By Mary Beth Franklin
June 14, 2018
What you don’t know
about Medicare’s complicated rules and deadlines can hurt you. The requirements
are particularly confusing for people who continue to work past the traditional
retirement age of 65. But don’t worry. Follow these guidelines to maximize your
health care coverage in retirement and minimize your enrollment headaches — and
possibly your premiums.
Starting
line
For
most people, the Medicare initial enrollment period begins three months before
the month of their 65th birthday and ends three months after that month. If you
are already collecting Social Security, you will automatically be enrolled in
Medicare A, which is free and covers hospitalization, and Medicare Part B,
which carries a monthly premium and pays for doctors’ visits and outpatient
services.
Sign up on time
If you aren’t
collecting Social Security, it’s up to you to sign up for Medicare during your
initial seven-month enrollment period, or you will face life-long penalties.
Miss your initial enrollment period and you will have to pay a delayed
enrollment penalty equal to 10% of your basic premium amount for every year you
were eligible to enroll in Part B but didn’t. A separate delayed enrollment
penalty of 12% per year applies to Medicare Part D prescription drug plans.
Exception
for older workers
There
is a way to avoid the Medicare delayed enrollment penalty. If you have group
health insurance coverage from your current employer, or are covered under your
spouse’s group health plan, you can delay enrolling in Medicare Part B and D
until up to eight months after your employer coverage ends. Note to employees
of small businesses: Your employer’s health plan must cover at least 20 people
to be considered creditable coverage by Medicare.
Beware
of COBRA
Some
individuals choose to extend their employer-sponsored health insurance for up
to 18 months after they leave their job under COBRA rules that require them to
pay for the full cost of insurance with no employer subsidy. But COBRA coverage
does not qualify as a creditable substitute for Medicare. You still must sign
up for Medicare on time or face delayed enrollment penalties.
Coverage
gaps
If
someone misses their initial enrollment period when they are first eligible for
Medicare or the special enrollment period after their employer coverage ends,
they may have to wait an extended period of time to sign up for Medicare and be
on the hook for 80% of their health care costs in the interim. Procrastinators
must wait until the general enrollment period that occurs every January through
March for Medicare coverage that begins the following July 1.
All-inclusive or a
la carte
When you enroll in
Medicare, you must decide how you want to receive your health care coverage and
how to pay for that. You can stick with original Medicare Part A and B and
supplement that coverage with a private Medigap policy to cover deductibles and
co-pays. Plus, you may need to buy a Medicare Part D prescription drug plan. Or
you can choose an all-inclusive Medicare Advantage plan; such plans often offer
extra coverage at lower premiums, but health care services are limited to a
specified network of doctors and hospitals.
Income
determines premiums
Although
most Medicare beneficiaries pay $134 per month for Medicare Part B in 2018,
some people pay much more. Individuals with modified adjusted gross income,
which includes tax-exempt interest, of $85,000 or more and married couples with
MAGIs that top $170,000 pay a monthly high-income surcharge. This year’s
Medicare premium surcharges, which range from $53.50 to $294.60 per month per
person on top of the standard premium of $134 per month, are based on income
report on 2016 tax returns. A new top tier for very high-income beneficiaries
will be added in 2019 based on 2017 tax returns.
Some
income exempt
When it
comes to determining Medicare premium surcharges, not all income is created
equal. Distributions from Roth IRAs and Roth 401(k)s do not count in the MAGI
calculation so they will not trigger higher Medicare premiums. Neither do
distributions from health savings accounts when they’re used to pay for
qualified medical expenses, nor distributions or loans from cash-value life
insurance policies and proceeds from a reverse mortgage. And IRA account owners
age 70½ and older can exclude up to $100,000 per year from taxes by directing a
portion of their annual required minimum distribution directly to a charity.
Planning
opportunity
The new
tax law means many people will pay lower taxes in 2018 than they did last year.
It provides a great opportunity to convert some traditional IRA funds to Roth
IRA accounts at today’s low tax rate and create tax-free income that can help
reduce or even eliminate future Medicare high-income surcharges. Going forward,
older retirees, who can no longer deduct charitable contributions because they
qualify for a higher standard deduction, may want to direct a portion of their
RMDs to charity each year as a way of reducing future Medicare premium
surcharges.
No comments:
Post a Comment