6 Medicare Planning Mistakes You Can't Afford to Make In Retirement

Turning 65 and preparing for retirement? Understanding your Medicare coverage options is crucial, but the complexities can trip up even the savviest retirees. From enrollment penalties to coverage gaps to unexpected costs, making the wrong Medicare decisions can damage your finances and healthcare at a vulnerable time.

This guide covers six costly Medicare mistakes to avoid as you develop your retirement plan. We’ll explain key concepts in plain language, using examples and clear frameworks so you can make informed choices.

Whether you’re new to Medicare or simply looking to optimize your existing coverage, read on to sidestep pitfalls and set yourself up for healthcare and financial security in the years ahead.

Key Takeaways

• Miss enrollment deadlines and trigger lifelong monthly penalties
• Struggle decoding Medicare Parts A, B, C and D cost and coverage
• Lack supplemental plans causing surprising care costs
• Mishandle integration of Medicare with employer health insurance
• Underestimate all categories of expenses - premiums, deductibles, coinsurance
• Neglect annual open enrollment checkups of evolving needs vs plan details

What is Medicare?

Before diving into planning errors, let’s level-set on what Medicare is and how it works. Medicare is the federal government’s health insurance program primarily serving Americans aged 65 and older, though some younger adults with disabilities also qualify. Roughly 64 million people benefit from Medicare coverage today.

Original Medicare consists of Part A and Part B:

• Part A covers inpatient hospital stays, skilled nursing facility care, hospice services, and some home health care. There is usually no monthly premium if you or your spouse paid Medicare payroll taxes while working.
• Part B covers doctor visits, outpatient services, preventative care, durable medical equipment, and more. Most people pay a monthly premium based on income.

You can supplement Original Medicare by adding:

• Part D: Prescription drug coverage offered by private insurers. Monthly premiums vary by plan.
• Medigap: Supplemental coverage that helps pay Medicare cost-sharing. Monthly premiums vary by insurer and plan type.
• Medicare Advantage (Part C): All-in-one managed care plans offered by private insurers as an alternative to Original Medicare. Monthly premiums vary by insurer and plan type.

Now that we’ve covered the basics, where do retirees typically go wrong? Read on for the top mistakes.

Mistake #1: Not Enrolling On Time

To avoid lifelong late enrollment penalties, understand Medicare's intricate enrollment timelines and qualifying conditions for special enrollments.

When to Apply for Medicare

• Initial Enrollment Period: The three months before you turn 65, the month you turn 65, and the three months after you turn 65. Coverage starts the first of the month after approval. This is the key window you can’t afford to miss!
• General Enrollment Period: January 1 to March 31 each year. Coverage starts July 1. Not available for first-time enrollments.
• Open Enrollment Period: January 1 to March 31 each year. Chance to switch plans October 15 to December 7.

Missing your initial enrollment triggers penalties, except in special cases like continuing to work full-time with qualified group health insurance. Even then, enroll within 8 months of leaving that job or plan to avoid issues.

Medicare Late Enrollment Penalties

If you miss enrolling during your initial eligibility period, monthly premiums may increase 10% for Part B or 1% for Part D per year that you delayed. These extra costs continue forever, so a three year delay would increase premiums 30% for Part B and 3% for Part D. The late penalties alone can seriously damage retirement budgets.

By carefully tracking eligibility and enrollment deadlines, you can avoid this costly mistake. Mark your calendar, set phone reminders, or ask a friend to nag you if needed!

Mistake #2: Not Understanding the Parts of Medicare

Comparing plans requires grasping what Original Medicare does and doesn’t cover across Parts A, B, and D plus supplemental offerings. We’ll break it down piece by piece.

Beyond the core parts of Medicare, secondary insurances play a key role in rounding out coverage

• Medigap helps pay Medicare deductibles, copays and coinsurance costs that come with Part A and Part B
• Medicare Advantage plans offered by private insurers combine all the coverage of Original Medicare plus sometimes extra benefits not offered on traditional Medicare

Understanding gaps in Original Medicare coverage allows you to make smart choices about secondary insurance options and avoid surprise medical bills down the road.

Mistake #3: Not Considering Secondary Insurance

While core Medicare coverage has improved, significant gaps remain that can ambush retirees. Understanding limitations around long-term care, prescriptions, dental and more allows you to make informed choices about supplemental plans.

Long-term Care Insurance

Perhaps the most frightening coverage gap, Medicare does not cover extended long-term custodial care in nursing homes or assisted living facilities. With Genworth estimating the average cost of nursing home care over $100,000 per year, these uninsured expenses can rapidly drain retirees’ financial resources.

Solutions to offset long-term care costs include long-term care insurance, life insurance policies with living benefit riders, annuities that convert to long-term care coverage, and reverse mortgages. Each option carries pros and cons to weigh. Speaking with a financial advisor can provide clarity for your specific situation.

Prescription Drugs

While Medicare Part D plans cover retail and mail-order prescriptions, they notably exclude

• Over-the-counter medicines
• Alternative therapies like medical marijuana
• Cosmetic medications

Since the average 65-year-old takes 4-5 prescriptions per month, Rx costs add up fast. [2] Make sure to choose a Part D plan offering solid coverage of your specific medications. Basing the decision solely on lowest premiums often backfires.

Dental & Vision

Original Medicare does not cover routine dental cleanings or vision exams, only emergency dental procedures and medical vision issues. Some Medicare Advantage plans offer dental and vision benefits, but specifics vary widely. Reviewing plan details matters here.

