Most people do not know they can incur penalties by not signing up for Medicare when they become eligible. It is very important for you to pay attention to the deadlines related to signing up for Medicare and adhere to them. You are eligible for Medicare when you turn 65. It is advisable to sign up three months before your 65th birthday. However, people younger than age 65 with certain disabilities or permanent kidney failure can also qualify for Medicare. It is important to note that even though the “full retirement age” for Social Security retirement benefits is now 66, you become eligible for Medicare at age 65.
Medicare gives you essential basic health insurance but does not cover everything. For example, Medicare does not provide long-term care coverage. This article will briefly discuss supplemental insurance (generally called Medigap insurance that can be purchased from private carriers).
There are three basic enrollment periods:
1. When You Turn 65
During this initial enrollment period you have a sevenmonth enrollment window, which includes the three months prior to the month you turn 65, the month you turn 65 and the three months after you turn 65.
2. Annual Enrollment Period
Every year the open enrollment period is October 15 to December 7. Anyone eligible for Medicare can enroll, switch or drop their coverage during this time. The coverage begins January 1.
3. Special Enrollment – Year Round
Some people will qualify for enrollment at any time during the year because they have a triggering event such as loss of insurance coverage, gaining or losing Medicaid eligibility, moving into or out of a plan service area, termination of the current plan or qualifying for a Special Needs Plan.
To Apply for Medicare benefits you can go online to the Social Security website, www.socialsecurity.gov, or go to one of the Social Security offices.
Medicare has four basic parts:
1. Part A
This part provides basic hospitalization coverage for inpatient care in a hospital or skilled nursing facility (following a hospital stay), some home health care and hospice care. If you have 40 or more quarters of Medicare- covered employment, you do not have an additional premium for your Part A coverage. In 2015, your deductible for Part A coverage is $1,260 per benefit period. This deductible amount is adjusted annually.
2. Part B
Medical care that is not inpatient is usually covered by Part B. This includes basic insurance for services from physicians and other health care providers, outpatient care, home health care, durable medical equipment and some preventive services. In 2015 the Part B monthly premium is $104.90 (higher premiums may apply based on income) with an annual deductible of $147.00. The individual will pay 20% of the Medicare-approved amount for services after the deductible is met. Beneficiaries with higher incomes (individuals with taxable incomes of more than $85,000 and couples with taxable incomes of more than $170,000) will pay more than $104.90 per month because they must pay an income-related surcharge. These income thresholds are expected to remain the same through 2019.
AARP gives this caution to seniors at http://www.aarp.org/work/social-security/ info-05-2012/signing-up-for-socialsecurity- medicare.html
“Medicare has a seven-month period in which you can sign up for Part B, which covers doctor bills and other outpatient medical costs. This period begins three months before the month of your 65th birthday, includes the month you turn 65 and ends three months after your birthday month. It’s a good idea to apply at the start of that period. If you miss the deadline, your monthly premium will probably be 10 percent higher — for the rest of your life — for each 12-month period you were eligible but did not enroll.
However, there’s an important exception to this rule. If when you turn 65 you’re still working and have health insurance from your employer or through your spouse’s employer, Medicare may permit you to postpone, without penalty, the date when you have to enroll. Generally speaking, that exception period ends when you stop working and no longer have job-based health care coverage.”
3. Part C
This is an option that is not available in every region. If it is available and you have Medicare Parts A and B, you can choose to receive all of their health care services through one of these provider organizations under Part C. These are also called Medicare Advantage plans and they are Medicare-approved plans offered by private health insurance carriers for individuals who are enrolled in Original Medicare, Part A and Part B. If you sign up for a Medicare Advantage plan, you are still in the Medicare program and must continue paying your Part B premium. Generally these Medicare Advantage plans offer additional benefits, such as vision, dental, and hearing, and many include prescription drug coverage. These plans may have networks, which provide you access to certain doctors and hospitals in their network.
If you enroll in a Medicare Advantage plan, you cannot have a Medigap policy because the Medicare Advantage plans generally cover many of the same benefits that a Medigap policy would cover, such as extra days in the hospital after you have used the number of days that Medicare covers.
4. Part D
This provides basic prescription drug coverage. You can go to Medicare.gov to get more details on the coverage provided for prescriptions: http://www.medicare.gov/part-d/index.html.
