Medicare is a complex program with many rules, regulations, and moving parts. If consumers fail to enroll at the right time, they can face serious penalties. If they don’t buy sufficient insurance to cover the program’s many gaps, they may be hit with heavy out-of-pocket expenses.
“Most people have gotten their insurance through their employer, and in many cases they have no idea how health insurance works because their premium just gets taken out of their paycheck,” said Scott Bishop, CPA/PFS, executive vice president of financial planning with STA Wealth Management in Houston. That can be a recipe for confusion.
There are some key issues surrounding Medicare that should be discussed with your CPA and Financial Planner:
65 year-old Medicare enrollees need to enroll.
Eligibility for Medicare starts at 65, even though the full retirement age for Social Security is now between 66 and 67, depending on birth year.
“That means that if you’re getting Medicare [at 65], it can’t come out of your Social Security check because you don’t have one,” said Theodore Sarenski, CPA/PFS, founder of Blue Ocean Strategic Capital in Syracuse, N.Y. “You have to make sure you make that payment.”
Don’t miss the enrollment window.
Unless you have employer-sponsored coverage, you have a seven-month window to sign up for Medicare, consisting of the three months before you turn 65, the month you turn 65, and the three months after. If you don’t sign up during this period, youwill incur a late-enrollment penalty of 10% for every 12-month period you don’t enroll.
The same is true for Part D drug coverage and Medicare Advantage plans with a premium component. In this case, the penalty is 1% of the national base premium ($35.63 in 2017) for each month that beneficiaries go without coverage. These penalties remain in effect for the rest of their lives.
As Reina Schlager, CPA/PFS, co-owner of Schlager, Schlager & Levin in Fort Myers, Fla., noted, “Medicare Supplement (Medigap) plans do not have this premium penalty.” However, beneficiaries need to apply for them in a timely manner. “If you apply beyond the six-month ‘guaranteed issue’ window for supplementary plans, you may not be eligible for this type of plan due to your medical history,” Schlager said.
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CPA Insider, July 24, 2017