Plan Enrollment Errors: Advance Planning is Good Medicine
Combine the federal government with the US tax and healthcare systems and what do you get? One very complicated maze of rules and regulations called Medicare! Medicare’s complex rules are confusing and can result in permanent errors that can cost you years of hard earned wealth as well as leave you exposed to a lack of healthcare during the years you will likely need it most.
Whether you are close to Medicare age or currently using Medicare, we want to ensure you make safe, cost effective decisions into and during retirement! I’m not a Medicare expert yet I have educated myself enough to assist you with understanding key issues relevant to your circumstances. When necessary we can bring in agents or consultants with specialized expertise to evaluate the details.
This article will focus on enrollment timing. The case studies below highlight several factors that dictate when to enroll. Your specific circumstances will dictate which enrollment works best for you.
Medicare has several different enrollment periods. It is very important you understand the rules in unison with your person situation before you make a decision.
1. Initial Enrollment: the 7 month window around your 65th birthday
2. Special Enrollment: an 8 month window after one loses large group plan coverage (more than 20 employees)
3. General Enrollment: occurs from January 1 – March 31 every year; coverage does not begin until July 1.
4. Open Enrollment: occurs from October 15 – December 7 every year; you can join, switch, or drop a Medicare Advantage plan. Plans change – so it is important to review annually.
NOTE: There can be exceptions or nuances to the different enrollment periods, so it is critical to be sure your specific circumstances are weighed in the evaluation. For example: social security status, employment status, COBRA, retiree coverage, VA coverage, Healthcare exchanges, HSA contributions, disability, or spousal coverage, etc. all may interact differently with Medicare.
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Why it Matters
At a recent webinar, a Medicare consultant gave us three different case studies to illustrate some of the many costly ways people can fall prey to Medicare’s complex rules.
Case 1: Paul, age 65 and working for a small employer with less than 20 employees. As he intended to continue working, he asked his employer what he should do about Medicare. His employer told him he was set. No need to do anything as he was covered under the company’s group plan. Over a year passed and Paul’s group coverage paid his claim costs as usual. However, eventually the insurance company discovered that Paul’s group plan had become the secondary payer once he had turned age 65.
In his situation, Paul should have enrolled for Medicare at age 65 during his Initial enrollment period. At that point, Medicare should have become the primary payer. Because he did not, he became the default primary payer. Which meant he needed to reimburse the insurance company who had been paying his claims even though they were now the secondary payer. And because he filed late he faced a lifetime penalty of 10% on future Medicare premiums for every 12 month period he was not enrolled, and he lost guaranteed issue rights on Medigap policies.
Neither Paul nor his employer understood key timing issues or how primary and secondary payer responsibility shifts depending on age, employment status, and company size.
Case 2: The wife was 6 months younger than her husband. She had filed for Social Security early so at age 65 her Medicare card arrived in the mail. When her husband turned 65, he waited and waited and waited until he finally called to see why his card had not yet arrived. Medicare told him he had not enrolled. He countered that neither had his wife. Medicare told him this was because she had filed for Social Security and therefore was automatically enrolled in Medicare.
At this point, the husband had to enroll in Medicare; however, he had missed his Initial enrollment period. Now he had to wait for the next General enrollment period which happens every January-March. When one enrolls in the General enrollment period, coverage does not begin until July 1. So the husband had no coverage for an extended period of time, he was also now subject to a lifetime premium penalty of 10%, and he lost guaranteed issue rights on Medigap policies.
Case 3: This one really hurts. Judy, age 67 had a group plan with a large employer (greater than 20 employees). While actively employed she did not need to enroll in Medicare because large employer group plans are considered the primary payer. One day her employer notified her that her position was being eliminated. Judy went on the company’s COBRA coverage. As this was the same coverage she always had (albeit much more expensive as an individual), she didn’t think about enrolling in Medicare. For her first 10 months she had no claims, so there were no problems.
In month ten, Judy went to the emergency room and was diagnosed with stage four cancer. The hospital administrator asked her if she was aware she had no healthcare insurance. “I have COBRA, I already gave you my card.” The administrator had to explain to her that since she was no longer actively employed Medicare becomes her primary payer; COBRA was secondary. By default, this meant Judy was the primary payer since she was not enrolled in Medicare. She was now outside her Initial and Special enrollment periods. Since it was August, she had to wait until the General enrollment period in January; therefore under the rules, the earliest she could get coverage was July. She faced almost one year as the primary payer for cancer treatments. Her options were not good: Delay treatments or go out of pocket for tens or maybe hundreds of thousands of dollars.
Knowing when you can, when you should, and when you should not enroll are vital to avoiding costly enrollment errors. Company HR departments very seldom are helpful. In Paul’s case HR gave him wrong information. In Judy’s case HR gave no input. This is not uncommon in small and large companies.
We as individuals are expected to become Medicare experts amidst the maze of rules and regulations. Who said life was fair!
Please don’t hesitate to contact me with any questions, and we will help guide you so you can make well-informed decisions.
Jerry Matecun – Founder, President
Expert guidance to plan your future, preserve your lifestyle, and retire with confidence. For a confidential consult, contact me at firstname.lastname@example.org.
PLEASE NOTE: Nothing herein constitutes investment, legal, or tax advice. For details please see Disclosure.