Medicare will cover a considerable portion of your health-care costs, but it’s not free. It can also be extremely complicated and frustrating. Here are some common mistakes to avoid courtesy of Sean Williams of The Motley Fool and Sandra Block of Kiplinger.com.
1. Failing to sign up for Medicare because you aren’t receiving Social Security benefits
If you’re already receiving Social Security benefits, you’ll automatically be enrolled in Medicare Part A and Part B when you turn 65. But if you’ve decided to postpone filing for Social Security until full retirement age or later, you’ll need to sign up for Medicare. You have a seven-month window to sign up—from three months before your 65th birthday month to three months afterward. For most people, Part A is free, so there’s no reason to wait (Sandra Block, Kiplinger.com).
2. Assuming your current Prescription Plan (Part D) is best value going forward
The costs of prescription drug plans, which are offered by private insurance companies approved by Medicare, can change substantially from year to year. Your share of prescription drug costs, which pharmacies you can use, and even your eligibility to be covered for certain medications, are far from set in stone. This means if you’re in the habit of simply sticking with your plan without doing your homework, then not only could you be overpaying, but you could be enrolled in a plan that isn’t suited for your medical needs.
The solution is pretty simple: be an active participant in your medical care. Shop around and analyze your various Plan D options, and keep in mind that the cheapest plan may not be the best plan for you. The more homework you do, the healthier you and your finances are likely to be.
Also consider your options for obtaining financial assistance. The Centers for Medicare and Medicaid Services is quick to remind seniors that national-, state-, and pharmaceutical-based programs are available that could lower or eliminate the out-of-pocket costs of prescription drugs for seniors with low to moderate income (Sean Williams The Motley Fool).
3. Not comparing original Medicare versus Medicare Advantage
The second mistake Medicare-eligible members make is failing to compare original Medicare and Medicare Advantage, also known as Plan C, to see which one is the better value for their medical needs.
“Original Medicare” has been around for more than 50 years, and it consists of Plan A (hospital insurance), Plan B (outpatient services), and Plan D (prescription drug coverage), which is purchased separately. One of the biggest advantages of original Medicare is that well over 90% of hospitals and physicians throughout the country accept it, meaning your doctor is probably in your network. You also don’t need referrals to see a specialist with original Medicare, which can expedite your treatment process.
The downside? Original Medicare has no out-of-pocket annual limits, meaning expensive treatments could wind up costing you a pretty penny. Out-of-pockets costs for the consumer are often around 20%. Medicare also doesn’t cover basic hearing, dental, or vision services, so you’ll need to look to private insurers if you want that sort of coverage.
Medicare Advantage is the alternative to original Medicare that’s offered by private insurers. Medicare Advantage plans offer the same coverage you can purchase with original Medicare (Part A and Part B), but they also roll a Part D prescription drug plan, along with hearing, dental, and vision coverage, into one package for the consumer.
Additionally, the 2016 Medicare Advantage plan limit for out-of-pocket expenses is $6,700 — far from the catastrophic costs seniors sometimes rack up under original Medicare. Note that prescription drug costs do not count toward this out-of-pocket limit.
The downside to Medicare Advantage plans is that because they’re offered by private insurers, your network could be smaller or could change frequently, meaning your primary care physician may not be included. You could also be required to obtain a referral before seeing a specialist.
If you don’t do your homework to see which plan best suits your medical needs, then you could be paying far more than you need to (Sean Williams The Motley Fool).
4. Not having a retirement withdrawal plan in place
A final Medicare mistake that could cost you is not preparing a retirement withdrawal plan long before you hang up your work gloves for good.
Saving up for retirement and investing wisely is a lot of hard work, and we’d like to think that when we retire, that hard work ends. Unfortunately, your income and your budget will change when you retire. If you haven’t laid out a plan as to how much money you plan to withdraw each year from your retirement accounts, then you run the risk of not only burning through your nest egg and outliving your money, but also inadvertently increasing your monthly Medicare premiums.
While it’s not a well-known fact, wealthier individuals and joint-filers pay more for their Part B and Part D premiums than lower-earning retirees. Individuals earning more than $85,000 annually, along with joint-filers bringing home more than $170,000, face Medicare surcharges. If you aren’t paying attention to withdrawals from a 401(k) or the sale of stock from a personal investment account, then you could inadvertently push yourself over this annual income limit and add surcharges to your monthly Medicare premiums.
There are two fairly simple solutions to consider. First, have a withdrawal plan in place! Estimate what your expenses will be during retirement and plan how you’ll withdraw money from your retirement accounts during your golden years. A withdrawal plan should keep you safe from nasty tax surprises.
Secondly, strongly consider using a Roth IRA to your advantage. A Roth IRA allows your money to grow completely tax-free for life, assuming you fall under the income limitations to contribute. Not only will a Roth IRA provide extra income during retirement that can help you pay your share of medical expenses, but eligible withdrawals from a Roth IRA do not count toward income earned. This should help you stay below the income limits that would trigger a Medicare surcharge (Sean Williams The Motley Fool).
5. Missing the deadline to sign up after you leave your job
If you’re still working at age 65 and have health insurance coverage through your employer, you probably don’t have to sign up for Medicare. That will allow you to avoid Part B premiums. But if you leave your job, you need to enroll within eight months. Otherwise, you may have to wait until the next enrollment period. That means you could go for several months without coverage. You may also get hit with the 10% lifetime late-enrollment penalty (Sandra Block Kiplinger.com).
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