I have been helping people with their retirement and Medicare decisions since 1984. In that time, I have spoken with countless seniors of all ages, both new to medicare and those who have had Medicare in some form or another for years. I have witnessed or been privy to just about every Medicare horror story you can imagine. All of the stories are heartbreaking, and many were totally preventable.
In this article I am going to discuss the most common mistakes I have seen. The costly Medicare mistakes that could have been avoided. In most cases the mistakes were made from ignorance. Medicare is much more complicated than it has to be. There are rules and deadlines that make no common sense, and the government material does a poor job of communicating all the information that is needed for the consumer to make an informed decision.
The information below is all very important. Medicare mistakes are way too common. Rather than point out mistakes, my goal is to provide you with the information you need to avoid Medicare mistakes. This article is like a brain dump of all the mistakes and misinformation I have seen over many years. We are going to start with Medicare enrollment and continue through with information on enrollment periods, Medicare Advantage Plans, Medicare supplement plans and Part D prescription drug plans. By the end of the article you will have the information you need to avoid the common mistakes that plague many Medicare beneficiaries.
Medicare Enrollment Is Not Automatic
The first Medicare mistake is the assumption that Medicare enrollment is automatic. It is not. Most people are not automatically enrolled in Medicare. This is a big pet peeve of mine because many insurance agents have videos and blog telling the public that they automatically get Medicare Part A or that Medicare enrollment is automatic, just wait for your card in the mail.
The rule on Medicare enrollment is pretty straight forward. If a person is collecting Social Security benefits for at least four months prior to their Initial enrollment period (more on that in a moment), then they are automatically enrolled in Medicare. If that is the case, they should receive their Medicare card at least sixty-days prior to their Medicare start date. Everyone else must enroll in Medicare via the Social Security.
Full Retirement age for Social Security is not until age 67 for many, but people can begin receiving reduced benefits as early as 62. Receiving benefits early means accepting lower annual and lifetime Social Security benefits. But it’s an individual choice. The assumption from is that if they are taking their Social Security income, they are not employed full time and therefore do not have employer sponsored health insurance. Thus, they must need Medicare to help pay for any potential healthcare expenses.
How to Opt-Out of Part B
In most cases, the assumption by Medicare that automatically enrolls a person in the federal government sponsored healthcare is correct. However, sometimes a spouse is accepting Social Security Income prior to full retirement age and is also participating in health care coverage through a health insurance plan offered by their spouses employer. If the employer group health insurance is good health coverage and a low price, Medicare is not needed. It may be in the beneficiaries best interest to opt-out the Medicare health benefits.
Medicare does allow the consumer to opt-out of Medicare Part B (outpatient coverage) and make the process very simple. A person can either call Medicare at their 800 number to opt-out of Medicare Part B, or return a post card that was included in their Welcome Packet requesting the opt-out. When you opt-out of medicare Part B coverage you will not be obligated to pay the monthly premium. As long as you have creditable employer coverage (see below) you will not be liable for late enrollment penalty.
You might note that I said nothing of Medicare Part A hospital insurance. The reason for this is that Medicare Part A, for most people, is already paid for. It’s premium free if you or your spouse worked for at least ten-years and paid Medicare payroll taxes during that time, then your Medicare Part A inpatient hospital insurance is paid for. You get to keep Part A because it works in addition to any other group insurance you might have. It’s premium free addition coverage that will pay inpatient health care expenses.
If you do not sign up for Medicare Part A, don’t worry. If you already paid for Part A through payroll taxes there will be no late enrollment penalty. It’s already paid for. It doesn’t matter to the government if you use it or not.
Missing or Misunderstanding Enrollment Periods
Other very common mistakes with Medicare all revolve around missing or mis-understanding enrollment periods. One might think that once past their initial enrollment they are home free. But that is not the case. Medicare consists of enrollment periods for virtually every occasion, many seemingly without much common sense.
In this section we will look at the various enrollment periods within the federal Medicare program health plan that you should be aware of as you start your Medicare. While some of these enrollment periods will require simple memorization, others may best be recalled by understanding the rule of thumb that if you lose your health insurance through no fault of your own, Medicare will provide a special enrollment window so you will not be without health insurance.
