Medicare is an important health insurance program that covers millions of seniors today. And once you retire, chances are, you'll be signing up for Medicare coverage as well.
But it's important to understand how the program works ahead of retirement. Here are some rules that may not be so obvious but are essential to be aware of.
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1. Enrolling late could cost you for life
Medicare eligibility begins at age 65. But that doesn't mean you can only sign up on your 65th birthday. Rather, you get seven months to enroll "on time." That window begins three months before the month you turn 65 and ends three months after that month.
You may not be in a rush to sign up for Medicare once you become eligible. But you should know that delaying your coverage could be costly. For each 12-month period during which you're eligible for Medicare but don't sign up, you'll face a 10% surcharge on your Part B premiums -- for life.
Now there are some cases where you can delay your enrollment without a penalty. If you're covered by a qualified group health plan during your initial enrollment window, then you get more time to sign up.
But otherwise, do be aware of the penalties that might ensue if you wait on enrolling. And also, remember that going without health coverage late in life is a dangerous move. So definitely don't postpone your Medicare enrollment if you're eligible and don't have an existing health plan.
2. You can't fund an HSA once you're on Medicare
The great thing about HSAs is that they're very flexible. You can withdraw your money at any time for healthcare expenses, and you can invest funds you don't need immediately for added growth.
HSAs also offer a tax break on contributions. Because of this, you may want to keep funding yours once you enroll in Medicare.
Unfortunately, that's a no-can-do situation. Once you're on Medicare -- even if it's just Part A, which some seniors sign up for independently of Part B due to it generally being free -- HSA contributions are off the table.
But don't worry -- you can still withdraw from your HSA as a Medicare enrollee. In fact, it's a good idea to reserve your HSA for retirement if you can, since that's when your healthcare expenses might be highest.
3. Surcharges apply to higher earners
Medicare is often hailed as an affordable health coverage option. But there are certain costs you'll incur off the bat, including having to pay a premium for Part B.
Each year, there's a standard monthly premium established for Part B. But if you're a higher earner in retirement, you'll be slapped with a surcharge that makes Part B more expensive.
Not sure whether you'll fall into that category? For context, in 2023, surcharges apply to singles with an income of more than $97,000 and couples with an income over $194,000.
To put it another way, you don't have to be ultra-rich to face a Medicare surcharge. It'll apply if you're merely what many would consider comfortable.
However, you should know that surcharges increase as income does. So a single senior earning $400,000 a year will face a higher premium than someone earning $100,000.
Medicare is an essential program, but it's important to know the ins and outs of how it works. Keep these rules in mind, especially if you're getting closer to your Medicare enrollment date.