“Most Medicare Prescription Drug Plans charge a monthly fee that varies by plan. You pay this in addition to the Medicare Part B premium. If you belong to a Medicare Advantage Plan (Part C) or a Medicare Cost Plan that includes Medicare prescription drug coverage, the monthly premium you pay to your plan may include an amount for drug coverage.”
Part D may have a deductible, which can range from zero to more than $320 in 2015 ($360 in 2016). After you meet your deductible some plans have a copay (such as $10 per prescription) or coinsurance (such as 25% of the prescription cost). In most cases, the copay or coinsurance is based on a 30-day supply of the prescription.
You can have your monthly premium for Medicare Part D deducted from your Social Security retirement check.
There is a late enrollment penalty for Part D. As explained on Medicare.gov .
“The late enrollment penalty is an amount added to your Medicare Part D monthly premium. You may owe a late enrollment penalty if you go without Part D or creditable prescription drug coverage for any continuous period of 63 days or more after your Initial Enrollment Period is over. The cost of the late enrollment penalty depends on how long you went without Part D or creditable prescription drug coverage. Medicare calculates the penalty by multiplying 1% of the "national base beneficiary premium" ($33.13 in 2015) times the number of full, uncovered months you didn't have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.”
Who is entitled to Medicare?
If you or your spouse are receiving Social Security benefits, railroad retirement benefits or are eligible to receive them, you are eligible for Medicare. Some other categories of people are also eligible, but the primary focus of this article is targeting those entering their retirement period at age 65 or older.
Anyone who is eligible for Medicare Part A can enroll in Part B by paying the monthly premium. If you have a higher income, you will pay a higher premium.
When do you sign up for Medicare?
People who become newly entitled to Medicare should enroll during their initial enrollment period or during the annual coordinated election period from October 15 – December 7 each year.
People who are already receiving their Social Security retirement benefits will be contacted by SSA a few months prior to their becoming eligible for Medicare. Generally, if you live in the US, the Northern Mariana Islands, Guam, American Samoa or the Virgin Islands, you will be enrolled in Medicare Parts A and B automatically. However, because you must pay a premium for Part B coverage you do have the option of turning it down.
It is very important for you to understand that even if you are not already receiving your SSA retirement benefits, you should contact SSA about three months before your 65th birthday to sign up for Medicare. You are eligible to sign up for Medicare even if you do not plan to retire at age 65 or sign up to receive your SSA retirement benefits at same time. This is a common misconception for people who believe they must be receiving their SSA retirement benefits to be eligible for Medicare.
The next key element of signing up for Medicare is to understand the enrollment period for Medicare Part B. When you first become eligible for Medicare Part A, you have a seven-month initial enrollment period in which to sign up for medical insurance (Medicare Part B). A delay on your part will cause a delay in coverage and result in higher premiums. If you are eligible at age 65, your initial enrollment period begins three months before your 65th birthday, including the month you turn age 65 and ends three months after that birthday.
You can apply for Medicare online through Social Security Administration if you are: 1) at least 64 years and 9 months old, 2) want to sign up for Medicare but do not currently have ANY Medicare coverage, 3) do not want to start receiving Social Security benefits at this time, and 4) are not currently receiving Social Security retirement, disability or survivors benefits.
Penalty for waiting to Enroll in Medicare Part B
Your monthly premium for Medicare Part B will increase by 10 percent for each 12-month period you were eligible for, but did not enroll in, Medicare Part B. Note there are specific windows of time in which you can enroll. This is not open for enrollment year round.
You can enroll in Medicare Part B during a “general enrollment period” which is during January 1 through March 31 of each year. Your coverage will begin on July 1 of the year you enroll.
There is a special enrollment period for people who are in an employer group health plan. If you are 65 or older and are covered under a group health plan, either from your own or your spouse’s current employment, you have a “special enrollment period” in which to sign up for Medicare Part B. This entitles you to delay enrolling in Medicare Part B without having to wait for a general enrollment period and paying the 10 percent premium surcharge for late enrollment.
These rules allow you to enroll in Medicare Part B any time while you are still covered by a group health plan based on current employment. Further, it allows you to enroll during the eight-month period beginning the month after either the employment ends or the group health coverage ends, whichever happens first.
You must be careful about this exception because the special enrollment period does not apply if employment or employer-provided group health plan coverage ends during your initial enrollment period.
Medicare and Requirements of the Affordable Care Act
Medicare isn’t part of the Health Insurance Marketplace established by the Affordable Care Act (ACA), so you don't have to replace your Medicare coverage with Marketplace coverage.