Initial Enrollment Period
Your initial enrollment period for those aging into Medicare at age 65 is a seven month window consisting of the three months before your birthday month, your birthday month, plus the three months after your birthday month. The soonest your medicare can start is the first day of the month you turn 65. It is during this period that you can sign up for medicare.
There is an important exception to the above rule. If your birthday falls on the first day of the month, your Medicare start date and the entire Initial Enrollment Period is moved forward by one full month.
For example; If your birthday is August 15 then your Medicare start date would by August 01. Your Initial enrollment period would start May 01 and end on November 30. You can sign up for Medicare anytime during this enrollment window. However, if your birthday is August 01, the entire period is shifted forward by one month. Your Medicare start date would be July 01. You could sign up for Medicare starting April 01, and must have completed signing up for Medicare by October 30th.
During the initial enrollment period you need to enroll in Medicare Part A and Medicare Part B. The easiest way to do so is online at the Social Security Administration website: https://www.ssa.gov/benefits/medicare/ When you enroll in Medicare Part B coverage, the Social Security administration will automatically enroll you in Medicare Part A.
Most people will choose their Medicare plans during this time period or simply stay with Original Medicare.
If you find the above confusing, I have created an enrollment calculator to help you determine your initial enrollment period as well as your enrollment period for Medicare supplement insurance. If you do not enroll in Medicare Part B during this enrollment period and do not have creditable health plans you will be subject to a lifetime late enrollment penalty. You may also wish to find the best Medicare supplement plan to help with your medical bills.
Lastly, if you miss your Initial enrollment you will need to wait until the next General Enrollment period to enroll in Original Medicare. The General Enrollment Period is the first quarter of the year, from January 01 through March 31.
Medicare Advantage Plan & Part D Enrollment Period
Your initial enrollment period for Medicare Part B outpatient services is also the time period for signing up for Medicare Part D prescription drug coverage or a Medicare Advantage plan. Many Medicare Advantage Plans have embedded Part D prescription drug coverage. These are referred to as Medicare Advantage Prescription Drug Plans (MAPD).
If you do not enroll in a Part D plan, either via Medicare Advantage plans or a Stand Alone Plan during this enrollment period you may be subject to a lifetime late enrollment penalty.
Medicare Mistake – MAPD / PD
One of the more harmful medicare mistakes to avoid is understanding that you cannot have a Stand-Alone Medicare Part D plan and a Medicare Advantage Plan at the same time. If you have a Medicare Advantage plan, with or without Part D coverage, Medicare will kick you out of that plan when you enroll in a Medicare Part D plan and visa versa.
There are a few exceptions, but if you are doing all of this alone without the help of an Independent Medicare Insurance broker you must be confident in your knowledge. A Medicare mistake can be costly. Some can be permanent.
Medicare Part A & HSA
Health Savings Accounts (HSA) are a great tool that is popular among those who have had high deductible employer sponsored health coverage. The HSA allows the individual to pay for much of their health care from the tax advantaged account.
Medicare does not have HSA plans and, HSA contributions are not allowed once a person’s Medicare coverage has started. This seems simple enough. There is a tax penalty for contribution to an HSA plan anytime after the start date of your Medicare.
Unfortunately, very poorly worded guidance from Medicare has resulted in an abundance of confusion on this subject. Here is the issue. Medicare Part A will start on the earliest of the date of your Initial Enrollment or six months retroactive to the date of application. Part A can have a different start date than Part B.
Using the above example of an August 15 birthday, you Medicare Part A can start no sooner that August 01. However, if you delayed signing up for Medicare, your Part A will have a retroactive star date that is up to six months prior to the date you applied.
If you are contributing to an HSA plan, this can be important. So Medicare states that you should stop contributing to an HSA six months before you start Medicare. However, they fail to clarify that this is only of your Medicare is starting six months or more after your Initial Enrollment Period. People approaching age 65 do not need to stop their HSA contributions six months before their Initial enrollment date because Part A cannot start prior to their Initial enrollment.
