10 Costly Medicare Mistakes You Shouldn’t Make

MedicareHealthcare

Sep 23

Costly Medicare mistakes Vision Retirement financial planning independent RIA CFP fiduciary investment advice investment management New Jersey New York Bergen county financial advisor Ridgewood NJ.

Medicare is the most common health care insurance option for retirees, providing coverage for almost 66 million Americans; and since healthcare is the third-largest expense for retiree households, it’s hard to argue against Medicare as an essential retirement planning component.

That said, one might assume a large proportion of people have at least a broad overview of Medicare and how it works. A recent Harris Poll survey, however, indicates that more than 7 out of every 10 participants over age 50 wish they had a better understanding of this coverage!

In fairness, there’s no disputing that Medicare particulars are sometimes very complicated and—quite frankly—overwhelming. That’s one of the reasons we decided to build a library of Medicare articles that aim to help you make smarter decisions. In this article, we’ll discuss some common (and costly) Medicare mistakes you can easily avoid without exerting too much effort in the process.

Mistake #1: Not enrolling during the initial enrollment period when you’re eligible for free Part A premiums

If you’ve received Social Security or Railroad Retirement Board benefits for at least four months prior to turning 65, the government will often automatically enroll you in Medicare Part A (hospital insurance) and Medicare Part B (medical insurance) at age 65—with your Medicare card/instructions typically arriving in the mail three months prior to your 65th birthday.

All other eligible seniors can sign up for Medicare within a seven-month window, beginning three months prior to their 65th birthday and ending three months thereafter. You can apply for benefits online or over the phone.

However, if you fail to qualify for free Part A premiums (because you or your spouse didn’t meet the Medicare tax threshold while working, which generally takes at least 10 years) and don’t buy in when you’re first eligible for Medicare, your monthly premium could rise by 10%.

What’s more, the 10% late enrollment penalty will be assessed for twice the number of years you didn’t sign up but could have! For example, if you were eligible for Part A for two years but failed to apply, you’ll go on to pay a higher premium for four years.

Mistake #2: Not enrolling for Medicare Part B on time

Medicare Part B covers medical services and supplies necessary to treat health conditions: including visits to doctors and other healthcare providers, medical equipment, and ambulance services.

You’re required to enroll in Medicare Part B if you don’t have “creditable coverage” from another source (e.g., an employer), and a failure to do so may result in a 10% monthly fee for each 12-month period you could have had Part B but didn’t.

For example, if you wait 24 months to sign up for Part B but don’t qualify for a “Special Enrollment Period” (falling outside your initial enrollment window and typically granted in light of applicable life events such as losing health coverage or moving), you’ll need to pay a 20% late enrollment penalty for each 12-month period you could have signed up but didn’t. In this scenario, your 2024 Part B premium would be $209.60 ($174.70 for the standard premium and $34.94 for the 20% penalty).

Mistake #3: Not enrolling for Medicare Part D on time

Medicare Part D (which you can obtain through stand-alone coverage or a Medicare Advantage Plan) helps cover the cost of both brand-name and generic drugs. To qualify for this optional plan, you must have Medicare Part A and/or Part B.

No matter which option you choose, you must go through a private insurance company regulated by Medicare and sign up during a designated enrollment period: such as your Initial Enrollment Period, Annual Enrollment Period (October 15–December 7 each year), or a Special Enrollment Period.

While Medicare Part D is optional, keep in mind you’ll need to pay a late enrollment penalty if you decide to sign up but lack credible prescription drug coverage for more than 63 consecutive days after you’re first eligible.

The penalty amount totals 1% of your premium for each month (or 12% for each year) you could’ve enrolled but didn’t. What’s more, this penalty is permanent for as long as you have Medicare coverage.

Mistake #4: Waiting to buy a Medigap policy

Offered through various insurance companies, Medicare Supplement (Medigap) plans cover many out-of-pocket costs Original Medicare (Parts A & B) does not: such as copayments and deductibles. Some policies also cover medical expenses when you travel beyond U.S. borders—another service Original Medicare doesn’t offer.

