Danielle K RobertsA recent study by Fidelity indicated that the average couple will need close to $300,000 dollars just for the costs of health care after age 65. Yet, many people are completely unaware of the need to plan for these costs. Often, they think that Medicare is free or that it pays for everything.
It doesn’t help that Medicare is a huge national health insurance program with four parts, ten supplement options, and dozens of drug plan choices. With all these moving parts, it’s easy to get confused about health care costs once you enroll in Medicare; just know that these costs will be a major part of your budget after you turn 65. The good news is that Medicare will be your primary health insurance, and most Medicare enrollees are very satisfied with their coverage.
If you’re nearing retirement age and will soon join Medicare, here are some of the most important features of Medicare you should know so you don’t make potentially costly mistakes.
Mistake #1: Missing your initial enrollment period
Everyone has her own initial enrollment period (IEP). Your seven-month IEP is based on when you turn 65. For example, if your 65th birthday is on July 17, 2020, then your IEP will start on April 1, 2020, and will end on October 31, 2020.
During your IEP, you should enroll in Medicare Part A and Part B. You should also enroll in Part D, which you can get as a standalone plan alongside your Original Medicare or as part of a Medicare Advantage plan.
If you enroll during the first three months of your IEP, your start date will be the first day of your birthday month. If you apply during your birthday month or during the last three months of your IEP, you will have a delayed start date by a couple of months so be sure to ask the Social Security representative what your Medicare effective date will be.
If you don’t enroll when you are first eligible and don’t have creditable coverage (see below) through another source such as an employer or union health plan, you’ll pay a late enrollment penalty with your monthly premium. The penalty is assessed at 10 percent per month for every month that you could have been enrolled and were not. It applies monthly for as long as you have Medicare coverage—it can definitely add up over time.
A side note: If your birthday is on the 1st of the month, you get an extra month added to the beginning of your IEP, and your start date will be the 1st of the month before your birthday month.
Creditable coverage
If you do have creditable coverage, you can delay your Medicare enrollment until after your existing coverage ends. You likely have creditable coverage if you work past 65 for a large employer (20+ employees) and are enrolled in their health plan. This also applies if you are enrolled in a large employer health plan through your spouse.
Although you can delay all parts of Medicare during this time, most people choose to enroll in premium-free part A if they qualify. Having Part A coordinate with your employer health coverage could reduce your spending in the event that you have an inpatient hospital stay.
One exception: if you’re contributing to a health savings account (HSA), you need to delay enrolling in Part A (or any part of Medicare) if you plan to continue contributing to the HSA in the future.
You can delay Parts B and D to save premiums since your employer coverage will already include benefits for drug coverage and outpatient expenses.
Mistake #2: Missing your Medigap open enrollment
This mistake could cost you a lot. You see, Medicare doesn’t cover 100 percent of your healthcare expenses. You will pay some cost-sharing in the form of deductibles, copayments, and coinsurance as you use various medical services.
Medigap plans cover some or all of these Part A and Part B out-of-pocket expenses with Original Medicare. If you enroll during your Medigap Open Enrollment Period, which begins the month you are age 65 (or beyond) and enrolled in Part B, you can buy any plan available in your area and can’t be turned down or charged more for a pre-existing condition. This ensures that everyone has an opportunity to get comprehensive health coverage when they are aging into Medicare.
Wait, however, and you will have to pass medical underwriting in order to buy a plan down the road. If you have any serious or chronic health conditions at that time, you may be turned down for coverage, or charged much more for your plan due to your health. Many people are unaware of this and they miss their six-month open enrollment period only to find out later that they can’t get coverage due to a pre-existing health condition.
If you do decide to enroll in a Medigap plan, we recommend that you get the coverage today that you’ll want 10 years from now. Unlike Medicare Advantage and Part D plans, which you can switch every year if you’re not happy with your coverage, you have no right to switch Medigap plans, and it may be impossible to upgrade your coverage later.
An experienced Medicare insurance broker can walk you through the options in your area.
Mistake #3: Not considering your coverage options
Another common mistake that new beneficiaries sometimes make is defaulting into Original Medicare without considering their needs and available options. There is no cap on out-of-pocket costs with Original Medicare, and deductibles, copayments, and coinsurance amounts add up, especially if you have a chronic health condition or serious health crisis.
If a Medigap plan is beyond your budget, it’s a good idea to consider Medicare Advantage plans rather than just enrolling in Original Medicare and nothing else.
Medicare Advantage plans are optional private health insurance coverage in which you can get the same Part A and B covered services, but through a health plan with a network. Premiums for Medicare Advantage plans are usually lower than Medigap plans because you are agreeing to get your care from the plan’s network of providers.
In many cases, out-of-pocket costs are lower with Medicare Advantage plans, and you may find a plan with coverage for routine vision and dental care, something not available with Part A and Part B. Most have Part D prescription drug coverage, too, so you get all your Medicare benefits in one easy-to-manage plan. Some people like the convenience of having just one health insurance ID card.
Remember, you can always switch your Medicare Advantage and Part D plans every year, so you’re not locked into coverage you don’t like. You can even switch back to Original Medicare without penalty during a valid election period.
You should also keep in mind that you and your spouse don’t have to buy the same plan. That means you can shop for the plan that best suits your particular health situation and your spouse can do the same.
The Medicare.gov website has a plan finder tool that can help you compare the Medicare Advantage and Part D drug plans that are available in your county.
Mistake #4: Failing to plan for long-term care
With the medical technology that exists today, people are living longer. It’s a very real possibility that you may have another 20–30 golden years ahead when you turn 65.
While many individuals can care for themselves independently, it’s inevitable that some people will eventually need some help either in the form of custodial care in their own home or in a facility in which they live. We have found that many new Medicare beneficiaries believe that Medicare will pay for the costs of long-term care, and that couldn’t be further from the truth.
While Medicare will always pay for your medical needs, it does not pay for custodial care, which is help with the activities of daily living like eating, dressing, and bathing. Should you ever need this kind of help, that is an expense that you will pay out of your own pocket. This can cost tens of thousands of dollars per year.
It’s important that you work with your financial advisor to consider the costs of long-term care you may face one day and ensure that you adequately save for these eventual costs.
Mistake #5: Not asking for help from a professional
There are several types of advisors that can help you with some of these decisions. Be sure to visit with a financial planner who can help you with ways to eliminate debt before you turn 65 and plan for the expenses ahead. An advisor can also help you evaluate when it makes the most sense to begin taking your Social Security income benefits.
A Medicare insurance advisor can also help guide you through your coverage options and help estimate what your healthcare expenses will be. Unlike the insurance carriers themselves, an independent agent can help you look through all the options for various insurance plans without bias so you can make the best decision for you.
