For the most part, Medicare is a pretty straightforward program. However, there are certain Medicare mistakes that could end up costing you money and potentially exclude you from supplementary insurance plans. With that in mind, here are three Medicare mistakes to avoid, and how to prevent yourself from making them.
1. Not signing up during your initial enrollment period
It's a common misconception that everyone is automatically enrolled in Medicare at age 65. However, this is only true if you're already receiving Social Security benefits, in which case you'll be automatically enrolled in Medicare Parts A and B.
On the other hand, if you aren't already receiving Social Security benefits, you'll need to sign up. Your initial enrollment period is a seven-month window that begins three months before the month in which you'll turn 65 and extends three months after your birth month ends. You may be able to wait if you have coverage through your or your spouse's employer (excluding COBRA or retiree coverage), but if this isn't the case, not signing up during your initial enrollment period could result in permanently higher Part B premiums.
If you do have coverage through an employer, you may be able to wait to sign up until after you stop working. However, to avoid the lifetime late-enrollment penalty, you need to sign up within eight months of leaving your job.
2. Skimping on your Medigap plan
Medicare doesn't cover all of your healthcare expenses in retirement. For example, you'll have to pay deductibles, coinsurance, and copays, to name a few. These uncovered expenses are collectively known as Medigaps.
A Medicare Supplemental Insurance, or Medigap, plan can help you cover these expenses and keep your healthcare costs more predictable. However, there are 10 different types of Medigap plans, and each one covers a different amount and combination of uncovered costs.
One common Medicare mistake is buying the wrong Medigap plan, particularly one that doesn't cover enough of your costs. Many retirees, especially those in good health, figure they'll just switch to a more comprehensive plan later.
The problem with this is that acceptance isn't guaranteed forever. If you buy a Medigap plan within six months of enrolling in Medicare Part B, you can choose any plan offered in your area, even if you have a pre-existing condition. Beyond that time frame, in most states, insurers can reject you or charge you more based on your health. Most retirees choose to buy the most expensive and comprehensive Medigap plan right from the start, and it might be a good idea for you to do the same.
3. Accidentally raising your Medicare Part B premiums
I already mentioned that you could face higher premiums if you fail to sign up during your initial enrollment period.
In addition, higher-income retirees pay higher Medicare Part B premiums, despite the common misconception that the premium is the same for everyone. Most retirees pay either $109 or $134 per month for their Part B premiums in 2017, depending on whether they already collect Social Security or not. However, single beneficiaries with incomes above $85,000 and married couples with incomes above $170,000 pay higher premiums of $187.50 to $428.60 per month.
Therefore it's important to be careful when making moves that could add to your gross income, such as making large withdrawals from a traditional IRA or 401(k). A massive lump-sum withdrawal could easily catapult you into one of the higher Medicare income brackets, so keep this in mind as you plan your retirement account withdrawals.
The bottom line
When it comes to Medicare, the more you know about the program, the better-positioned you'll be to make smart decisions and avoid mistakes like these. Be sure you have a good working knowledge of Medicare well before your 65th birthday. Investing a few minutes to learn now can pay off tremendously in the future.
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