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Medicare Enrollment Pitfalls

Make informed decisions with this overview of Medicare enrollment options and actions to take at 65.
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Simplifying Medicare Choices

With more than 10,000 baby boomers turning 65 every day through 2030, a clear understanding of Medicare is essential for a large segment of our population. Yet it often is misunderstood, and decisions may be made from well-intended advice of friends or family. The correct decision for them may not be the best for you or your spouse. Almost everyone is eligible for Medicare when they turn 65, but your individual circumstances will determine whether or not you should enroll in Medicare.

Before diving deeper into Medicare, a quick program primer is beneficial to understand further nuances. Medicare Parts A and B are known as Original Medicare. Part A covers hospitalization and skilled care, while Part B covers doctor visits and medical services. There are a variety of additional Medigap policies and Medicare Part D policies (prescription drugs) to supplement the Original Medicare coverage.

Medicare Part C, also known as Medicare Advantage, is a managed care plan offered by private companies. In general, enrollees are required to use a certain network of providers, such as a health maintenance organization or preferred provider organization, and the plans often include prescription drug coverage as well as additional services outside of Original Medicare.

These are two different approaches to healthcare coverage, and you should not try to mix policies from Original Medicare with a Medicare Advantage plan. Much has been written about the pros and cons of the different ways to receive Medicare. This article focuses on the enrollment options you face as you approach age 65, along with what you need to do and when to do it.

Enrollment Factors Are Conditional

Your Medicare enrollment decision will largely depend on two factors: (1) whether you retire on or before turning 65 and if you are working past 65, and (2) whether you receive healthcare coverage from either a small employer group plan (20 or fewer employees) or a large employer group plan (more than 20 employees). Your group plan coverage can be through either your employer or your spouse’s employer. Enrollment is an important decision since failing to decide can lead to penalties or even limit your future coverage options.

If you are already receiving Social Security benefits, you will automatically be enrolled in Medicare Parts A and B when turning 65. You have the option to reject Part B coverage, but if you are retired and don’t have a group plan, then you need to enroll in Medicare.

Small Employer Plans & COBRA

If you have coverage through a small employer plan (fewer than 20 employees) when you turn 65, be sure to sign up for a Medicare plan, as Medicare will become your primary insurer. The small employer plan will be secondary to Medicare coverage. You can remain on the group plan, but your primary insurance will be through Medicare.

If you have coverage through a large employer plan (called creditable coverage), you can continue in the plan and switch to Medicare when your coverage ends. Most people with this coverage should at least enroll in Medicare Part A when they turn 65, as it will enhance their employer’s hospitalization plan at no cost for Part A. The exception is if you are contributing to a health savings account (HSA), in which case you should either stop contributions to the HSA or delay enrollment in Medicare. Medicare is not considered a high-deductible plan, so you will not be eligible for HSA contributions if you have it in place.

You also have the option to drop your employer plan at age 65 and enroll in Medicare. For some, Medicare may offer better coverage at a lower cost. Be sure to compare the options and costs to make an educated decision for your situation.

Pitfalls of Enrolling Too Early Or Too Late

If you continue to have coverage through a large employer plan past age 65, you must make sure you do not enroll in Part B too early. Many people will sign up for Medicare Parts A and B just because they are available. When you enroll in Part B, you trigger a six-month Medigap open enrollment period. If you are still working with creditable coverage, you do not need Part B or a Medigap policy. But if you enroll in Part B at age 65 and retire, possibly a few years later, you will have missed your Medigap open enrollment period and may have severely limited your future options for coverage, since you may face medical underwriting in order to qualify.

If you left an employer and continued your healthcare coverage through COBRA, you need to pay especially close attention when you become eligible for Medicare. Upon Medicare eligibility, COBRA becomes a secondary payor and Medicare becomes the primary payor. You must enroll in Medicare at that point. You have the option to maintain your COBRA coverage, but it is rarely advantageous to do so.

The Medicare enrollment possibilities are highly individualized. Enrollment is a crucial decision with significant consequences. Enrolling at the wrong time—or not enrolling at the right time—can affect your healthcare options and costs for the rest of your life. Be sure to consult with a trusted advisor to navigate the Medicare maze.

For more information, reach out to a professional with the FORVIS Private Client™ team.

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