An HSA plan is not the same as a Medicare savings program. Medicare savings programs are a separate subject entirely.
Medigap Open Enrollment Period
Medicare supplement insurance (aka Medigap Plans) have their own enrollment period that has nothing to do your Initial enrollment Period. The Medigap policy open or initial enrollment period is six months from the start dat of Medicare Part B coverage.
During the Medigap open enrollment period a person can apply for any Medicare supplement plan that is available to them and be accepted without medical underwriting. No one can be denied coverage. Medical underwriting is simply a look at a person’s medical history.
After the first six-months on Medicare Part B an insurance company can deny coverage or charge more depending on your health history. There are many states with laws that allow for exceptions. Please look up your state laws regarding Medicare supplement insurance.
What is important here and can lead to a serious mistake is how an insurance company defines “six-months”. Some insurance companies define six-months as six calendar months. Most insurance companies define it as 180-calendar days. There is a difference. If you procrastinate thinking you are clear for six calendar months, you may find your options very limited by the last few days of that period. Don’t procrastinate.
Special Enrollment Period
There are many Special Enrollment Periods, including Guarantee issue periods that encompass almost every situation where a person’s health insurance or prescription drug coverage is lost due to no fault of the consumer.
Pages 21 and 22 of the Medigap Buyers Guide list out the Guarantee Issue rights of the Medicare consumer. A Guarantee Issue right allows the consumer to get select Medicare plans without medical underwriting. Guarantee issue with a Medigap policy means the insurance company cannot decline coverage or charge more due to your health history. With Medicare Advantage and prescription drug plans you can get your Medicare plan immediately and do not have to wait for the annual enrollment open enrollment. Please note that the guarantee issue regarding a Medigap policy limits which policy you have access to. The bottom line, you are guaranteed coverage and do not need to go without health insurance when you have lost coverage due to no fault of your own.
The most commonly mis-understood Special Enrollment Period has to do with delaying enrolling in Medicare Part B due to choosing to remain with employer private insurance. A person can delay enrolling in Medicare Part B as long as they have a creditable employer health plan. They can then choose to start their Part B any month they wish. Simply enroll in Part B to replace the employer coverage. Medicare is considered a life event. That means the employer must cancel their plan and cannot force the employee to wait until a policy anniversary.
Other Enrollment Periods
There are many other Special Enrollment periods for a Medicare plan that include moving out of the service area for your Medicare Advantage plan or Part D prescription drug plan.
There are also annual enrollment periods for Medicare Part D and Advantage Plans. A very common mistake is when people do not re-shop these plans every year. It’s important to re-shop these plans because the benefits change every calendar year for both Part D and Advantage plans. If you fail to re-shop your plan you can end up in a plan no longer suited to your needs.
This is not the case with a Medigap plan. Medigap policies are guaranteed renewable. That means the benefits never change. They are national coverage, good anywhere in the U.S.A. or U.S. territory and accepted by any medical facility or provider that accepts Original Medicare. The only thing that can change with a Medigap Plan is the price. The monthly premium can increase annually or whenever the insurance company requests a price increase to be approved by the state.
Understanding Creditable Coverage
Another mistake we see on a regular basis involves mis-understanding Creditable Coverage. Creditable coverage is primary coverage for healthcare and drug coverage that Medicare considers to be roughly equivalent to Medicare. Job based insurance is the most common creditable coverage for Medicare health insurance and drug coverage. But not all job based insurance is creditable coverage.
For job based or employer coverage to be creditable you must work for a company with at least 20-employees if you are 65 or older. In addition, you must be actively employed. When you are not actively employed it is called retiree coverage.
We have seen cases where a large employer pays for health benefits even after a person has retired. That is not creditable health insurance because the person is not “actively” employed. This can result in late enrollment penalties when your current coverage is not creditable and you missed the Medicare enrollment window.
Losing employer group health coverage involuntarily can result in a Special Enrollment Period where you can get a Medicare plan.
Another Medicare mistake to avoid is assuming that COBRA health care is creditable. After all, it is the same healthcare plan as you had with your previous employer, just more expensive to you because you are paying 100% of the monthly premium.
