Don't be caught by
surprise when it's time to sign up for insurance
by Danielle K.
Roberts | April 3, 2019
As a Medicare
insurance expert for the past 14 years, I often find myself surprised at how
little most people know about the program until they are right on its doorstep.
Although it’s a national health insurance program that covers more than 50
million people, it’s often misunderstood, and this can cause worry and
financial stress just as you head into retirement.
It’s a good idea to
take a brief look at Medicare
several years before it’s time for you to enroll at age 65 so that you aren’t
caught off-guard by any misconceptions you may have had. To get you started,
here are five of the biggest myths that I find people believe about Medicare.
Myth #1: Medicare is
free
Polls show that more
than half of Americans believe that
Medicare is free. This couldn’t be further from the truth, and this
myth often has to do with those payroll deductions you make throughout your
working life.
Part B
outpatient benefits and Part D drug
benefits have monthly premiums that you need to be prepared to pay.
In 2019, the standard base premium for Part B is $135.50 a month; about 95% of
Medicare beneficiaries pay this amount.
When you get your
paystub and see you that you’ve paid FICA taxes toward your future Medicare
benefits, it can lead you to think that by the time you turn 65 you’ll be
paid-up. However, those taxes only go to pay for your Part A hospital
benefits.
However, a small
percentage of beneficiaries are considered high-income, and these people pay
what’s called an income-related monthly adjustment amount (IRMAA). Those in the
highest income bracket pay well over $400 a month for Part B.
Part D monthly
premiums are set by the insurance company and can range from as low as $10 to
$15 a month to well over $150 a month depending on the plan and the medications
it covers. High-income people pay an IRMAA in addition to the base premium too.
Myth #2: Medicare
covers 100% of your healthcare costs
Many people
mistakenly believe that once they enroll in Medicare, the federal government
will pay for 100% of their healthcare. This is not true.
Just like on your
health insurance prior to age 65, you will have cost-sharing in the form of
deductibles, copays, and coinsurance. Part A has a $1,364 deductible in 2019,
and this deductible is per benefit period, so you could incur it more than once
in a calendar year if you had more than one hospital stay.
Part B has an annual
deductible of $185 and then covers about 80% of your outpatient costs. You will
be responsible for the other 20%, and there is no out-of-pocket maximum to
protect you.
Most beneficiaries
elect to enroll in either a Medicare
Supplement plan (also known as Medigap) or Medicare
Advantage plan to help cover these cost-sharing expenses.
Myth #3: With a
Medicare Advantage plan, you can skip paying for Part B
Medicare Advantage
plans are private insurance plans that are alternatives to traditional
Medicare. The plans have local networks of providers. The premiums are lower
upfront than Medigap plans, and instead you pay copays for healthcare services
as you go along. Some HMO plans may even have a $0 premium, which means you
don’t pay anything for the plan itself.
However, you must be enrolled
in both Medicare Parts A and B to be eligible to enroll in either a Medicare
Supplement or a Medicare Advantage plan. So even if your plan has a low or even
zero premiums, you will still be paying for Part B each month.
Myth #4: It’s fine to
wait to enroll in a Medigap plan
When you enroll in
Medicare Part B, you have six months from the Part B effective date to enroll
in a Medicare Supplement plan with no health questions asked. This Medigap
six-month open enrollment window is to ensure that when you’re
transitioning over to Medicare you can get adequate coverage even if you have
health problems.
Once that window has
passed, you can still apply for a Medigap plan, but in most states you will
need to answer health questions. Certain health conditions and medications can
cause the insurance company to decline you. In other words, they do not have to
cover you if they believe you pose a medical risk.
Certain health
conditions and medications can cause the insurance company to decline you.
People often
mistakenly believe that they can just wait until the next fall Annual Election
Period (AEP) and sign up for Medigap without health questions.
However, the reality is that the fall AEP has nothing to do with Medigap plans.
Instead, the AEP allows you to make changes to either your Part D drug plan
or your Medicare Advantage plan.
You can apply for a
Medigap plan any time of year, but if you are past your six-month Medigap open
enrollment period, expect to answer health questions and know that getting
coverage is not guaranteed.
Myth #5: You can
delay enrolling in Medicare if you have employer health insurance
This one is another
common mistake that costs unsuspecting beneficiaries a lot of money in late
penalties because it is only partially true.
If you work for a
large employer with 20-plus employees, then yes, you can delay enrollment into
Medicare without penalty. Your employer group health coverage is primary, and
Medicare is secondary.
If you get this
wrong, you will later have to pay a 10% penalty for every year that you waited.
However, if you work
for a small employer with fewer than 20 employees, Medicare is primary, so you
need to enroll in both Medicare Parts A and B during your initial enrollment
period as you turn 65.
If you get this
wrong, you will later have to pay a 10% penalty for every year that you waited
to enroll. This penalty is added to your Part B premiums, so you’ll pay it for
as long as you are enrolled in Part B.
I often say that Social Security
should have a class for people at age 50 to learn all of this when they still
have 15 more years to save and plan for retirement. Such a class does not exist
though, so hopefully, this will help you to avoid some of the most common
mistakes.
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