How to Enroll in — and Pay for — Medicare

Health insurance is confusing enough, but once you turn 65, introducing Medicare to the mix adds another layer of confusion. An October webinar hosted by Jim Holtzman, a wealth advisor and shareholder at Legend Financial Advisors and EmergingWealth Investment Management, explained the ins and outs of enrolling in and paying for Medicare coverage.

Your clients must enroll in Medicare at 65, according to Holtzman, unless they’re covered by a health plan from an employer or a spouse’s employer. If they don’t, they’ll have to pay late-enrollment penalties.

For Part A, that penalty is a 10% increase in the monthly premium, which must be paid for twice the number of years the beneficiary was eligible but not enrolled, according to Medicare.gov. The penalty for late enrollment in Part B is 10% for each 12-month period that the beneficiary was eligible but not enrolled, and the penalty must be paid for the entire time he or she has Part B coverage.

If your clients are receiving Social Security benefits when they turn 65, they’ll automatically be enrolled in Parts A and B. Retirees who aren’t automatically enrolled can do so one to three months before the month they turn 65 and Part B coverage will start as soon as they hit 65. If they wait until the month they turn 65 to enroll, or the three months after their birthday, there will be a delay before Part B coverage takes effect.

ABCDs of Medicare Enrollment

A common area of confusion for consumers is the difference between Medicare’s various plans. Part A covers hospital insurance; Part B covers medical insurance; Part C, also called a Medicare Advantage plan, combines Parts A, B and sometimes D; and Part D covers prescriptions.

Retirees can sign up for Parts A and B, then decide if they need Part D. They may also decide they need a supplemental “Medigap” policy.

Alternatively, retirees can sign up for the Medicare Advantage plan. Medigap policies aren’t available to Medicare Advantage plan beneficiaries, Holtzman said.

Retirees who want Part D coverage must sign up during their initial enrollment period or face late-enrollment penalties, unless they have comparable coverage through another plan. They can switch to Part D any time before that comparable coverage ends; after it does, retirees have 63 days to enroll in Part D. If they miss the initial enrollment period, clients can sign up during the general enrollment period between Jan. 1 and March 31, but coverage won’t begin until July 1, Holtzman said.

Medicare Costs

Premiums make up a significant chunk of out-of-pocket costs for retirees, according to Holtzman: 42%. The average out-of-pocket cost paid in 2010 was $4,734.

Most people won’t pay Part A premiums if they or their spouse paid into Social Security for at least 10 years (40 quarters). If they paid into the system for between 30 and 39 quarters, the premium is $224 a month, and increases to $407 per month for those who paid into the system for fewer than 30 quarters.