As you approach and enter retirement, there are some important ages to be aware of. For example, your full retirement age, at which you're able to start receiving the full benefits you're entitled to based on your earnings history, is 67 for those born in 1960 or later. (Despite that, you're able to start collecting smaller benefit checks as early as age 62 or bigger ones if you delay up to age 70 -- so you'll need to think through the issue of when to claim Social Security carefully.)
Meanwhile, age 65 is when you'll be able to sign up for Medicare, which is a very big deal in this age of extremely costly healthcare here in the United States. One of the most important things to know about Medicare is that if you don't enroll in it on time, you can end up paying a hefty penalty -- for the rest of your life.
Image source: Getty Images.
Meet Medicare
Signing up for Medicare is somewhat complicated, because there are different kinds of Medicare, and you'll need to choose carefully. Specifically, there's "original" Medicare, which features Part A (hospital coverage) and Part B (physician/medical insurance), and there are Medicare Advantage plans, sometimes referred to as Part C. (There are actually more people enrolled in Medicare Advantage plans than in original Medicare.)
Meanwhile, if you sign up for original Medicare, you'll probably want to add Part D prescription drug coverage -- and very possibly a "Medigap" supplemental coverage plan, too. See? Complicated.
Here are a few quick pros and cons regarding original Medicare and Medicare Advantage.
Original Medicare
|
Pros |
Cons |
|---|---|
|
You often pay only 20% of expenses. |
There is no out-of-pocket spending cap, so you might end up spending many thousands. |
|
It's generally accepted by every provider, anywhere in the U.S. |
Coverage is somewhat limited, so many opt to buy a supplemental "Medigap" plan, as well, to reduce out-of-pocket costs. |
|
You'll typically not need a referral to see a splecialist. |
Does not cover hearing, vision, or dental care. |
Data source: author research.
Medicare Advantage
|
Pros |
Cons |
|---|---|
|
Every enrollee pays for Part B coverage, but otherwise, premiums can be as low as $0 |
If you're traveling, you'll likely not have providers in-network near you, though you're covered if you need to go to an emergency room. |
|
It typically offers more than original Medicare, such as coverage for hearing, vision, dental, and/or prescription drugs. |
Restricted to a network of providers and facilities, unless you pay more. |
|
Your out-of-pocket spending will be capped. The 2024 limit is $8,850 for in-network expenses (excluding drugs) or $13,300 if your plan allows you to see some out-of-network providers. Some plans may feature lower caps. |
You'll likely face co-pays at many appointments. |
|
You can switch out of it to original Medicare at least annually. |
If you switch into original Medicare later, you may have to pay more for a Medigap plan -- or you may be denied that coverage altogether. |
|
Medicare Advantage plans are rated for quality, so you can shop for the best plans near you. |
You'll often need a referral to see a specialist. |
|
Having a Medicare Advantage plan can be simpler than having Original Medicare, plus Plan D, plus a supplemental plan. |
Your plan may deny you some care that original Medicare might have covered. (About 6% of prior authorization requests in 2021 were denied, though many decisions were reversed on appeal, per a Kaiser Family Foundation report.) |
Data source: author research.
Learn more about each possibility before you decide. Original Medicare or Medicare Advantage may be a far better choice for you than the alternative, or it might not make a huge difference. It all depends on your health, your needs, and your preferences, among other things.
Signing up for Medicare on time
So when do you sign up for one of these kinds of Medicare? You can start as soon as three months before your 65th birthday, during your birthday month, or within three months following your birthday. Those seven months make up the "Initial Enrollment Period."
If you sign up before the month in which you turn 65, coverage will start on the month you turn 65. If you sign up during your birthday month or during the following three months, coverage will start the next month.
If you fail to sign up on time, the penalty is significant: You'll end up paying an extra 10% for each year in which you failed to sign up on time. That penalty will be added to your Part B premium, and you'll pay it for the rest of your Medicare life. You may also face a penalty for enrolling late in Part A. It lasts for twice as long as you were late. So if you're three years late, the penalty will be charged for 6 years.
Here's an example. Let's say that you're three years late enrolling in Medicare. If your regular Part B premium is $174.70, as it is for most folks in 2024, you'd face a 40% extra charge, or $69.88, bringing your premium up to $244.58 per month. Over the course of a year, instead of paying $2,096.40, you'd be paying $2,934.96 -- $838.56 more. And this 40% surcharge would be levied for every year that you remain in Medicare -- likely for the rest of your life.
Here are some caveats, though, that might reassure:
- If you're collecting your Social Security benefits before you turn 65, you should automatically be enrolled in Medicare. (This saves a lot of people from getting hit with the penalty.) It's smart to double-check that you've been enrolled on time, though, to prevent any headaches.
- If you're still covered by a group health plan when you turn 65 -- for instance, because you or your spouse are still working -- you are not required to enroll in Medicare at age 65. (Prepare to enroll whenever you separate from your employer, though.)
- If you fail to enroll on time because of a natural disaster or qualifying emergency, you may be able to enroll late without penalty.
- There are some other extenuating circumstances that offer leeway, too, such as if you're volunteering abroad during what would have been your Initial Enrollment Period.
Each of us needs to start thinking about Medicare as we approach our retirement. We'll need to decide which kind of Medicare to sign up for, and we'll need to sign up on time.
