gov for private insurance options
Once a person is enrolled in Medicare Parts A and B, they can sign up for: 1) a Medigap policy and Part D drug plan, or 2) a Medicare Advantage Plan. Note that enrollment in these plans cannot take place until they are enrolled in Medicare, but shopping can start earlier. People who want to do it themselves can go to medicare.gov and “find health and drug plans” based on their zip code.
If they have opted for Original Medicare with a Medigap policy, they’ll be shopping for both a Part D drug plan and the Medigap policy. For the drug plan, they’ll want to enter their drugs and dosages in order to see what their out-of-pocket costs would be under each plan. If they don’t take any drugs, they can simply choose the lowest-premium plan. (But they can’t skip Part D; if they go more than 63 days without creditable drug coverage there will be a late enrollment penalty.) Drug plans operate a year at a time. If a person’s drug regimen changes or if the plan changes, they can shop for a new drug plan during the fall open enrollment period (Oct. 15–Dec. 7) and the new plan will start January 1. For Medigap, they’ll want to focus on Plan G, the most popular and comprehensive plan. The Medicare.gov website shows the options from the different carriers. “Issue age” is the better pricing method, otherwise premiums will escalate rapidly as they age. Because benefits are the same for all Plan G policies, they’ll be focusing primarily on monthly premiums. For drug plans they can enroll directly through the Medicare.gov website or, if they have further questions, can call the insurer and have them take the application. For Medigap policies they can call the plan or enroll through the company’s website.
People who opt for a Medicare Advantage plan can pull up all the plans in their area and review benefits and costs. Most Advantage plans have very low (or no) premiums, so it will be a matter of reviewing benefits and out-of-pocket costs for the various services. Medicare Advantage shopping can be a challenge because if there are things that are wrong with the plan—such as a narrow provider network or a propensity to delay or deny care—they won’t be apparent other than indirectly through a low star rating.
Open Medicare account
Once a person has enrolled in Medicare they can establish an account at medicare.gov and keep track of their claims, costs, and other information.
While transitioning to Medicare can be rather time-consuming, once it’s set up it should be easy to manage, especially if the person has Original Medicare and a Medigap policy and drug plan. Virtually all Medicare-approved expenses will be covered and paid behind the scenes. Drug plans will need to be reviewed annually, but the switch to a new plan is easy. (Be sure to note if the preferred pharmacy changes.) Medicare Advantage plans could be easy or difficult to manage depending on your health care experience and whether you face delays or denials in care. If you are dissatisfied, these plans can also be changed once a year.
Source: Horsesmouth, LLC
Horsesmouth, LLC is not affiliated with Lane Hipple or any of its affiliates.