Four Medicare Mistakes New Enrollees Should Avoid, Including Some That Can Last a Lifetime

Medicare has strict rules, and the penalties for missing them can be costly and sometimes lasting.

Retirement brings major changes, and one of the first is often dealing with the federal health insurance system.

In general, Medicare becomes available at age 65. But the timing and details of how you enroll can be complicated, and the consequences of making the wrong move can be serious.

Here are several missteps to watch for when signing up. Avoiding them can help you steer clear of expensive problems later.

Pitfall No. 1: Missing the initial enrollment window

As a rule, you become eligible for Medicare when you turn 65. But if you do not enroll on time, you may face permanent financial penalties or have to wait for coverage.

Medicare offers a seven-month initial enrollment period that includes the month you become eligible, the three months before it, and the three months after it.

If you miss that period, you usually have to wait for the general enrollment period, which runs from Jan. 1 to March 31. Coverage then begins on the first day of the month after you enroll. The official Medicare handbook also warns:

“You may have to pay a higher Part A and/or Part B premium for late enrollment.”

If you are already receiving Social Security when you become eligible, Medicare enrollment is automatic and no separate sign-up is needed.

If you are still working and have health coverage through an employer, you may be able to keep that plan. Medicare advises employees in this situation to check with their employer to understand how the two forms of coverage work together.

In any case, be cautious. Do not give up employer coverage until you fully understand the trade-offs.

If you need guidance, your State Health Insurance Assistance Program, or SHIP, can provide free one-on-one Medicare counseling.

Pitfall No. 2: Paying more because you signed up late

If you miss your initial enrollment period and do not have other qualifying coverage, such as an employer plan, you may face penalties.

The amount depends on how long you waited and which part of Medicare is involved:

Part A (mainly hospital inpatient coverage):

• Most people receive Part A without paying a premium. But if you are not eligible for premium-free Part A and fail to enroll when first eligible, your premium may rise by 10% for twice the number of years you delayed enrollment. For example, waiting two years can mean paying the higher premium for four years.

Part B (doctor services and other outpatient care):

• Missing Part B when you first qualify generally leads to a permanent penalty. Your premium may increase by 10% for each full 12-month period you delayed, and that extra cost can continue for as long as you have Part B.

Part D (optional prescription drug coverage):

• If you choose Original Medicare instead of Medicare Advantage, you may want Part D. But if you go without Part D, Medicare Advantage, or other drug coverage for 63 continuous days or more after your initial enrollment period ends, you may owe a Part D late-enrollment penalty. The amount depends on how long you went without coverage, and you will most likely pay it for as long as you have a Part D plan.

Pitfall No. 3: Confusing Original Medicare and Medicare Advantage

Medicare has two main options: Original Medicare and Medicare Advantage.

Original Medicare is the traditional federal program and generally includes Parts A and B. People who choose it can also add two kinds of coverage:

• Part D for prescription drugs
• Medigap, which helps pay costs not covered by Original Medicare

With Original Medicare, you do not usually need to pick a primary care doctor, and you generally do not need referrals to see specialists. The trade-off is that there is no annual limit on out-of-pocket spending.

Medicare Advantage is an all-in-one alternative offered by private insurers approved by Medicare. These plans include Parts A and B and often include drug coverage as well.

Medicare Advantage plans must follow federal rules and cover all services provided under Original Medicare, though the rules can change from year to year and plans may include extra benefits.

Because of that, coverage and costs can differ significantly from one Medicare Advantage plan to another.

You can move between Original Medicare and Medicare Advantage, but only during certain enrollment periods.

Switching can also have drawbacks, such as losing access to a preferred doctor or becoming unable to keep a Medigap policy you had with Original Medicare. That makes it important to research your options carefully before changing plans.

Pitfall No. 4: Losing your Medigap protection

If you use Original Medicare with a Medigap supplemental policy, there is an important risk to keep in mind.

If you leave Original Medicare for a Medicare Advantage plan, you will need to drop your Medigap policy. That can create problems later.

You are guaranteed access to Medigap plans in your area only during the initial Medigap enrollment period. During that time, insurers cannot deny you coverage or charge more because of pre-existing conditions.

After that period ends, insurers in most states can ask questions about your health status.

Depending on your health and where you live, losing that guaranteed access could mean much higher premiums if you later return to Original Medicare and try to buy Medigap again. In some cases, you may not qualify for certain plans at all.