Because of ACA, Medicare now covers certain preventive services such as mammograms, colonoscopies, and counseling, and screenings for prostate cancer, depression, obesity, diabetes and heart disease. You can also get an annual physical check-up at no charge. This is all included without charging you for the Part B coinsurance or deductible.
The preventive services Medicare Part B will fully cover include:
• An annual wellness exam to develop or update a personalized prevention plan
• Pap test and pelvic exams
• Pneumococcal and flu vaccines
• Hepatitis B vaccines for high-risk individuals
• HIV screening test
• Colorectal cancer screening test
• Diabetes screening test
• Cardiovascular screening test
• Bone density measurements for women at risk for osteoporosis
• Self-management training for individuals with diabetes
• Medical nutrition therapy for individuals with diabetes or kidney disease • Smoking cessation counseling if you haven't yet been diagnosed with a tobacco-related illness
• Depression screening (test is fully covered; you generally have to pay 20 percent for doctor's visit)
• Alcohol misuse screening and counseling
• Obesity screening and counseling
What is a Medigap policy?
A Medigap policy is a supplemental health insurance policy to help the individual pay for some of the coinsurance contributions and deductibles for Medicare and to cover some additional services excluded from Medicare. Medigap policy is purchased from private insurance companies. They should be clearly identified as Medicare Supplemental Insurance. It is also important to note that a Medigap policy only covers one person. Each person should determine if they wish or need to have a policy. This can be to your benefit because the needs of each spouse may be different and this will allow each to have a Medigap policy best suited to their medical needs.
You must be enrolled in Medicare Part A and B to be eligible to purchase a Medigap policy. There are currently ten standard policies approved for the market which are labeled as Plans A-D, Plans F and G, and Plans K-N (there are some variations of this in certain states and not all plans are available in all states). All policies offer the same basic benefits but some offer additional benefits, so it is important to review what the policy will cover relative to your needs and expectations.
It is important to note that Medigap policies do not include items such as long-term care, private-duty nursing care, vision, eyeglasses, dental care, or hearing aids. If you anticipate a long-term stay in a nursing home, it is important to evaluate that independent of Medicare and Medigap options. One item that may be important to you is to have a policy which will give you coverage when you travel outside of the US which Medicare does not cover.
Most seniors have a Plan F or Plan G. These plans only pay for medical services which are covered by Medicare and pay the amount for those medical services not paid by Medicare. Many think of it as a policy which pays your co-pay and deductible. These plans do not cover additional procedures which are excluded by Medicare.
A primary difference between the Plan F & G is the enrollment criteria. Everyone is eligible to obtain either of these initially. However, the Plan G has more restrictions on those applying for coverage after the initial year. This generally translates into the premium for G being lower. The premium difference in the first year may be noteworthy but may be more dramatic in subsequent years.
You can go to the Medicare.gov to see a comparison of the basic approved plans. http://www.medicare.gov/supplement-other-insurance/compare-medigap/compare-medigap.html
Another website that is very beneficial for comparing the premiums as well as identifying which insurance companies offer plans in your area is http://www.medsuprates.com/
I went to this web page to obtain an estimate for a 65 year old male in Abilene, TX. I found a range for Plan G premiums from a low of $114 to a high of $180 per month. If I opted for a Plan F, the range of premiums was from $140 to $212 per month. However, the amount of the premium should not be the only factor to consider. This is a good time to utilize a licensed insurance professional to assist you or your client in navigating the options.
The same is true for a supplemental prescription drug plan, most frequently called prescription drug plan (PDP). The companies who offer these plans frequently have a variety of levels of what the PDP will pay which also results in a range for the premiums. I did a sample search for a PDP and found a premium range for a resident of Texas would be from $26 per month to $152 per month. If a client is considering this coverage, they need to take into consideration what prescriptions they take and if this plan covers their prescriptions. The plans also have options regarding whether they have restrictions as to the quantity that can be obtained at one time. For example, some have restrictions to a 30 day supply while others allow larger quantities. There is also a variety of copay or coinsurance amounts.
One important thing to understand about Medicare is that the dates and ages of eligibility for Medicare are different than those for Social Security retirement. My research for this article has given me a much greater understanding of this subject and I have concluded that this is another topic we as CPAs need to understand and be ready to help our clients navigate when it is time to make these important financial decisions.