Joan retired, assuming there would be no more surprises. That illusion was shattered by a letter about her missed Medicare enrollment and the thousands of dollars in penalties the mistake had cost her. Medicare might be simple, but here are the facts: the Kaiser Family Foundation found that 61% of people surveyed had a wrong understanding of Medicare coverage, based on fundamental questions.
With something this critical, a misunderstanding can unexpectedly lead to increased expenses and coverage gaps that undermine the best retirement plans. The answer is to avoid these pitfalls by using the facts. Dave Ramsey has the wisdom to share with every retiree.
You’re Not Automatically Enrolled in All Parts of Medicare
Signing up for Social Security at age 65 is the same as enrolling in Medicare Part A and Part B, but if you are not getting Social Security, you must sign up yourself. Many retirees fail to realize this, and they will end up paying expensive late penalties for missing the optimal enrollment window.
Apply proactively for Medicare when your initial enrollment period is activated, seven months before your 65th birthday. Don’t wait for a letter. Block calendar reminders and enroll on an official Medicare website to ensure timely completion of your enrollment.
Delaying Enrollment Can Cost You for Life
You won’t only have to suffer a one-time penalty for missing the deadline to sign up for Part B. In addition, the late enrollment penalty is a 10 percent increase in your premium for each year without health coverage, accompanied by a 10 percent surcharge for as long as you remain without coverage. This can increase your monthly payment on an expensive premium plan.
The penalty for someone who delays paying health coverage premiums for two years is a permanent 20 percent increase in premiums. This is something you can avoid spending all your retirement income on. Even if you are still working past 65, be sure to mark your Medicare deadlines.
Medicare Doesn’t Cover 100% of Costs
Deductibles are only covered by about 80% of Medicare-approved expenses. According to the Employee Benefit Research Institute, the average annual cost of coinsurance, copayments, or deductibles is $6,500. If you have chronic conditions or anticipate incurring a significant amount of medical bills, consider a Medigap or Medicare Advantage plan to help cover these gaps.
Original Medicare vs. Medicare Advantage Plans
Original Medicare (Part A and B) offers flexibility in provider choice but limited extras. Dental and vision coverage and prescription drug coverage are additional coverage options you can include if you have a Medicare Advantage plan (also known as Part C). Private insurers manage these plans and have everything from in-network doctors that you have to use.
Research which option offers the most benefits and the fewest restrictions within its network. According to the Centers for Medicare & Medicaid Services, roughly 31 million people — more than half of all Medicare beneficiaries — currently take advantage of Medicare Advantage’s extra features.
Prescription Drugs Aren’t Included in Basic Medicare
Original Medicare does not cover most prescription drugs. Unlike Parts A and B, it does not cover prescription drugs, and you will need to enroll separately in a Part D, or prescription drug plan, or choose a Medicare Advantage plan that includes drug coverage.
Not getting prescription coverage results in considerable out-of-pocket charges. The CMS said that prescription drugs contribute almost 20% of retiree health care costs.
Income Determines Your Premiums
Higher-income retirees pay more for Medicare Part B and Part D. Income‐Related Monthly Adjustment Amounts (IRMAA) surcharges apply for people making more than $103,000 in 2024.
To review your current and future Medicare premiums, check your IRS tax returns from two years ago, as those determine your Medicare premiums. One way to limit IRMAA charges is to plan when you will have IRA withdrawals (and other income sources) occur.
Coverage Changes Annually
Medicare plans aren’t static. Each fall, you’ll receive an “Annual Notice of Change.” Insurance companies have options for pricing premiums, constructing drug formularies, and creating provider networks.
Open enrollment lasts from October 15 through December 7 every year. Take a portion of time annually to review your coverage and adjust if your plan changes or no longer fits your needs.
Out-of-State Travel Has Limits
You are covered for Original Medicare (not the supplement) anywhere in the U.S., but not outside the country. Generally, most Medicare Advantage plans do not cover care outside their designated service area, and this is particularly rare in cases of emergencies overseas.
People who travel frequently or plan to retire abroad will want to opt for supplemental insurance or travel medical coverage for true peace of mind.
Medicare Doesn’t Pay for Long-Term Care
Medicare Part A and B do not cover custodial and long-term care, such as nursing home care or assisted living. Genworth’s 2024 Cost of Care Survey also reports that the median annual cost of a private room in a nursing home is now more than $115,000. Retirees must plan.
Guarding against this significant risk requires either long-term care insurance, annuities, or substantial savings.
Preventive Services Are Covered (Usually at No Cost)
Medicare covers a wide range of preventive services, including screenings for cancer and diabetes, as well as annual wellness visits. Depending on the provider, many do not incur additional costs. Utilize these advantages to take control of your well-being and be vigilant regarding any issues. Remaining proactive keeps your overall healthcare expenses in check.
Dental, Vision, and Hearing Coverage Is Limited or Missing
Original Medicare does not cover most dental care, eye exams, and hearing aids. The out-of-pocket costs for such services are over $3,000 per year. Your horizon will look toward these needs, so consider researching Medicare Advantage plans with better coverage or start shopping for separate policies that cover only dental, vision, and hearing.
Medigap Plans Aren’t Available with Medicare Advantage
Medigap plans supplement Original Medicare; however, if you enroll in Medicare Advantage, you cannot purchase a Medigap plan. This is a one-or-the-other decision. It is a Medigap plan if you are looking for flexibility and nationwide coverage. Choose this option carefully, as switching back and forth later can be very difficult or costly.
Enrollment Windows Are Strict
Your time to change is limited. The “Initial Enrollment Period,” “General Enrollment Period,” and “Annual Election Period” all have different rules and effects on coverage and costs. Missing these windows is expensive. Set up alerts and consult an independent Medicare adviser (not an insurance agent) to learn how to maximize your benefits from your options.
Medicare Supplement Pricing Varies by State and Company
The price of Medigap supplements varies from one state to another and from one insurance provider to another. According to an AARP analysis, nationally, standard Medigap premiums in 2023 range from $100 per month to over $400 per month.
Before signing a contract, you should always compare plans by using your state’s Department of Insurance or the Medicare Plan Finder tool.
Fraud and Scams Are on the Rise
Record rates of Medicare beneficiaries are being targeted in senior scams. ‘Phishing emails, websites such as fake ones and unsolicited calls prey on retirees trying to figure out which coverage to have,’ warns CMS. Stay vigilant.
Do not give your Medicare card number to anyone you did not call yourself. Also, review any Medicare Summary Notices for unfamiliar charges and report suspicious activity immediately.
Disclaimer – The Finance Key does not provide and does not intend to provide financial, investment, tax, or legal advice. Information contained in this article is for informational and educational purposes only. This list is solely the author’s opinion based on research and publicly available information. Including links to third-party content is not an endorsement by The Finance Key of such content or services. Please do your due diligence and use your discretion.
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