To get Medicare coverage at the most reasonable price, it's essential to know three crucial dates for Medicare enrollees. Missing the dates can cost you -- and potentially leave you without coverage.
Americans aged 65 and older are fortunate to have Medicare to help them with healthcare costs. But even with Medicare, participants are responsible for paying deductibles, copays, and out-of-pocket costs. These costs continue to climb. A couple wanting to pay for most of their healthcare coverage throughout retirement may need as much as $399,000 in savings at age 65, according to the Employee Benefit Research Institute, a nearly 8% rise from the amount estimated just last year.
These expenses can vary a great deal, depending on which Medicare plan you choose -- and when you choose it. Here are the dates to look for.
Your eligibility date
Generally, Americans who have worked for at least 10 years total become eligible for Medicare three months before they turn 65. Enrollment is not automatic unless you're already receiving Social Security retirement benefits. (If you are, you will likely receive a Medicare card in the mail three months before you turn 65.)
If you are not drawing Social Security, you can enroll in Medicare at any point during a seven-month Initial Enrollment Period (IEP). It extends from the three months before your birthday through your birthday month and the three months after your birthday month. In other words, if you turn 65 on Aug. 1, you become eligible to enroll in Medicare on May 1, and you have until Nov. 30 to complete enrollment.
When you sign up, you'll be asked to make a choice between original Medicare and a Medicare Advantage plan. Let's go through the significant dates and associated costs of these plans.
"Original Medicare" refers to the two parts of Medicare that come standard: Part A (hospital coverage) and Part B (physician and medical coverage). Most people do not pay a premium for Part A.
You do pay a premium for Part B, though, and what you pay depends on when you enroll. Participants currently pay a premium of $134 per month for Part B. The premium will rise to $135.50 in 2019.
However, if you miss the IEP deadline, your Part B premiums will go up. This is called a late enrollment penalty. The monthly premium rises 10% for each complete 12-month period in which you could have enrolled in Part B but didn't.
Not only does the premium rise, but the late enrollment penalty applies for the entire time you are enrolled in Part B. So if you enroll two years late, your Part B premiums will be 20% higher for as long as you remain enrolled, which will likely be for the rest of your life (because Medicare will still be more affordable than a private alternative).
You may also be without Part B coverage for a period if you don't enroll during your IEP dates. You'll have another chance to sign up for Medicare during the general enrollment period, which runs from Jan. 1 to March 31 each year -- but coverage doesn't begin until July 1. So if your IEP dates begin May 1 and run through Nov. 30, general enrollment is another chance to sign up, but your Medicare coverage won't kick in until July 1.
Medicare enrollees can also sign up for optional plans. Part D, for example, offers prescription drug coverage. Part D is provided through private insurers, and it also requires a monthly premium. The national base beneficiary premium is $35.02 in 2018 and will drop to $33.19 in 2019.
But if you want to sign up for prescription drug coverage and didn't during your IEP, you may end up paying more in premiums. If you were without prescription drug coverage for any continuous period of 63 days or more after your IEP ended, you'll be charged a penalty. It's calculated by taking 1% of the "national base beneficiary premium" multiplied by the number of full months you didn't have Part D or other creditable coverage (i.e., prescription drug coverage that's "expected to pay, on average, as Medicare's standard drug coverage").
This penalty is also charged as long as you're in a Medicare drug prescription plan, not just in the initial year.
The alternative to original Medicare Parts A and B is a Medicare Advantage plan, which is sometimes called Part C. Private insurers offer these plans, but the U.S. government regulates them. They are mandated to provide as much coverage as original Medicare, and many will cover prescription drugs and services not covered by original Medicare, such as vision and dental.
Premiums, copays, and deductibles vary widely among Medicare Advantage plans, so it's best to review your options carefully. Plans available in your area can be found on the Medicare site.
The open enrollment period
Once you're enrolled in Medicare, an open enrollment period rolls around every year, from Oct. 15 to Dec. 7. Like many corporate plans, the Medicare system gives participants a chance to change the plans they choose every year. During this period, you can change from original Medicare to a Medicare Advantage plan. You can also add or drop your prescription drug coverage.
So if you want to enroll in a plan that covers more services and lowers your prescription costs, for instance, then open enrollment is your chance. Any changes you make during open enrollment will become effective on Jan. 1 of the following year.
There is a separate open enrollment period for Medicare Advantage plans. It runs from Jan. 1 to March 31 every year. You can switch between Medicare Advantage plans or cancel your enrollment and return to original Medicare. But be careful: You cannot change your plan from original Medicare to Medicare Advantage during this separate period. That needs to happen in the Oct. 15 to Dec. 7 window.
Open enrollment is an opportunity to assess the adequacy of your coverage and its comparative costs. The state of your health can affect your medical expenses. If you have developed a chronic condition and your medical bills are rising, for example, then open enrollment is the time to comparison-shop for a more beneficial plan.
The enrollment window for Medigap plans
As we've discussed, Medicare coverage, contrary to popular belief, is not free. Even Part A, which charges no premium, requires you to pay a deductible of $1,340 for each benefit period and copays to cover costs. Part B, which has a relatively low monthly premium, requires a copay once the $183 deductible for 2018 has been met. Long-term care may not be covered by Medicare, either. Long story short: Premiums, deductibles, copays, and more can end up costing a bundle, despite the relative affordability of the system. This is particularly true if you need a lot of medical care.
Medicare Supplement Insurance (Medigap) plans have come to the economic rescue of many Americans. They are designed to cover what original Medicare doesn't. The most popular one, Plan F, is the most comprehensive.
Medigap plans are also offered by private insurers if you are enrolled in original Medicare. They aren't available if you choose a Medicare Advantage plan.
But once again, there's a deadline: Private insurers must enroll you in the Medigap plan of your choice if you choose within the first six months after you're 65 and enrolled in Medicare Part B. You'll pay the same premiums as folks in good health, too.
But if you don't enroll during this period, Medigap insurers can turn you down for coverage, just as they can for any other form of insurance. On top of that, they can charge more if you have health problems and/or require you to take a physical, which is not required if you enroll in the initial six months.
It's wise to consider both your current health and its likely future when deciding whether to enroll in a Medigap plan. If you think healthcare costs may be a drain on your financial resources down the road, a Medigap plan could be a good choice.