There may be a time when COBRA is considered a creditable alternative to Medicare. But as of the writing of this article it is not. Mistaking COBRA as a creditable alternative to Original Medicare can result in late enrollment penalties. In addition, there is no Special Enrollment period to switch from Cobra to Original Medicare as there would be if you had employer coverage and were actively employed. If you missed your Initial Enrollment, you would need to wait for the annual Open Enrollment period to sign up for Medicare coverage.
Medigap vs MAPD Advantages & Disadvantages
If there is one most common reason for consumer mistakes with Medicare it is through not fully understanding the differences between Medicare supplement insurance and Medicare Advantage plans. Of all the Medicare mistakes to avoid, not being fully informed of the differences between these two options leads to irreversible mistakes that impact the quality of your healthcare. While they are both insurance coverage provided by private companies, they are very different products with very different levels of benefits.
Misunderstanding Medicare Advantage Plans
Medicare Advantage Plans are not a supplement. They do not supplement your Original Medicare. They replace it. A Medicare Advantage plan is, by law, the actuarial equivalent of Original Medicare without a supplement.
Even though the Advantage Plan replaces your original Medicare, you must still pay your Part B monthly premiums and any IRMAA charges for those with higher incomes. Many Medicare Advantage plans have no monthly premiums and come with coverage for prescription drugs. The Advantage plan is supposed to pay everything the Medicare pays, but two reports from the Inspector General for Health and Human Services decry the private companies managing these plans for regular denying and services or delaying care.
One of the benefits of a Medicare Advantage plan is that it does place a maximum limit on your annual out of pocket costs. Original Medicare without a supplement has no maximum on your out of pocket costs.
The PPO Myth
Both consumers and many agents also misunderstand one of the benefits of Medicare PPO Plans. Over 90% of Medicare Advantage plans are either HMOs (Health Maintenance Organizations) or PPOs (Preferred Provider Organizations). Many agents will tell consumers that with the PPO you can see any doctor that accepts Original Medicare. They tout this as a benefit making the plans like a Medicare supplement, but it is not entirely factual.
Medicare PPOs are designed for the consumer to use in network providers. In network providers have a contract with the insurance company and provide services at a lower cost because of the business generated by the insurance company. This keeps medical costs down for both the insurance company and the consumer.
With a Medicare PPO the consumer can ask an out-of-network medical provider if they will accept their insurance. They can ask. But the medical provider can and usually does say “No”.
Unfortunately, the consumer with a PPO is not going to understand this until it is too late to do anything about it. I once new of a cancer patient who was unable to see they specialists they would have preferred to use for their care. They thought all they had to do was ask the specialist to accept their insurance and were not informed that the medical provider could decline their insurance and their business.
No Stand-Alone Part D Allowed
As people shop for a Medicare Advantage plan, some will notice plans that do not include coverage for prescription drugs. These plans are designed for those in the military who have prescription drug coverage through the VA.
Unfortunately, some people enroll in a Medicare Advantage Plan and then shop the stand alone Part D plans for prescription coverage. What they don’t know is as soon as they apply for the Part D plan, Medicare kicks them out of their Advantage plan.
The consumer is not allowed to have a stand alone Part D plan and a Medicare Advantage HMO or PPO. Whichever is applied for second, cancels the plan they applied for first.
Employer Sponsored Group MAPD
One of the fastest growing areas of Medicare are employer sponsored Medicare Advantage plans. We are often asked by new retirees to compare their employer sponsored healthcare plan to Medicare supplement insurance. In every case, the employee had no idea that the coverage offered by their former employer is a group Medicare Advantage plans.
These may be group plans, but they have the weaknesses and pitfalls of a stand-alone Advantage plans.
Don’t Mess With TriCare for Life
This is one of my pet peeves. TriCare for Life is a benefit offered to retired career military. It’s one of the best, if not the best Medicare coverages available. Unfortunately many insurance agents try to sell Medicare Advantage plans to people with TriCare and do not understand the harm the cause. I published a video on this subject that goes into detail and is very important if you have Tricare. How Medicare Works With Tricare for Life
Who Buys Medicare Advantage Plans?
