Big penalties await those who delay Medicare filing

Fri Jan 20, 2012 11:31am EST

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(Reuters) - Most seniors on Medicare will pay $99.90 per month this year for Part B outpatient coverage. But how would you like to pay 10 percent more for that coverage, or 50 percent more?

Failing to sign up for Medicare at the right time can cost you - big time. The monthly Part B premium jumps 10 percent for each full 12-month period that a senior could have had coverage but didn't sign up. A mistake can be costly; someone who fails to enroll for five years would face a 50 percent Part B penalty - 10 percent for each year of delay. That penalty is permanent, and can translate into thousands of dollars in unnecessary lifetime penalty expenses; a headache no one needs on top of already soaring healthcare costs.

That means it's critical to understand Medicare's rules for filing. Enrollment is automatic at age 65 for seniors who already have filed for Social Security benefits - but a growing number of older Americans are working longer and delaying their Social Security filings.( link.reuters.com/vej26s ).

"Since Social Security's full retirement age no longer is linked to Medicare eligibility, this has become a bigger issue," says Doug Goggin-Callahan, education director at the Medicare Rights Center, a non-profit advocacy organization that counsels seniors on Medicare issues. "We're also seeing situations in this down economy where people are working well past 65, or they're enrolled in Medicare but then return to the workforce out of necessity."

Getting it right will be important for the huge wave of baby boomers hitting age 65 over the coming two decades. It's especially important for older workers to understand how Medicare interacts with health insurance provided by employers to their workers and retirees.

If you're already receiving Social Security on your 65th birthday, expect to receive your Medicare card automatically by mail three months before your date of eligibility. If you're not on Social Security, it's your responsibility to file - and it's best to start thinking about it before retirement to avoid those stiff penalties.

You can apply for Medicare through the Social Security Administration, either by visiting a local office or online at the agency's website ( www.ssa.gov/medicareonly/ ). To ensure that your Medicare Part B coverage start date is not delayed, you should apply three months before the month you turn 65, or by up to three months after.

If you are still working at age 65, Medicare is the primary payor if your employer has fewer than 20 workers; at companies with more than 20 workers, the employer's plan is primary. In the latter situation, a senior can postpone filing for Parts A (hospitalization) or Part B, although many choose to enroll for Part A anyway since it doesn't require premium payments.

If you delay your Part B coverage, you can enroll without penalty when you do retire for up to eight months following that point. But approach the decision to postpone enrollment with great caution.

It's wise to notify Medicare of this decision when you turn 65, in order to ensure that there won't be problems with penalties later on. This can be done by checking off a box on the back of a Medicare card that has been sent, by calling the Social Security Administration or through the SSA website. And talk over your plans with your employer's human resources administrator. If you work for a small business, ask whether the company falls under Medicare's 20-worker rule, since some employees might be considered contractors.

BEWARE TOO MUCH INCOME

If you're still working but filing for Medicare, pay careful attention to the program's surcharges on high-income seniors. The surcharges are levied on individuals with $85,000 or more in annual income, and joint filers with income over $170,000, and they scale upward through four income brackets. The surcharges not only apply to Part B, but also to Medicare Advantage (Part C) and prescription drug plans (Part D).

The income surcharges currently affect just 5 percent of seniors, since most are retired and don't have that much income. But seniors who are working are more likely than others to have enough income to trigger the surcharge. The extra costs aren't trivial: Seniors in that first surcharge bracket would pay $480 more this year for Part B.

DRUG COVERAGE CAN WAIT

If you have prescription drug coverage from your former employer, you don't have to file for Part D at retirement so long as the coverage is as good or better than what Medicare offers. Check with your employer to make sure the plan meets Medicare's definition of "creditable" coverage. If so, you'll be able to enroll for Part D at any point later if you lose the employer coverage.

"It comes down to taking the best coverage available to you," says Goggin-Callahan.

(Editing by Beth Pinsker Gladstone)

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