For many Americans entering retirement, it comes as an unwelcome surprise: Medicare premiums become much more expensive if you do not sign up on time.
The program tacks on a 10 percent penalty on monthly Part B premiums for each full 12-month period of late enrollment – and you keep on paying the penalties for the rest of your life. The aim is to avoid “adverse selection,” which occurs when people sign up for coverage only when they think they will need it. That helps keep premiums lower for all Medicare enrollees.
But a heads-up would be nice. And that is the intent of the Beneficiary Enrollment Notification and Eligibility Simplification Act (BENES Act), a bill introduced with bipartisan support last week in the U.S. Senate (companion legislation was introduced in the House of Representatives earlier).
It would require the government to send a notification letter in the year before your 65th birthday – the first date of Medicare eligibility. The letter would explain the enrollment rules, and – importantly – how Medicare interacts with other insurance coverage you might have.
Medicare enrollment is automatic if you already have claimed Social Security benefits before your 65th birthday – you will receive a welcome kit in the mail, and coverage begins the first day of the month in which you turn 65. Typically no premiums are charged for Medicare Part A (hospitalization); if you are still working and receive your primary insurance through work, you may be able to turn down Part B at that point without incurring the late enrollment penalties, but you need to know the rules to avoid pitfalls.
Everyone else needs to watch the deadlines. Unless you are exempted, Medicare requires that you sign up for Part B during a window beginning three months before your 65th birthday and ending three months after.
The penalties are calculated against the prevailing standard monthly Part B premium, which is $134 this year. That is true even if you are protected by the hold-harmless provision, which prevents premium hikes from exceeding Social Security cost-of-living adjustments (beneficiaries protected by this provision are paying an average premium of $109 monthly this year for Part B). The standard premium also is used to calculate penalties for seniors who pay Medicare’s high-income premium surcharges.
This year, for example, an enrollee paying a 20 percent late penalty who is held harmless would pay $135 monthly for Part B, rather than the $109 average – $321 for the year. And the differential continues for life, calculated against a standard premium that will keep escalating with rising health care inflation.
SOCIAL SECURITY DECOUPLED
Late enrollment happens most often due to misunderstandings about Medicare’s complex rules. Some of that stems from the decoupling of Social Security’s full retirement age and Medicare’s enrollment deadline, said Joe Baker, president of the Medicare Rights Center (MRC), a nonprofit advocacy and consumer organization that has played a key role in pushing for the BENES Act.
“We’ve had the early Social Security eligibility (62) for a long time, but it used to be that the traditional retirement age for both Social Security and Medicare was 65,” he said. “Now we have more people delaying Social Security, perhaps as late as 70 – and more people are working longer.”
That trend has led to some of the employment-based misunderstandings.
Some people who are still working at age 65 can delay starting Medicare without problems. If you work for a firm with more than 20 employees, the employer’s coverage is primary. You can delay filing for Part B – although you may want to enroll in Part A anyway since it typically does not require premium payments. You can enroll later on without penalty for up to eight months following retirement.
If you work for a firm with 20 employees or fewer, Medicare is primary and you should enroll in Part B at 65 to avoid being underinsured.
The Affordable Care Act (ACA) created another potential complication. The law threw a lifeline to older people near Medicare age who did not have other affordable, solid coverage. But some assume they can keep their ACA exchange coverage when they turn 65. By law, however, an exchange insurance plan can refuse to cover your healthcare costs if you are eligible for Medicare.
And if you sign up for Medicare late due to reliance on an exchange plan, late enrollment penalties will be applied. If you find yourself in that situation, it is possible to apply for relief.
“We are finding some people staying on their marketplace plans,” said Baker. “It doesn’t get caught until they try to file a claim with their insurer, who then notices their age and informs them that they should be on Medicare.”
The BENES Act would require the government to send a one- or two-page letter after you turn 64 explaining the enrollment rules. The bill also has a modernization provision that eliminates coverage gaps during enrollment periods. This provision aims to guarantee that Medicare enrollees do not experience a break in coverage by tightening up effective coverage dates.
More workers will get caught needlessly in the late enrollment trap as the baby boomer age wave accelerates – and as more people work longer. Giving them a clear advance warning about the risks – and how to avoid needless extra cost – is not too much to ask.