Medicare do-over season

Think of the first quarter of the year as Medicare do-over season.

During Medicare's general enrollment period, which runs from Jan. 1 through March 31 each year, people who missed signing up for Medicare when they were first eligible get a second chance to enroll — but late enrollment penalties will apply.

The same January-through-March period is also the open enrollment period for Medicare Advantage, when people who are enrolled in a Medicare Advantage plan can switch to another Medicare Advantage plan or go back to original Medicare.

Medicare is certainly a valuable — and complicated — care program for adults ages 65 and older and certain people with disabilities. For the many people who work beyond the traditional retirement age of 65, the Medicare enrollment rules are even more confusing.

Most people enroll in Medicare during their seven-month initial enrollment period, which begins three months before they turn 65, includes their birthday month, and ends three months after they turn 65. People who work beyond age 65 and who continue to have group health insurance coverage through their current employer (or their spouse’s current employer) can delay enrolling in Medicare penalty-free until eight months after the coverage ends. That is known as a special enrollment period.

Medicare Part A, which covers hospitalization, is premium-free for most workers who paid FICA payroll taxes throughout their career. Medicare Part B, which covers doctors’ fees and out-patient services, has a monthly premium.

In 2022, most Medicare beneficiaries pay $170.10 per month for Medicare Part B, which is usually deducted directly from monthly Social Security checks. High-income beneficiaries pay more based on their income.

If you miss enrolling in Medicare during your initial enrollment period — or during your special enrollment period if you are eligible for one — you must wait until the next general enrollment period that runs from Jan. 1 through March 31 each year. Unfortunately, your Medicare coverage won’t begin until the following July 1, and in the meantime, you could be on the hook for all of your health care expenses, as Medicare is the primary insurer for people 65 and older.

In addition, you will incur a 10% late enrollment penalty for every year you were eligible to enroll in Medicare Part B but didn't. So if you waited until age 70 to sign up for Medicare, five years after your initial enrollment period, you would have to pay an extra 50% of the standard Medicare Part B premium every month for the rest of your life.

People are also eligible to enroll in an optional Medicare Part D prescription drug plan when they turn 65 during the same seven-month initial enrollment period as Medicare Part B. But there is shorter special enrollment period for people to enroll in a Part D plan after their group health insurance coverage ends.

Individuals over age 65 must choose a Medicare Part D prescription drug plan within 63 days of losing their group health insurance or face delayed enrollment penalties if they sign up after the deadline. The penalty is 1% for every month they were eligible to enroll in a Part D but didn't, for a total delayed enrollment penalty of 12% per year for the rest of their life.

Medicare Advantage plans offer the same basic benefits provided by Medicare Parts A and B and often include prescription drug coverage, rendering Part D plans unnecessary for most Advantage plan members. In addition, most Medicare Advantage plans, which are run by private insurers, include extra coverage that original Medicare doesn't offer, such as vision, hearing and dental care, as well as gym memberships.

Medicare Advantage plans have exploded in popularity in recent years. Today, an estimated 42% of Medicare beneficiaries are enrolled in Medicare Advantage plans, attracted to the extra benefits and typically lower monthly premiums. But in exchange for more benefits and lower costs, Advantage plan members must agree to use their plan’s network of health care providers, and the plans often require preapproval to see specialists.

Medicare Advantage plan members who are dissatisfied with their current plan can switch to a different Advantage plan any time between Jan. 1 and March 31 each year. They can also switch from an Advantage plan to original Medicare during the same three-month period. If they do, they should also buy a supplemental Medigap policy and enroll in a Medicare D plan.

But switching from an Advantage plan to original Medicare can be difficult for some people with health problems. The only time someone is guaranteed access to any Medigap plan of their choice is during their initial seven-month enrollment period. After that, medical underwriting rules apply, and insurers can reject applicants or raise premiums above standard rates.

[Questions about Social Security rules? Find the answers in Mary Beth Franklin’s ebook at Maximizing Social Security Retirement Benefits]