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Failure to Enroll in Medicare at 65 Could Cost You

“Retiring certainly isn’t for the faint-hearted,” Lily said as she shuffled through a pile of papers on her kitchen table. “I can’t believe all of this paperwork.”

Her husband, George, scowled. “Why are you even messing with that stuff? We decided not to claim Social Security for a few more years so we can maximize the benefit. And you’re not retiring for at least another year.”

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Lily frowned. “True. But there are a lot of rumors going around about lay-offs at the plant. I want to make sure we have some sort of fallback for insurance and stuff if I’m forced to retire early.” She gazed at her husband. “With you being self-employed, we have no safety net for health insurance.”

“That’s what COBRA’s for. If you get laid off, we can pay into your insurance plan for a couple of years.” He swiped at the air dismissively. “We’ll be fine.”

“Well, we qualify for Medicare at age 65. You’ll be 65 in three months. I’ll be 65 at the end of the year. Maybe that’s a better option.”

George’s eyes narrowed. “Why apply if we don’t need it? Medicare isn’t cheap and it only covers 80 percent of our medical bills. We get the Cadillac health insurance plan through your company. I say stick with that. We can move to Medicare anytime.”

Lily shook her head. “I’m not sure that’s true…”

George shrugged. “Let’s just wait and see.”

Actually, that “wait and see” attitude could have serious financial implications.

People who claim Social Security benefits before age 65 are automatically enrolled in Medicare upon reaching their 65th birthday. Coverage begins the first day of the month in which they turn 65. Most others, however, are required to enroll on their own at age 65 or face significant financial penalties. Ones that never go away.

Generally, U.S. citizens may apply for Social Security benefits at age 62. However, most receive a reduced benefit at that age. “Full retirement age” or the age at which you are eligible for full Social Security benefits depends on your year of birth. For example, the full retirement age for people born between 1943 and 1954 is 66. If you start receiving benefits at a younger age, the government calculates how many additional months you will be receiving benefits and reduces the monthly payment accordingly. For that reason, many people choose to remain in the workplace or delay applying for Social Security until they reach the predetermined full retirement age.

Regardless of when you retire and enroll in Social Security, however, the initial enrollment period for Medicare is limited to seven months—the three months before you turn 65, the month of your 65th birthday, and the three months after turning 65. Coverage begins between one to three months after enrollment, depending on the date you actually apply for coverage.

There is one exception. Those employed at companies with more than 20 employees after their initial enrollment period may transition to Medicare without penalty up to eight months after the prior insurance ends. For those enrollees, the coverage begins one month after their actual  enrollment date.

However, insurance provided under COBRA is not considered employer coverage, so the special enrollment period does not apply. In addition, by law, Medicare immediately becomes the primary payer for 65-year-olds employed at companies with 20 or fewer workers. When an employee falling into the latter category is not enrolled and continues to utilize coverage through an employer, the insurer will require that any benefits received after age 65 be paid back.

Even retirees with continuing insurance benefits from a former employer are required to enroll in Medicare. Upon reaching age 65, Medicare automatically becomes the primary insurer. Private insurance may be used only to supplement Medicare coverage. Those who continue to treat private insurance as the primary payer will be required to pay back any benefits that should have been paid by Medicare.

Medicare includes Part A—hospitalization—and Part B–outpatient services. There is no charge for Part A. However, there is often a premium for Part B. In addition, Medicare participants may be required to enroll in Part D, a prescription drug program. Medicare penalizes those who fail to enroll in a timely manner in the following ways:

  • Late applicants must wait for the general enrollment period, which runs from January 1 to March 31 each year. And coverage will not kick in until July 1 of that same year. This delay could become expensive. For example, without medical insurance, seniors will be personally responsible for all expenses related to healthcare, including out-of-pocket costs for prescriptions and medical supplies, doctor visits, medical tests, and/or emergency care. While commercial insurance exists to plug that gap, it tends to be costly, and usually offers limited coverage and high deductibles.
  • Those who miss the initial enrollment period must pay a penalty that equals 10 percent of the Part B premium times the number of months enrollment was delayed (up to 12 months). And that penalty continues forever. In 2017, the Congressional Research Service reported that on average, premiums for late enrollees were 31 percent higher than individuals who enrolled within the mandated window.
  • Those who fail to enroll in Part D must pay a penalty that amounts to 1 percent of the national base beneficiary premium for each month of delay.

A single serious illness or accident without Medicare coverage could devastate even a well-planned retirement. That’s why it’s important to understand the rules and make sure you enroll on a timely basis.

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