Right Medicare choices for individuals over 65

For the thousands of people turning 65 in the coming months, it can be a milestone worth celebrating. There also are hurdles to overcome, including making the right Medicare choices, according to Allsup, a nationwide provider of Social Security disability representation and Medicare plan selection services.

“For a healthy person with limited medical requirements, basic Medicare Part A and B may seem like enough”

"For many people, shifting from employer-sponsored healthcare to Medicare can be scary because you're going from a simple annual selection to numerous options," said Paul Gada, personal finance director for Allsup who directs Allsup Medicare Advisor^®, a Medicare plan selection service for people with disabilities and individuals over 65.

"Unfortunately, too many first-time Medicare enrollees learn by trial and error," Gada said.

People often approach their Medicare choices in the same way they handle other difficult decisions. "On the one end are those who spend hours sifting through all the Medicare literature—and yet still get surprised by costs or coverage shortfalls they didn't anticipate," Gada explained. "On the other end, there are those who procrastinate and find themselves facing stiff penalties or unable to secure the coverage they need."

Below, Allsup outlines answers to common questions from new Medicare enrollees.

When can I enroll in Medicare?

Most people become eligible for Medicare when they turn 65 and are automatically enrolled in Medicare Part A. At that time, they also receive information on how to enroll in Medicare Part B. Additionally, they have three months before their 65^th birthday, the month of their birthday and three months after their birthday to make additional enrollment choices.

What are my Medicare options and the costs?

Medicare has four components - Parts A-D.

• Part A, which covers hospital care, is free to most people who paid FICA taxes while working.
• Part B, which covers outpatient services and doctor visits, charges an income-based premium. Most new Medicare enrollees can expect to pay a monthly benefit of $110.50 in 2010, but it's more for individuals with annual income above $85,000 (or more than $170,000 for couples).
• Part C, Medicare Advantage plans, combine Medicare Parts A and B, making it easier to manage plans. The plan also may include Part D prescription drug coverage as well as dental or vision care. Depending on where someone lives, there are dozens of different plans with varying levels of services and costs.
• Part D covers prescription drug costs. This coverage can be purchased separately and is provided by private health insurers, which offer various plans and prices.

Medigap: Because out-of-pocket costs can be high with traditional Medicare (Parts A and B), many people also enroll in Medigap supplemental coverage to help minimize these costs.

Do I have to enroll in Medicare even if I already have private coverage?

If you are working and have health insurance through your employer, or your spouse is working and has employer-provided health insurance under which you also are covered, you can defer Medicare Part B.

However, you have to notify the Social Security Administration that you are seeking a deferral. If you do not do this, there are steep penalties. "If you are working and receive a deferral, but then leave your job, you have eight months in which to enroll in Medicare Part B before the penalties kick in," Gada explained, noting that as part of the Allsup Medicare Advisor program, Allsup often works with employees making the transition from employer plans to Medicare.

What are the penalties for not enrolling in Medicare?

If you do not have an approved deferral, Medicare Part B imposes a late-enrollment penalty. As a result, the premium may go up 10 percent for each full 12-month period that you could have been enrolled in Part B. For example, delaying enrollment five years would result in a 50 percent penalty (10 percent x 5 years), meaning your monthly premium would be 50 percent higher than had you enrolled in Medicare Part B when first eligible. The penalty applies for as long as you have Medicare.

Likewise, Medicare Part D imposes a fine if you go for more than 63 days without coverage as good as or better than the standard set by Medicare after enrolling in Part B. The penalty is determined by adding up the number of months the person did not have coverage after becoming eligible and multiplying this number by 1 percent of the national average monthly benchmark premium. For example, the average benchmark for 2010 is $28. Therefore, if you were eligible for five months of coverage during 2010 but had not enrolled, a $1.40 monthly penalty would be added to your premium ($28 monthly benchmark premium x 1 percent x 5 months). As premiums increase, the penalty will increase for as long as you have Medicare Part D coverage.

Because Medigap coverage is optional, there is no penalty if you do not enroll. However, Medigap providers are only required to guarantee people the right to coverage, regardless of pre-existing conditions, during the first six months after they enroll in Medicare Part B. After that, they can charge higher rates or deny coverage.

"For a healthy person with limited medical requirements, basic Medicare Part A and B may seem like enough," Gada said. "However, it's wise to consider getting a basic prescription drug plan and enrolling in a Medigap plan or to consider Medicare Advantage plans, so that you aren't facing penalties or have problems finding affordable supplemental coverage should you need it in the future."

Can I change my mind?

There are several enrollment periods for Medicare, allowing people to change their plans at least annually. The initial enrollment period is the time when someone turns 65. Therefore, if your birthday were in July 2010, you must be enrolled in a plan no later than Oct. 30, 2010. For 2011, you could choose to do nothing, in which case you would be automatically re-enrolled in the same plan, or you could choose to change plans during annual enrollment. There also is an annual enrollment period that runs from Nov. 15 to Dec. 31 each year for coverage for the following year. There also are other enrollment periods throughout the year for other circumstances.