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Brace yourself for Medicare: A wrong move can be a pain

Bob was six months shy of 65. “I’m looking forward to going on Medicare, but I suspect it’s more complicated than people think,” he told me.

I nodded. “I wish more people understood that Medicare has its quirks and exceptions.”

You are eligible for Medicare at age 65. Qualifications exist. You or your spouse must have worked and paid Medicare taxes for at least 10 years.

So when do I apply?” Bob asked.

“You have time,” I said. The window for enrollment starts three months before your 65th birthday and ends three months after turning 65.

“What if I don’t enroll then?” Bob asked.

“That could be serious,” I replied. Significant lifetime financial penalties can be suffered if an eligible individual doesn’t enroll for Medicare Parts A and B during this six-month period. (There are exceptions, however. They usually involve health insurance coverage from an individual or spouse’s employer. This entitles someone to enroll during a special enrollment period that ends eight months after employment coverage ends.)

“My wife’s still working,” Bob added. “I may keep working. What then?”

If you are working after 65 and continue to be covered by employer health insurance, you need to pay special attention to the requirements and coverage of Medicare, I said. But if you’re using COBRA coverage, beware: This is not considered employer health insurance coverage.

“So it’s important to pay close attention to these time frames,” Bob said.

“You’ve got it,” I replied. “Fail to plan carefully, and you might go without health insurance coverage for an extended period. You could also face extra premium charges for the rest of your life. “

“But exactly what does Medicare cover?” Bob asked. I explained that Medicare breaks down into four components.

Part A: The hospital insurance program requires no premium payment. You’ll find details at medicare.gov/what-medicare-covers/part-a/what-part-a-covers.html.

Part B (optional): Known as medical insurance, this helps cover services and supplies needed for diagnosis or treatment. These include outpatient services received at a hospital, doctor’s office, clinic or other health facility. Part B also helps cover many preventive and detection services. Enrollment is optional. Still, it’s smart to sign up within the prescribed window if you have no other health insurance coverage. You pay a premium for this part of Medicare.

If you miss the initial enrollment period and are not eligible for a special enrollment period, you could be faced with higher premiums for the rest of your life. Currently, premiums are based on your modified adjusted gross income. Eighty percent of Medicare beneficiaries pay the standard premium. If you receive your social security benefits, Part B premiums are withheld each month. Learn more at medicare.gov/what-medicare-covers/part-b/what-medicare-part-b-covers.html.

Part C: Often known as Medicare Advantage, this program is an alternative that includes both Part A and Part B benefits and potentially includes Part D, the pharmacy benefit. Part C can include additional benefits, such as vision and dental. Networks control utilization of services and negotiate group prices, which often lowers premiums compared to traditional Medicare. Learn more at medicare.gov/sign-up-change-plans/medicare-health-plans/medicare-advantage-plans/how-medicare-advantage-plans-work.html.

Part D: The drug/pharmacy prescription benefit program is purchased separately and subject to penalties and higher premiums if you delay coverage. Part D is usually included in your premiums if you purchase Medicare Part C. If you fail to enroll during your initial enrollment period and are not eligible for a special enrollment period, you will also pay higher premiums for the rest of your life.

“So which is best for me?” Bob asked. “Traditional Medicare or Part C?”

I responded that it all depends. Part C can lower your premiums but generally limits your choices to providers in the network. Traditional Medicare consists of Part A, Part B with a premium, a Medicare supplemental health insurance plan purchased separately, and a Part D (pharmaceutical) plan with an additional premium. If your finances permit and you want the freedom to choose from any provider, traditional Medicare works well — and you don’t need preapproval to see a specialist.

“I thought Medicare was so simple,” Bob said. “Now I have some thinking to do.”

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Ira Fateman

Ira Fateman is a certified financial planner at SAS Financial Advisors in San Francisco. He can be reached at (415) 277-5955 or ira@sasdvisors.com.