Almost half of consumers new to Medicare choose a Medicare Advantage plan. The majority of this group is the growing employer group Advantage plan market who were not given the option of a Medicare supplement and did not research their options.
But in the individual Medicare Advantage Plan market there is a completely different demographic. According to a 2022 survey performed by eHealth, of these consumers, 73% who chose a Medicare Advantage Plan were low income older adults who could not afford even $50 for a Medicare supplement. They chose a Medicare Advantage plan because it was premium free and placed a maximum limit on their out of pocket costs.
Medicare Supplement (aka Medigap) Plans
Medicare supplement plans are used to increase your benefits over and above what is provided by Original Medicare. Medicare supplement insurance pays some or all of the copays, coinsurance and deductibles left as your responsibility with Original Medicare.
Unlike the Advantage Plan, your Original Medicare is not replaced. In fact, it remains your primary insurance coverage. This means you keep the benefits of Original Medicare in that you can see any medical provider or medical facility in the U.S. as long as they accept Original Medicare. It also means that you can choose your primary care physician without worrying about a network, and see any specialist you wish as long as they accept Original Medicare.
With a Medigap policy you can limit your maximum annual out of pocket costs to just a few hundred dollars. You can review the benefits provided by the Medicare supplement plans available and also compare maximum out of pocket limits for more information.
Issue age vs Attained Age vs Community Rated
Medicare supplement plans are priced in one of three ways. They are either Issue Age, Community rated or Attained Age. See page 18 of the Medigap Buyers Guide for details. Two common misconceptions with Medicare supplement plans is that 1. one pricing structure offers a lower lifetime cost than another and 2. that all pricing structures are available in all states. Neither is true.
Some states have Medicare rules that dictate that all Medigap policies offered in that state be priced as Issue Age, some as Community rated. If there is no specific rule then Attained Age pricing will likely be prevalent. No matter which pricing structure is offered, the insurance company can and will increase the price of the policy over your lifetime. All the insurance company has to do is justify and request a price increase from the state commissioners office.
I advise to be wary of any company offering a Community Rated or Issue Age pricing structure in a state that does not mandate all plans be priced that way. It is very likely they are trying to make you believe you are getting something you are not. In fact, one such company will also say their policy is offered at a discount, when in fact the term discount is used so that the annual price increases are not called price increases. They are a “reversal of a discount”. But to your pocket book, it’s a price increase.
Medigap Pricing Tables
A last thought on misconceptions about Medigap Plans. Many people look at the pricing tables to see what an insurance company might charge when they are older. They assume that the price shown is what they would pay when they are say 75 or 80. That is not the case. Those are the prices a NEW applicant will pay if they are that age today. Because of the mechanics of how insurance companies manage price increases, those table are not at all related to how much you will pay when you are that age.
Prescription Drug Coverage
Last , but not least in the list of potential Medicare mistakes is the “I am healthy. I don’t need Part D.” mistake.
I have seen this happen multiple times where an individual will put off enrolling in Part D plan. Then in the middle of the year they come down with cancer or some other major illness. They can’t just get a Part D plan at anytime. They can only get a plan as of the next January 01. In one case, a gentleman had a blood cancer. The drug that can save or prolong his life was $12,000 a month. Without Part D that is what he paid while he waited for his Part D plan to start 8 months later. It was literally a “Your money or your life” situation. The Part D plan he needed would have cost him less than $20 / month.
Needless to say, his decision to save $20 / month by not getting a Part D plan cost him his retirement.
My Philosophy on Medicare
My philosophy on health insurance is simple, but help you to get the right plan for the rest of your life. First, do your research. Find out what is available to you. A good independent agent should talk to you about both your supplement and advantage plan alternatives. Then get the insurance policy TODAY that you would want to have when you are sick or injured. Don’t get a plan today with less coverage because you are healthy today. We never know when or how our health will deteriorate. We only know that it will. Once it has, you will not have the same ability to choose your coverage as you can when you are healthy.
Matthew Claassen, CMT
CEO Medigap Seminars