In the past, the traditional retirement age of 65 was the trigger age for a host of crucial decisions: claiming Social Security benefits, enrolling in Medicare, retiring from a job and, if you were lucky, the start of collecting your pension.
But ever since the full retirement age to claim Social Security benefits was increased to 66 for those born in 1943 through 1954, there is no longer a logical trigger for enrolling in Medicare except for those who are already collecting Social Security benefits. In that case, they are automatically enrolled in Medicare at age 65.
But those who are not collecting Social Security benefits, either because they want to wait until they stop working or until benefits are worth more when they are older, are often unaware that they need to sign up for Medicare at 65 or face lifelong penalties if they don't.
They must enroll in Medicare the during 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 requires a monthly premium and covers doctors' visits and outpatient services. They may also want to sign up for Medicare Part D, which covers prescription drugs. Or they can opt for all-inclusive coverage through Medicare Advantage network plan, also known as Medicare Part C.
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. 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.
Plus, for every year they delay enrolling in Medicare Part B, they will incur a permanent 10% surcharge that will be added to their future monthly premiums. So if someone delayed enrolling in Medicare Part B for three years, they would pay an extra 30% penalty per month for the rest of their life.
There is an exception for seniors who are covered by a group health insurance plan from their current employer or that of their spouse. Once that coverage ends, they have up to eight months to sign up for Medicare penalty free through a special enrollment period. However, many older workers wrongly assume that if they continue their employer coverage through COBRA for up to 18 months, they will be protected. They won't. If they miss their eight-month Medicare special enrollment period, they will face lifetime late-enrollment penalties.
This antiquated, overly complex Part B enrollment process contributes to costly enrollment mistakes among many people new to Medicare.
SUPPORT FOR CONGRESSIONAL BILL
Last week, 73 state and national organizations representing older adults, people with disabilities, health insurers, unions, and health care providers expressed strong support for the Beneficiary Enrollment Notification and Eligibility Simplification (BENES) Act (H.R. 5772 and S. 3236) in letters to the bill's lead House and Senate sponsors.
“The basic rules underpinning the Part B enrollment system were developed more than 50 years ago, when Medicare was first established,” the coalition wrote. “Through bipartisan, low-cost reforms, the BENES Act shields people with Medicare from steep premium penalties, fills needless gaps in coverage and expands avenues for relief among those who mistakenly delay or decline Part B.”
In 2014, 750,000 Medicare beneficiaries were paying a lifetime late enrollment penalty because they waited too long to sign up for Part B, leading to an average increase of 30% in their monthly premiums, the coalition said.
Separately, eight past administrators of the Centers for Medicare & Medicaid Services/Health Care Financing Administration — the agency that runs Medicare — also wrote congressional leaders expressing support for the BENES Act.
“The decoupling of eligibility ages for Medicare and full Social Security benefits, revisions to Medicare Secondary Payor 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,” wrote the administrators, whose served in both Democratic and Republican administrations from 1978 to 2011.
Normally such stand-alone legislation would have little chance of approval, particularly during the shortened session and heightened partisan squabbling of a presidential election year. But the bill could latch on to some powerful coattails in the fall once the Social Security Administration announces whether beneficiaries will receive a cost-of-living adjustment for 2017.
If there is no COLA next year because of continued low inflation, most existing Medicare beneficiaries would continue to pay their current premiums for 2017. But about 30% of seniors who are not protected by “hold harmless” rules, including higher-income beneficiaries and Medicare enrollees who are not yet collecting Social Security, could get stuck with a big premium hike. If that happens, Congress could step in to mitigate the premium increase as it did last year, and that could provide a vehicle for broader Medicare enrollment reform.
(Questions about new Social Security rules? Find the answers in my new ebook.)
Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.