One concern we often hear in Sarasota is when to apply for Medicare to avoid Medicare premium penalties. It can be pretty straightforward, or it can be tricky, depending on your circumstances. Unfortunately, a simple error can cost you tens of thousands of dollars – so it’s a mistake you don’t want to make. That’s why we wrote this article, to spell things out clearly without confusing bureaucratic terms.
First of all, we should go over the kinds of Medicare available. There are four parts: A, B, C, and D.
Part A is Medicare insurance that covers inpatient care costs, critical access hospitals, and skilled nursing homes. Be careful, though – Plan A DOES NOT cover custodial or long-term care in a nursing home, though it may cover some hospice and home care costs. If you or your spouse has paid taxes into Medicare for at least ten years, your Part A premium will be $0.
This insurance covers medically necessary services to diagnose and prevent illness. It may cover ambulance services, mental health treatment, and clinical research. You pay a monthly premium for Medicare B (2023 premiums are going down five dollars to $164.90 a month).
Also known as a Medicare Advantage Plan. You can purchase an Advantage plan through a government-approved insurance carrier. Part C generally covers what parts A and B cover, and it may cover a portion of Medicare D. As they are private insurance plans, costs and coverage vary, though they must follow strict rules set forth by the government.
This part of Medicare covers prescription drug costs. The premium depends on the income you received two years prior to the coverage year – your 2023 income will affect your 2025 Medicare D premiums. It is also possible to avoid paying any premium at all. If you earned less than $91,000 in 2021, you wouldn’t pay any additional premium in 2023 for Medicare D coverage.
Similar to Medicare B, you may face premium penalties if you enroll late.
If you are already receiving Social Security benefits by your 65th birthday for whatever reason (early retirement, disability), the Social Security Administration will AUTOMATICALLY enroll you in Medicare. Simple, right? But beware – automatic enrollment is only for Medicare A and B.
You may be asking yourself what to do if you don’t plan on retiring before 65 and taking Social Security. As you could have guessed, this is where things get tricky.
Which, in total, is seven months. If you don’t sign up within that period, you will have to wait for a General Enrollment Period, which we explain below.
But what if you are still working and want to stay on a group insurance plan provided by your employer or your spouse’s group insurance plan? In this instance, the window is eight months after your last day of employment or the month your group insurance plan stops covering you – whichever comes first. That’s perfectly okay, and you won’t risk any Medicare premium penalties by enrolling during the Special Enrollment Period.
Suppose you miss the Initial Enrollment Period or the Special Enrollment Period (whichever applies to you). In that case, you’ll have to wait for the General Enrollment Period, which runs from January 1st to March 31st each year. On July 1st of that same year, your Medicare coverage will begin. If you don’t apply for benefits at the FIRST CHANCE you get, either Initial or Special, you will have to wait until the General – and risk paying up to 20% more on your Plan B premiums for the rest of your life!
In 2023, that would be an extra $33 a month – money that could go to food, utility bills, or remain in your investment account. Even if premiums and penalties froze in place, a 20% premium hike would cost you $7,200 over 20 years – and that’s probably a lowball figure.
Americans are living longer and spending more time in retirement. The longer you live, the greater the chance that your portfolio will need to endure longevity risk and high medical costs. Therefore, it is vital you take full advantage of Medicare and maintain a healthy lifestyle to keep medical costs as low as possible!
If you have questions about how Medicare will affect your retirement, please click the button below to set up a consultation.