Confusion around Medicare enrollment

Sifting through my inbox, I’ve noticed an uptick in questions about when and how to enroll in Medicare. The source of most of the confusion relates to clients who continue to work past age 65.

Medicare Part A, which is free to most retirees, covers hospitalization. Medicare Part B, which pays for outpatient services, has a monthly premium, currently $135.50 per month for most beneficiaries but more for higher-income retirees. Monthly premiums for Part D prescription drug plans are also tied to income.

Most people who choose original Medicare Parts A and B also buy a supplemental Medigap policy. About one-third of Medicare beneficiaries enroll in all-inclusive Medicare Advantage plans, which often provide added benefits and lower overall costs in exchange for using a network of health-care providers.

“We have a client come in today who will turn 65 in September and is still working full-time,” an adviser in Oak Brook, Ill., wrote in an email. “She works for a large company and is covered under group health insurance. I just want to confirm that she does not need to apply for Medicare at this time.”

Correct. Although most retirees must enroll in Medicare during the seven-month initial enrollment period that begins three months before their 65th birthday, there is one major exception: If they have group health insurance through a current employer or their spouse’s current employer, they can postpone enrolling in Medicare penalty-free.

They have up to eight months after that group health insurance ends to enroll in Medicare Part B during a special enrollment period.

Notice that I said “current employer.” If your client has continued health insurance from a former employer, such as retiree health benefits or continued coverage through COBRA after leaving the company, that does not count as creditable coverage under Medicare.

The definition of “group” health insurance can also trip up clients, financial advisers and even some employee benefit experts.

“The size of the employer determines whether you may be able to delay Part A and Part B without having to pay a penalty if you enroll later,” according to the official Medicare website. “If the employer has fewer than 20 employees, you should sign up for Part A and Part B when you’re first eligible.”

Failing to enroll in Medicare during the initial enrollment period can trigger costly consequences, both in terms of medical coverage and money.

People who miss their initial enrollment period must pay a delayed enrollment penalty of 10% of the basic Part B premium for every 12 months they were eligible to enroll but did not. For example, if someone enrolled three years late, they would pay an additional 30% of the basic Part B premium every month for the rest of their life. In 2019, the basic Part B premium is $135.50 per month, so the penalty would be an additional $40.65 per month ($13.50 x 3).

In addition, that person would have to wait until the next general enrollment period, which runs from January through March each year, to sign up for Medicare Part B with coverage beginning the following July 1.

So if your client discovered in June 2019 that they did not have creditable coverage, they would have to wait until January 2020 to enroll in Medicare Part B with coverage beginning in July 2020, possibly leaving them liable for their medical costs for more than a year.

Confusion over Medicare Part B enrollment rules is a huge problem. Each year, the Medicare Rights Center, a nonprofit consumer service organization, answers nearly 3 million questions through its National Consumer Helpline.

In 2017, about one-third of those calls were from individuals experiencing challenges enrolling in Part B. Last year, an estimated 760,000 people with Medicare paid late enrollment penalties that increased their monthly premiums by an average of 30% for the rest of their lives.

But help may be on the way. In late June, the House Committee on Ways and Means, approved a bipartisan package of Medicare legislation that includes provisions to modernize and simplify the Medicare enrollment process and prevent costly enrollment errors. The legislation still has a long way to go yet, requiring approval by the full House as well as Senate action.

In the meantime, there are several fee-based resources available for financial advisers who want to improve their Medicare knowledge.

The Medicare Rights Center offers a 17-course online professional training programfor financial advisers.

Goodcare.com and Allsup.com provide one-on-one counseling for consumers and financial advisers as they navigate the intricacies of Medicare, disability and other health-care issues.

And i65.com, a Medicare software company, helps financial advisers and their clients choose between traditional Medicare and Medicare Advantage plans based on an individual’s needs and provides state-specific guides to Medigap plans.

Check out Mary Beth Franklin’s podcast, Retirement Repair Shop.