Supplemental dental insurance can offset costs for preventative oral healthcare and procedures like crowns or bridges. Purchasing vision insurance or simply paying cash for annual optometry visits also fills this gap economically for most retirees.

Mistake #4: Not Mastering Medicare/Employer Coordination Rules

If you plan to work full-time past age 65 with health benefits, Medicare coordination gets tricky. Steer clear of unnecessary double coverage or dangerous gaps by understanding integration rules.

Employers with 20+ employees: Delay Medicare enrollment if your employer coverage meets CMS qualifications as primary insurance without age restrictions. Enroll in Medicare within 8 months of retiring to avoid penalties.

Employers with <20 employees: Enroll in Medicare Part A and Part B on time at 65 while also maintaining employer group health as secondary insurance.

The cost efficiency of maintaining dual coverages hinges on employer subsidy levels and the comparative richness of benefits. Crunching numbers with your company’s HR team prevents leaving money on the table or opening coverage holes unnecessarily.

Mistake #5: Not Accounting for All Medicare Costs

With Medicare expenses spanning premiums, deductibles, copays and coinsurance, understanding total out-of-pocket costs matters tremendously for retirees balancing healthcare costs and living expenses on fixed incomes.

Medicare Premiums

Monthly premiums cover Parts B, D and supplemental offerings like Medicare Advantage plans or Medigap policies. Income relate adjustments through IRMAA may further raise premiums for higher earning retirees.

• Part B premium - Standard $170.10/month in 2023, subject to IRMAA adjustments [3]
• Part D premium – Varies significantly based on drug coverage specifics, from $7 to $100+ monthly
• Medigap premium – Depends on plan type, averages ~$150 monthly with wide variation
• Medicare Advantage premium – $0 for barebones plans up to $200+ for rich coverage, averages ~$50 monthly

Medicare Deductibles, Copays & Coinsurance

Beyond recurring premium costs, Medicare also requires significant cost sharing at time of care.

• Part A - $1,576 deductible per benefit period for inpatient hospital care in 2023
• Part B - $226 annual deductible, 20% coinsurance for most services
• Part D – Varies by plan, averages $480 deductible, 25% coinsurance up to initial coverage limit of $4,660 in 2023 [5]
• Medigap/Medicare Advantage – Greatly reduces cost exposure, but still some copays / coinsurance on many plans

Choosing secondary insurance wisely and budgeting for healthcare inflation protect against unexpected medical bills sinking retirement finances. Review all sources of costs annually.

Mistake #6: Not Reviewing Coverage Annually

Medicare plans constantly shift costs, coverages and preferred healthcare providers. Set calendar reminders to revisit choices during fall Open Enrollment and proactively address changes in medications, health status or finances altering your needs.

Key shifts to assess at least annually:

• New health conditions – Diagnosis of diabetes, cancer or other major illnesses require revisiting prescription drug, treatment coverage
• Medication changes – Both dosage adjustments and new branded vs generic availability can modify preferred Part D plans
• Provider network changes – Doctors retiring, hospitals leaving networks disrupt coverage continuity
• Life changes – Move to different geography, travel plans, divorce and other transitions alter options
• Premium increases – Review impact of inflation on premium costs as well as subsidies
• Evolving finances – Change in income from retirement or investments may open access to financial assistance programs or new plans

Bottom line, what worked year one of your Medicare coverage may not remain the optimal choice as health, life and market dynamics shift. Commit to making coverage review an essential annual ritual, adjusting details as needed to protect both your health and your wealth through retirement.

Frequently Asked Questions (FAQ)

Can I make changes to my Medicare coverage after initial enrollment?

Yes, Medicare’s annual Open Enrollment Period spanning October 15 to December 7 allows reassessment of choices for the upcoming plan year. You can switch between Original Medicare, Medicare Advantage plans, Part D prescription offerings and supplemental coverages. Outside this fall window, changes are more limited apart from special life events.

What does Medicare cost if I continue working full-time past 65?

If your large employer provides health coverage meeting CMS standards as primary, you can delay Medicare enrollment without penalties. With under 20 workers, maintaining workplace insurance plus enrolling in Medicare as secondary coverage often makes sense. Costs and coverages vary greatly based on the employer’s subsidies and benefits design. Confer with HR on your specifics.

Should I choose Medicare Advantage or Medigap to supplement Original Medicare?

Medigap plans help pay Medicare deductibles, copays and coinsurance but maintain open access to any healthcare provider accepting Medicare nationwide. Medicare Advantage plans typically limit your provider network but offer extra benefits Original Medicare omits like vision, dental and hearing coverage. Compare plans’ provider networks, premiums and out-of-pockets costs against your expected healthcare needs.

If my income is too high for Medicaid but limited for retirement, can I receive any Medicare cost assistance?

Yes, Medicare Savings Programs help qualifying seniors with limited means pay for Medicare premiums, deductibles and copays. Benefits are administered at state level through Medicaid. Your state health department website details eligibility based on income and asset thresholds.

CONCLUSION

Health care is one of the largest expenses a retiree faces. It is important to research your options carefully before deciding on a plan. By avoiding mistakes and taking the time to educate yourself about your Medicare options, you can ensure that you have the coverage you need at the best cost.

Avoiding these errors takes work but pays off with the peace of mind and financial security critical to your retirement. Now equipped with key concepts and frameworks, seek out additional resources such as Medicare.gov, local SHIP counselors, or independent brokers to land on the right coverage regimen for your situation. With sound choices empowering worry-free healthcare access, you can focus time and energy on enjoying your newfound freedom away from the workforce.

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