- Medicare is a federal health insurance program for those 65 and older and select others with disabilities.
- Medicare has four different parts, and the parts you’ll choose will depend on many factors, including whether you’re currently covered by an employer health plan.
- You can enroll starting three months before you turn 65, and there are penalties if you don’t sign up on time, except under certain circumstances.
- You can enroll, or make changes to your existing Medicare plan, during the annual general enrollment period or a special enrollment period if you qualify.
When you’re entering your 60s, you’re probably thinking about getting ready to retire. Hopefully you’re close to paying off your mortgage and are starting to think of getting income from your retirement accounts rather than putting money into them, which may feel strange after so many years of contributions!
It’s also time to start thinking about your health insurance in retirement. You may be used to getting your health coverage through your job or through a policy you picked out yourself on a health insurance exchange. But once you reach the age of 65, you’ll be covered by Medicare, the federal health insurance program.
One thing you should do to prepare for Medicare is keep track of your health care expenses now, says Seth Mullikin, a Certified Financial Planner and founder of Lattice Financial.
“People who spend a career with a generous insurance plan provided by their employer might not realize how much their care will cost under Medicare,” he says. “They should keep track of the expenses, even if they do not pay them, so they will be prepared to make a Medicare choice.”
Another thing to do is to be sure you know when to apply for Medicare and how. Here are the details.
Inside this article
How does Medicare work?
Medicare Part A
This is hospital insurance that covers in-patient care if you are hospitalized as well as nursing home care, hospice and in-home care. Part A is free for most people who worked and paid Medicare taxes for at least 10 years (or were married to someone who did), but depending on your circumstances, you may need to pay a premium.
Medicare Part B
This is medical insurance, which covers things like preventive care, outpatient care, primary care and specialist appointments, and medical equipment. Medicare Parts A and B together are known as Original Medicare. Everyone must pay a premium for Part B.
Medicare Part C
This is also known as Medicare Advantage, which is a private medical plan that is affiliated with Medicare. It is an alternative to Original Medicare and sometimes offers lower costs than original Medicare.
Medicare Part D
This is coverage for prescription drugs.
The three enrollment periods
The different times when you can sign up for Medicare are the initial enrollment period, the general enrollment period and the special enrollment period.
The initial enrollment period
This starts when you first reach eligibility for Medicare (more on this later). This is when most people sign up for Medicare Part A and Part B.
The general enrollment period
This takes place each year between Jan. 1 and March 31, and is for anyone who missed their initial enrollment period or delayed enrollment for some reason.
Special enrollment periods
This allows you to sign up for Medicare Parts A and B outside of your initial or general enrollment periods if you’re dealing with special circumstances, like if you leave the job through which you currently have health insurance or move outside of your current plan’s coverage area.
If you’ve already signed up for Medicare, you can also opt to change your plan during the general enrollment period or a special enrollment period, if you qualify.
When can you apply for Medicare?
You are eligible for Medicare coverage once you reach age 65. But you can apply for Medicare starting three months before your 65th birthday so your coverage will kick in by then.
If you are already collecting Social Security, you don’t have to do anything to sign up for Medicare Part A and Part B—you’ll be enrolled automatically.
If you don’t sign up for Medicare once you’re eligible, you may need to pay a late enrollment penalty. The amount and nature of the penalty will depend on which part of Medicare you failed to sign up for.
“You will generally want to sign up for Medicare Part A when eligible,” says Mullikin. “An exception to this general rule would be if one was contributing to an HSA as part of a high-deductible health plan and didn’t need the coverage.”
That’s because once you enroll in Medicare, you’ll no longer be able to contribute to your HSA. An HSA is one of the only accounts out there that has a triple tax advantage: You contribute pre-tax dollars, the money grows tax free, and withdrawals are tax free if you use the money for qualified medical expenses. If you want to keep contributing to yours to reap these benefits, it might make sense to hold off on enrolling in Medicare Part A.
However, Mullikin adds that even if you do enroll in Part A on schedule, there are some situations where it may make sense to delay enrolling in Medicare Part B.
“One will likely want to delay Medicare Part B if they have coverage through an employer. This can be done by contacting the Social Security Administration,” says Mullikin. “Delaying Medicare Part B will save you the monthly premium you would otherwise pay.”
But if you choose to go this route, you’ll want to make sure you keep the Social Security Administration in the loop.
“If you delay Part B, you should notify the Social Security Administration so that you are not subject to a late penalty when you do sign up,” says Mullikin.
Penalties for signing up late
If you don’t sign up for Medicare as soon as you’re eligible, and you either don’t have a special situation that exempts you from signing up or you fail to notify the Social Security Administration about your situation, you may be liable for a late penalty. And these penalties are not one-time fees.
If you are not eligible for free Medicare Part A, and you sign up late, your penalty will be based on your premium. You’ll have to pay a 10% higher premium for double the amount of time you waited after you first became eligible. So if you signed up for Medicare Part A three years after turning 65, you’ll have to pay the penalty premium for six years.
If you receive Medicare Part A for free, you will not be penalized for signing up late.
Everyone pays a premium for Part B, so anyone who signs up late will be hit with a penalty. For each year after eligibility you wait, your premium will increase 10%. You’ll pay that higher premium for the rest of the time you’re enrolled in Medicare Part B.
After your initial enrollment period, if you ever go 63 straight days or longer without Medicare Part D coverage or coverage from another prescription medication provider, you’ll pay an added penalty with your premium for the rest of the time you’re enrolled in Part D. For each month you didn’t have drug coverage, your premium will increase by 1% of the base premium that everyone pays.
There is no penalty for signing up late for Medicare Advantage (Part C).
One mistake you should watch out for
Mullikin says that one of the most common mistakes he sees when it comes to signing up for Medicare is “sticking with a plan that no longer makes sense.”
Medicare is not simply a set-it-and-forget-it plan once you turn 65.
“Whether one chooses traditional Medicare, Parts A, B and D, or a Medicare Advantage plan, Part C, the benefits may change over time,” he says. “People should review their coverage during each enrollment period to ensure they are in the best plan.”