Medicare is a critical safety net for tens of millions of seniors, and with 76 million baby boomers turning 65 at a rate of 10,000 per day, navigating this complex program successfully is critical. Make a wrong turn along the way and you could get slapped with steep, lifelong penalties. Here are five tips to help you get the most out of Medicare.
1. Don't delay
The most important tip of all is to sign up for Medicare as soon as you're eligible. If you don't, you could get stung by a big penalty.
You can sign up for Medicare as early as three months before the month you turn 65 and as late as three months after. Fail to sign up during that period and Medicare Part B premiums could go up by 10% for every full 12-month period you miss.
Tax revenue picks up most of the tab for Medicare Part B, however, recipients are responsible for premiums that equal about 25% of Part B's costs, or more if you're a high income earner.
Fail to sign up on time for Part D prescription drug coverage and you could end up paying more in premiums for that insurance, too.
After your initial enrollment period, if you go without Part D for any continuous period of 63 days or more, then you could pay a penalty equal to 1% of the base monthly premium times the number of full months you didn't have coverage. Since the penalty is calculated off of premiums likely to increase annually, you could end up paying a bigger penalty every year because of your delay.
Fortunately, signing up for Medicare is easy. If you're already receiving Social Security, you'll be signed up automatically. If you need to sign up on your own, you can do so online here.
2. Watch the limits
Medicare Part B and Part D premiums are based on income reported to the IRS two years ago. If income is above specific limits, then premiums can be substantially higher than they would be otherwise.
For example, the standard Part B premium in 2016 is $121.80. However, if you're single and earned between $85,000 and $107,000 two years ago, you would pay the standard premium plus a $48.70 income premium adjustment. Part D plan premiums are also adjusted upward based on income limits. Therefore, before you consider an investment or opportunity that could increase your income, you might want to make sure it doesn't nudge you into the next income limit range.
Seniors should also know that life changes that reduce income could allow you to get an exception to the income surcharge. So, if you're income has dropped because you've stopped working and that's reduced your income below a limit, it can pay off to appeal a high income premium adjustment.
The following chart highlights the income tiers and current income surcharges associated with them.
3. Ditch Obamacare
If you're eligible for Medicare and you're currently getting your insurance through the Affordable Care Act exchanges, or Obamacare, you still need to enroll in Medicare.
People become ineligible for Obamacare subsidies once they qualify for Medicare and delaying enrollment in Medicare because of Obamacare can trigger Part B and Part D penalties. You can keep your Obamacare plan in addition to Medicare, but you'll be responsible for its full cost and that cost may be more expensive than other supplemental insurance options, such as Medigap.
4. Embrace your inner bargain hunter
Medicare Advantage plans and Part D plans are sold by private insurers that adjust their premiums annually to account for healthcare cost increases, such as doctor fees and drug prices. As a result, a plan that was a bargain when you signed up last year may not be a good deal next year.
Fortunately, you can switch Medicare Advantage and Part D plans every year between Oct. 15 and Dec. 7. That makes this a perfect time to carefully consider any changes in your healthcare in the past year and the premiums your insurer is planning to charge you next year.
When evaluating plans, make sure to spend plenty of time determining how much each plan will pay toward your medicines. The amount Medicare Advantage and Part D enrollees pay for their medicine depends a lot on where insurers place those medicines in their drug formulary. Those formularies typically include tiers, with low tiers requiring little patient cost-sharing and high tiers including a lot of cost-sharing. Since drugs can move up or down in tiers every year, it's important to double-check before signing up for a plan to make sure you won't get any unwelcome surprises at the pharmacy when the new coverage kicks in.
5. Be proactive
Medicare Part A and Part B cover many healthcare expenses, but they don't cover everything. In 2016, Part A recipients pay a $1,288 deductible for each benefit period and after 60 days in the hospital, they start sharing in the costs to the tune of $322 per day. After 90 days, their share doubles to $644 per day for each lifetime reserve day (up to 60 lifetime reserve days). After that, they can be on the hook for all their hospital charges.
In addition to monthly premiums, Part B also charges a $166 deductible per year and after that, patients pay 20% coinsurance for any care they receive that's covered by it.
Furthermore, neither Part A or Part B limits how much money you might spend in any given year. Therefore, if you fall ill, your costs in any one year could be disastrous to your financial security.
In order to help insulate yourself against these potential expenses, you might want to consider signing up for Medigap insurance. Medigap plans pick up where original Medicare leaves off by paying a percentage of otherwise uncovered care. Medigap plans can cost hundreds of dollars per month and they can't be used with Medicare Advantage plans, but recipients of Part A and Part B could enjoy greater peace of mind by enrolling in them.