Medicare rules are needlessly complex

People who collect Social Security benefits early are automatically enrolled in Medicare when they turn 65. But as increasing numbers of Americans delay claiming Social Security benefits until older ages when they are worth more, many of them are missing crucial Medicare enrollment deadlines and facing lifelong penalties.

It doesn’t have to be that way. Better notification and a simplified enrollment process could alleviate these problems.

Generally, Americans must enroll in Medicare during the seven-month initial enrollment period that begins three months before their 65th birthday, includes their birthday month and continues three months after their birthday.

They can enroll in both Medicare Part A, which is free and covers hospital costs, and Medicare Part B, which carries a monthly premium and covers doctors’ visits and outpatient services. They may also want to sign up for a Medicare Part D prescription drug plan and a supplemental Medigap policy. Or, they can opt for an all-inclusive Medicare Advantage healthcare plan, also known as Medicare C.

MISCONCEPTIONS

While most people know they are eligible to enroll in Medicare when they turn 65, many do not realize that enrollment is mandatory — unless they qualify for certain exceptions — and carries stiff penalties for those who miss the deadline. Based on my recent travels around the country to conduct seminars on Social Security and Medicare rules, I can attest that consumers are shocked and bewildered by this news.

For every year that someone is eligible to enroll in Medicare but doesn’t, they incur a permanent 10% penalty that will be added to future monthly premiums when they do enroll. For example, if someone postponed enrolling in Medicare Part B for three years, they would have to pay an extra 30% per month for the rest of their life. There is also a delayed enrollment penalty of 1% per month for Medicare Part D.

In addition, if they miss the initial enrollment period for Medicare Part B, they will have to wait until the next general enrollment period, which occurs Jan. 1 through March 31 every year with coverage beginning the following July 1. In the meantime, they could be on the hook for 80% of any medical bills because Medicare is the primary insurer for most Americans age 65 and older.

SENIOR EXCEPTION

There is an exception for seniors who are covered by a group health insurance plan from their current employer or that of their spouse. Retiree health insurance or COBRA coverage from a former employer does not count as creditable coverage. Neither does health insurance coverage for small businesses with fewer than 20 employees.

Once their qualified group health insurance coverage ends, they have up to eight months to sign up for Medicare penalty-free through a special enrollment period.

“People get tripped up in this overly complicated enrollment system, make mistakes and pay penalties for a lifetime,” said Stacy Sanders, federal policy director for the Medicare Rights Center. “Plus, they may go without coverage for months,” Ms. Sanders added. “It’s archaic and outdated and there is no reason why Congress can’t fix it.”

The Medicare Rights Center national helpline fields about 20,000 questions each year. Nearly a quarter of those calls concern Medicare enrollment questions, Ms. Sanders said. In 2014, 750,000 people with Medicare were paying a Part B late enrollment penalty and the average penalty amounted to a 30% increase in a beneficiary’s monthly premium, according to the Congressional Research Service.

There is a potential remedy. The Bipartisan Enrollment Notification and Eligibility Simplification or BENES Act, which has now been introduced in both the House and Senate, provides low-cost solutions to address these problems. BENES Act supporters, which include more than 70 organizations representing retirees, disabled Americans, unions, health insurers and health care advocates, hope that it might be attached to some must-pass legislation by year’s end.

SUPPORT FOR BILL

In addition, eight past administrators of the Centers for Medicare & Medicaid Services — the agency that runs Medicare — also wrote to congressional leaders supporting the bill when it was first introduced last year.

(More: New Congressional bill addresses Medicare enrollment confusion.)

“The decoupling of eligibility ages for Medicare and Social Security benefits, revisions to Medicare Secondary Payer law, and the growing number of Americans working past the age of 65 have together substantially complicated the decision-making process for eligible individuals and couples in deciding when and how to enroll in Medicare,” they wrote.

The BENES Act would direct the Department of Health and Human Services, the Social Security Administration and the Internal Revenue Service to work together to notify individuals six months before their initial enrollment period to explain enrollment rules and how other insurance works with Medicare. In addition, it would guarantee that people with Medicare do not experience costly gaps in coverage as many do under current law.

Financial advisers can learn more about the dizzying array of Medicare enrollment rules — and earn continuing education credits in the process — at the nonprofit Medicare Rights Center’s Medicare Pro interactive site.

(More: Courses available to become a Medicare pro.)