It can be very easy to make mistakes when becoming eligible for Medicare. Medicare enrollment is incredibly time-sensitive, so that’s why it’s important to be fully informed on your options.
Here are the most common Medicare misconceptions we see on a regular basis that can cause trouble for Medicare beneficiaries:
Medicare Misconception #1
Do I have to enroll in Medicare Part A (hospital) and Part B (medical) when I turn 65? Will I be penalized if I don’t?
This depends on whether you plan to continue to be covered by employer provided group health insurance when you turn 65, and the number of employees working for the employer. Whether the drug coverage is “creditable” is also an important factor, but we will ignore this part for the time being and address it in Medicare Misconception #2.
The most common situation is being covered by a group health plan through your employer or your spouse’s employer. The number of employees at the employer is crucial.
If the employer has 20 or more employees (100 employees needed if on Medicare prior to age 65 due to disability), you can delay enrolling in Part A (hospital) and Part B (medical). The group health plan will be primary in this situation, so Medicare Part A and B are not necessary. If you do have Part A and/or B, it will be secondary to the group health plan, and you may be paying the Part B monthly premium with very little benefit to you. If you delay enrollment in Part A and/or B to a future date, you won’t be penalized, as long as you have continuous health coverage through the group health plan, based on your current employment or a spouse’s employment [COBRA and retiree health plans are NOT considered coverage based on current employment]. If your coverage is based on current employment, you can enroll any time in the future and choose your Medicare coverage start date.
If the employer has less than 20 employees (under 100 if on Medicare prior to age 65 due to disability), you will need to enroll in Part A and B. This is necessary because Medicare is primary in this situation. Your group health plan will act as though you have enrolled in Part A and B, and pay less or not at all for certain claims…regardless of whether you actually enrolled in Part A and B. In these small group situations, you will need Part A and B in effect. The bigger question is really whether you should stay in the group health plan as a secondary payer. It may make sense to transition entirely to Medicare with supplemental medical and drug coverage, and leave the group plan.
If you don’t have access to an employer provided group health insurance plan (or some other creditable health coverage) when you turn 65, you will need to enroll in Medicare Part A and B, and obtain the necessary supplemental medical and drug coverage.
Medicare Misconception #2
Do I have to enroll in a Medicare Part D Prescription Drug Plan when I turn 65? Will I be penalized if I don’t?
If you transition to Medicare when first eligible, you will need to enroll in Part D prescription drug coverage during your 7-month Initial Enrollment Period (IEP). As long as you enroll during this time frame, you will avoid the Part D prescription drug penalty.
If you transition to Medicare after your Initial Enrollment Period, because you are in a group health plan, you may have a Part D late enrollment penalty. This depends on whether your existing health coverage has creditable prescription drug coverage. The common feeling of Medicare beneficiaries is, “Of course I have drug coverage in my existing plan.” But simply having drug coverage isn’t the issue. Creditable prescription drug coverage means that it meets or exceeds Medicare Part D minimum coverage standards. Some health plans do not meet these standards and have non-creditable prescription drug coverage. If you are in a group health plan (beyond your Initial Enrollment Period in Medicare) with non-creditable prescription drug benefits, you will begin to accumulate a Part D late enrollment penalty if you don’t obtain a Part D Plan within 63 days (even if you are Medicare eligible due to disability).
The Part D late enrollment penalty is assessed and charged only when you actually enroll in a stand-alone Part D plan (or Medicare Advantage plan with Part D benefits). The penalty is calculated based on the number of months you are late enrolling. Here is an example of a late enrollment penalty assessed in 2015 for a beneficiary enrolling in a Part D plan 10 months late…
- 2015 Part D National Base Premium = $33.13/mo
- 1% of $33.13 = $0.3313
- Multiply $0.3313 by the number of months you are late enrolling ($0.3313 X 10)
- 2015 Part D penalty = $3.31/mo → rounded to nearest ten cents → $3.30
This penalty is assessed monthly, and also for life. The constant factor will be that you were 10 months late in this example, but what will change is the Part D national base premium. That means, as the Part D national base premium increases, so will your Part D penalty.
Some Medicare beneficiaries knowingly accumulate a Part D late enrollment penalty and avoid enrollment in a Part D Plan at age 65. They would do this only because they wish to continue contributing to a health savings account (HSA) in their group health plan. This scenario will be addressed in Medicare Misconception #3.
Medicare Misconception #3
Can I contribute to my Health Savings Account (HSA) if I have Medicare?
The common misconception is that you must cease HSA contributions the moment you turn 65. This is simply not true. You must cease HSA contributions if you enroll in any portion of Medicare. This means you can continue contributing to your HSA account (up to the individual or family IRS limits, based on whether you have individual or family health coverage), as long as the HSA account owner doesn’t have any portion of Medicare just yet.
Continuing to contribute to an HSA account beyond age 65 can be a great strategy for someone working beyond age 65 and staying in a group health plan. This typically will only be a good strategy IF the group health plan has “creditable” prescription drug benefits, and is a large employer plan (reference Medicare Misconception #1)…because no Medicare enrollment of any kind would be required.
As referenced at the end of Medicare Misconception #2, some beneficiaries knowingly accumulate a Part D late enrollment penalty in order to load up their HSA accounts while they can. This really should be a short-term solution because the longer you do this, the larger the Part D penalty when you do eventually enroll in a Part D plan. Typically, beneficiaries utilize this strategy when they know they will retire and/or lose group health coverage in a few years or less (usually 2 years or less). Otherwise, the penalty gets larger, and the strategy might not make sense.
Note: HSA account balances are of course available for qualified medical expenses while in a group health plan, and also once on Medicare. Reference IRS Publication 502 for the list of approved medical expenses.
Medicare Misconception #4
I am already 65 but have COBRA health coverage. Can I enroll in Medicare Part A and B whenever I want, such as when my COBRA coverage ends?
No. If you didn’t enroll in Part A and/or B within 8 months of the end of your employment, you cannot enroll in Part A and/or B whenever you want. Outside of this 8-month time frame, COBRA coverage is NOT a Special Enrollment Period (SEP) opportunity for Medicare. Instead, you will need to enroll in Part A and/or B during Medicare’s General Enrollment Period (GEP), which spans from January 1st through March 31st. Then the Medicare coverage date will be delayed to July 1st of that year. Depending on the timing of everything, this may create a late enrollment penalty in Part A and/or B, which will increase your Medicare premiums for life.
An additional issue here is that Medicare is primary to COBRA health coverage. This means that if you don’t have Part A and B while on COBRA, your medical coverage may come up short because your COBRA health plan will pay claims as if you have Medicare Part A and B…leading to additional out-of-pocket expenses.
Neither Fiduciary Insurance Group nor its agents are connected with the Federal Medicare program.