By Chip Munn
As Americans near age 65, their focus on and their questions surrounding Medicare intensify. Navigating the enrollment guidelines of Medicare can be puzzling. The choices you make about Medicare coverage can affect your healthcare and your wallet.
What type of coverage should you choose? When are the deadlines? You can’t imagine the confusion it can cause, particularly for those new to Medicare. Let’s consider five top tips for Medicare enrollees and how you can avoid some common and costly errors.
1. Sign Up at the Right Time
The Medicare program has an initial enrollment period (IEP) when you can first sign up for Medicare. The IEP is a seven-month block of time, which starts three months before your 65th birthday, includes the month of your birthday, and ends three months afterward. The advantage of signing up during the IEP is that it can result in lower Medicare premiums than if you waited.
Should you miss signing up during your IEP, you’ll have another opportunity during Medicare’s General Enrollment Period from January 1 to March 31 each year. But if you wait until that time, it can cost you. The first additional cost is that your coverage won’t start until July. What if you need coverage before mid-year? Higher monthly premiums are another disadvantage of waiting, meaning it will cost you more for doctor visits and outpatient care (Medicare Part B).
2. Choose Wisely: Medicare or Medicare Advantage?
Once you’re eligible, you can choose between Original Medicare (sometimes called “Old Medicare”) or Medicare Advantage, which is a health plan offered by a private insurance company. Coverage differs between Original Medicare and Medicare Advantage. Choosing between the two plans depends on your particular healthcare needs, financial situation, travel needs, and where you reside.
Medicare is divided into “Parts” which cover different health and health-related expenses. Part A and Part B cover medical services in hospitals, doctor’s offices, and other healthcare facilities. Part D covers prescription drugs.
Let’s look at the basic differences between Original Medicare and Medicare Advantage.
Original Medicare or Old Medicare is the traditional, government offered program which includes Part A and B. Most doctors accept Medicare. Hospital costs are covered by Part A. Outpatient services and doctor visits are covered in Part B.
Keep these potential extra cost situations in mind if you opt for Original Medicare:
· Original Medicare does not limit your out-of-pocket costs annually.
· Prescription drugs are not covered. You need to sign up for Medicare Part D unless you have drug coverage elsewhere.
· If you want to offset your out-of-pocket costs, you’ll need to purchase a Medigap policy, which has its own premium (see more about this below).
Medicare Advantage is an alternative to traditional Medicare that’s provided through a private insurance company. You may see Medicare Advantage called Part C. But don’t get it confused with Original Medicare. That’s because Medicare Advantage is a bundle of Part A, Part B, and usually includes prescription costs with Part D. You may have some costs covered that Original Medicare does not cover, like hearing, dental services, and vision care. Medicare Advantage plans have a set of guidelines to follow for the best benefits. Some examples include having a primary care doctor for referrals or seeing in-network doctors for optimum coverage. Medicare Advantage plans may have lower out-of-pocket costs than Original Medicare. If you decide a Medicare Advantage plan is right for you, check with your healthcare providers to see which plans they welcome.
3. Avoid the Penalty for Late Enrollment
Timing is crucial in Medicare to avoid penalties. If you don’t apply to Medicare when you first become eligible, you’ll pay a penalty. What if you’re 65 or older and still covered under an insurance plan at work or your spouse’s plan? Medicare has what they call a Special Enrollment Period that lets you sign up for Medicare without a penalty. The key thing to remember is the Special Enrollment Period can be used only when you’re covered through your work, or for eight months after you lose your work-based health insurance. About to turn 65? Be prepared to sign up for Medicare.
4. Know Your Out-of-Pocket Costs
Remember that Medicare Part A and Part B cover medical services in hospitals, doctor’s office visits, and other healthcare services. Part D covers prescription drugs. But Medicare does not cover every medical cost. There are out-of-pocket costs that you will need to be prepared to pay, including the premium, deductible, copayment, and coinsurance. Let’s explore these out-of-pocket costs.
1. Premium: You may pay a different premium (monthly payment) for each part of Medicare A, B and D. Typically, there’s not a premium for hospital services covered in Part A.
2. Deductible: This is a flat amount you must pay for health care or prescriptions before your Medicare, prescription drug plan, or other insurance plan begins to pay for your care.
3. Copay: A set amount you pay for services and supplies like doctor’s office visits, outpatient visits at a hospital, or prescriptions.
4. Coinsurance: This is a percentage that Medicare charges you before the Medicare benefits kick in. Original Medicare covers 80 percent of the cost of your healthcare services, and you’ll owe 20 percent. Consider purchasing a Medigap policy to cover your 20 percent; see more about this below.
Make sure your provider accepts Medicare (almost all do). And if you opt for a Medicare Advantage plan, staying within the network ensures the most coverage with the lowest out-of-pocket costs.
5. Don’t Delay Medigap
Medigap is an optional coverage you can purchase to cover out-of-pocket costs that Medicare doesn’t cover, like Part A hospital deductibles or coinsurance in Part B. The best time to buy Medigap coverage is the six-month period when you turn 65 and covered under Part B Medicare. During that time, the insurance companies that offer Medigap insurance cannot deny you coverage if you have a preexisting condition, and they are required to cover you at the best available rate. After the six month period, you can be denied coverage for a preexisting condition, charged a higher premium, or refused coverage.
You Can Get Help with Medicare
Healthcare is one of the top financial concerns for retirees (along with outliving retirement money). Medicare benefits best serve retirees when enrollment and plan selection are made in a timely and personalized manner. Even with its complexities and nuances, Medicare can provide peace of mind that your healthcare is “covered.” Contact a qualified professional to address each factor as it pertains to your circumstances, and develop a plan to get the most from your Medicare benefits.
About the author: Chip Munn
Chip Munn is a senior financial advisor and CEO of Signature Wealth Group. He is the author of The Retirement Remix: A Modern Solution to an Old School Problem, and host of Maximum Advisor and The Retirement Remix podcasts. For more information visit www.chipmunn.com and connect with Chip on Twitter @chip_munn.