Medicare is designed to help you manage your healthcare costs in retirement. Most individuals can get a significant portion of their healthcare costs covered by Medicare. However, the process of applying to Medicare to get the benefits you need can be a bit complicated and mistakes can wind up being quite costly. It is important that you understand what Medicare has to offer so you can minimize out-of-pocket costs and keep your premiums low. Here are the top 3 common Medicare mistakes to avoid.
1. Expecting Original Medicare to Cover All Your Health Insurance Expenses
One common mistake that I see people making is that they assume Original Medicare will cover all of their health insurance expenses. The reality is that Original Medicare (Part A and Part B) does not cover everything. Some of the health insurance expenses that Original Medicare does NOT cover include:
- Most dental care
- Dentures
- Eye exams needed for prescribing glasses
- Routine foot care
- Hearing aids
- Exams to fit hearing aids
- Acupuncture
- Cosmetic surgery
- Long-term care
It’s also important to note that Original Medicare does not cover the cost of prescription drugs. In order to get prescription coverage you will need to purchase an additional plan known as Medicare Part D. Another option is to opt for a Medicare Advantage plan that includes prescription coverage. You can enroll in Part D or change your Medicare Advantage Plan during the open enrollment period (October 15 – December 7). Enrolling outside of this window can result in your application getting rejected or higher rates.
Other major health insurance expenses not covered by Original Medicare are deductibles and copays. Original Medicare consists of Part A which covers hospital stays and Part B which covers outpatient care and doctors’ visits. However, before coverage kicks in for either of these you’ll have out-of-pocket costs (co-pays) and this coverage is limited over the course of your lifetime. You’ll also have to pay part of the costs for each day in the hospital, as well as a portion of the costs for doctors’ visits, testing, labs, etc. Medicare Advantage and Medigap Policies can help you cover these out-of-pocket expenses.
2. Missing Your Initial Enrollment Period
Missing your initial enrollment period can be a costly mistake. You have seven-months to enroll during your initial enrollment period. If you miss this enrollment period you will still be able to sign up during the general enrollment period between January 01 and March 31. When you sign up during the general enrollment period, your coverage will not start until July 01, meaning you could find yourself without coverage for a few months. There’s also the opportunity to enroll in a Medicare Advantage plan or a Part D prescription plan between April 01 and June 30, depending on your eligibility. There are circumstances where you can delay enrollment in Medicare Part A and Part B. For instance, if your employer has 20+ employees or you have eligible coverage through a spouse’s employer.
While having a lapse in coverage is an issue, an even bigger issue that comes when you miss your initial enrollment period is the possible late penalties you’ll have to pay. Late penalties are applied to Part A and Part B separately. There are also late penalties for Medicare Part D.
- Late penalties for Part A. The penalty for late enrollment for Part A is 10%. This is charged for twice the number of years that enrollment was delayed. This remains the same regardless of how long you delay enrollment.
- Late penalties for Part B. The late penalties for Part B are an additional 10% for each 12-month period enrollment is delayed. Depending on how long you delay enrollment, this late penalty could be substantial and in most cases is paid every month as long as you have Part B.
- Late penalties for Part D. If you miss the enrollment period for Part D, the late penalty is 1% of the average Part D premium for each month enrollment is delayed. This penalty will be applied as long as you have Part D coverage. This late penalty can be avoided if you have creditable drug coverage.
3. Not Reviewing Your Annual Coverage
Medicare plans are not a once and done type of thing. In fact, Medicare plans often change every year. Once you are enrolled in Medicare you will receive a document called the “Annual notice of change” that explains the changes in your policy. This gives you the opportunity to make changes. However, the reality is that many people overlook this crucial document.
The Annual Notice of Change tells you exactly what has changed in your Medicare plan. This is also a good opportunity to make sure your coverage meets your actual needs (i.e. does your Part D plan still cover your prescriptions, etc.). Failure to look over this notice can result in increased premiums and higher out-of-pocket costs, which could take you by surprise.
You want to make sure you review your annual coverage right away when you receive your Annual Notice of Change. You can make changes during the annual enrollment period between October 15 and December 7. The changes you make during this period will go into effect on January 01 of the following year.
Important things to watch out for when reviewing your Annual Notice of Change include:
- Your plan’s prescription drug formulary. Double-check to make sure the drugs you take are still covered or still in the same tier so you can determine whether you can still afford your existing plan.
- Your Medicare Advantage plan’s network. Networks may change from one year to the next. You want to make sure your physician and preferred hospital are still covered.
Note: the annual enrollment period does not apply to any Medigap plans. Medigap plans have an open enrollment period (6-months after you turn 65). Beyond this enrollment period, there is no guarantee issue right.
Quick Recap
These common Medicare mistakes can end up costing you more than you think and often result in unexpected health care expenses. The good news is that avoiding them is relatively easy as long as you have a plan in place. If you’d like to learn more, download my free ebook on the 10 Steps To Getting What You Deserve: A Guide To Your Social Security And Medicare Decisions. If you have any questions, you can email me at scott@dev-forthrightfinances.pantheonsite.io.