Image: Social Security Administration.

Tens of millions of Americans rely on Medicare to help cover their healthcare costs after they retire. Yet as simple as the program might seem, many people make a mistake in claiming their Medicare coverage that can lead to their having to bear higher costs for their healthcare needs for the rest of their lives.

This key Medicare mistake involves what seems like a simple process: signing up for Medicare in the first place. As long as you follow the right rules in applying for and getting onto Medicare, then you can steer clear of potential problems. If you slip up, though, the consequences will haunt you for a lifetime. Let's take a closer look at a mistake that currently affects hundreds of thousands of people with the goal of making sure you never become one of them.

Signing up for Medicare
Most people jump at the chance to enroll in Medicare at their first opportunity, given the benefits that it offers at a price that's typically lower than any available alternatives. Indeed, if you're already receiving Social Security benefits before you reach the usual Medicare eligibility age of 65, you'll automatically get enrolled for Medicare in most cases, starting on the first day of the month of your 65th birthday. Disability recipients also automatically get Medicare after receiving 24 months of benefits from Social Security Disability or similar programs.

For many people, though, those automatic enrollment provisions won't apply, and they'll have to enroll on their own. The initial enrollment period for Medicare begins three months before you turn 65 and ends three months after your 65th birthday.

The reason the initial enrollment period is so important is that there are consequences if you don't sign up for Medicare on time. Late-enrollment penalties can be onerous, with the most common one that people face involving Medicare Part B coverage for medical insurance. Specifically, for every full 12-month period that you go without enrolling, your Part B premiums will go up by 10%.

That might not sound like much, given that the typical Part B premium for 2015 is $104.90 per month for most Medicare participants. But for those who go for multiple years without applying for Medicare, a 20%, 30%, 40% or greater increase in monthly premiums adds up to several hundred dollars per year in penalties. Moreover, those late-enrollment penalties never go away, and you'll have to pay them for as long as you have Part B coverage throughout your lifetime.


Other penalties can affect a limited number of recipients. Most people get Medicare Part A for free, but if you have to pay premiums, they'll go up if you sign up late. Part D prescription drug penalties can also apply, with charges based on a percentage of a predefined typical premium amount multiplied by the number of months you weren't covered.

Special enrollment to the rescue
Fortunately, there are some provisions to help some of the people who might otherwise face Medicare penalties. The most common involves what are known as special enrollment periods.

Those who are still working when they turn 65 are most likely to qualify for a special enrollment period. If you have qualifying group health plan coverage based on either your job or your spouse's job, then you can sign up for Medicare at any time as long as you or your spouse is still working and you're still covered under the employer group plan.

Moreover, when you finally do retire from your work, Medicare grants you an additional eight-month special enrollment period starting the month after the job ends. Usually, as long as you sign up for Medicare during that special enrollment period, you won't have to pay a late enrollment penalty.

It's important to realize, though, that not all insurance coverage qualifies to give you a special enrollment period. Specifically, if you have continuing coverage under COBRA, or if your employer provides retiree health insurance, you won't be eligible for a special enrollment period when that coverage ends. Only coverage based on current employment qualifies.

As long as you're aware of these rules, it's easy to follow them and avoid a costly Medicare mistake. Given how important Medicare is for your healthcare finances in retirement, the savings from following the rules can be well worth paying a bit of attention as your 65th birthday approaches.