If a Medicare Supplement plan is right for you, keep in mind that insurers who offer such policies cannot deny you coverage or charge you more for preexisting conditions when you first enroll in Medicare.

However, adding a Medigap policy outside of your initial seven-month enrollment period may cost you more overall; even worse, insurers can deny you coverage based on your health status. Specifics vary from state to state, so be sure to do your homework accordingly.

Mistake #5: Losing sight of Medicare surcharges

The more money you make, the higher your Medicare Part B and Part D premiums. For example, while those who earn less than $103,000 (<$206,000 for joint tax returns) in 2024 will pay a monthly premium of $174.70, those earning just $1 more than these thresholds will see their monthly premium jump to $244.60 (or higher if they earn even more)!

These same income thresholds apply to Medicare Part D; exceed them by just $1, and you’ll pay an additional $12.40 above your monthly premium (with those earning even more paying up to $77.90 a month, in fact).

These Medicare surcharges are referred to as “income-related monthly adjustment amount” (IRMMA). To the surprise of many—especially those who begin taking required minimum distributions (RMDs) from their retirement accounts—the surcharge is calculated based on tax returns reported from two years prior: meaning your 2024 income determines your IRMAA in 2026, your 2025 income determines your IRMAA in 2027, and so on.

Proper tax planning or filing an appeal can mitigate surcharges, typically in light of a life-changing event.

**Mistake #6: Assuming your Medicare coverage also covers your spouse**

Unlike most employer-based programs, Medicare applies only to the enrolled individual—meaning your spouse must also sign up (or, if not yet eligible, seek out coverage elsewhere).

Mistake #7: Not getting the most out of Medicare Part D

Rising prescription drug costs create myriad challenges for retirees. Specifically, drastic increases have prompted many seniors to reduce their reliance on prescription drugs, purchase less expensive prescriptions from other countries (e.g., Canada), or—in extreme cases—skip their medications entirely.

That said, some plans boost their premiums more so than others and/or enact new hurdles before agreeing to cover medications. It’s therefore important to review available plans in your area during the Medicare Open Enrollment Period as a sensible way to save money (as well as potential headaches down the road).

If your spouse also plans to enroll in Medicare Part D but requires different medications, it may make sense to participate in different plans that each cater to your own individual needs. We highly recommend reading our article on Medicare Part D, which may in fact save you some money.

Mistake #8: Assuming Medicare covers long-term care

Many people incorrectly assume Medicare covers long-term care. The truth is that it doesn’t—except in very limited circumstances. With recent studies reporting the annual median cost of nursing home care rings in at over $100,000 annually, expenses can quickly dash retirement dreams.

Long-term care insurance policies typically cover out-of-pocket expenses that accompany home care, assisted living, and nursing homes: benefits not covered by Medicare and other public programs.

Mistake #9: Failing to read your Annual Notice of Change

If you’re enrolled in Medicare Part D or a Medicare Advantage plan, every September you’ll receive an “Annual Notice of Change” (ANOC) specifying anticipated changes to plan costs and coverage for the following year. If these changes don’t appeal to you, you’re free to switch plans during open enrollment (October 15–December 7). Be sure to carefully review this notice so you’re not stuck in a plan you don’t want or need until you’re permitted to switch.

Mistake #10: Not understanding how Medicare works with your private insurance

If you're under age 65, plan to extend participation in an employer-based health insurance plan (including COBRA)—even after you enroll in Medicare—knowing this program may work a little differently for you than others.

Generally, Medicare will act as your primary insurance: meaning that whenever you incur a healthcare expense, the bill is first submitted to Medicare. Assuming a balance on your bill exists, your secondary insurance would cover the remaining amount.

However, if you’re still on an employer group plan that covers 20+ employees or is part of a multi-employer group health plan (generally jointly sponsored by two or more employers), your employer plan will act as the first payer with Medicare kicking in thereafter. This is true whether you have coverage through your employer’s plan or are covered through your spouse’s.

Determining which plan serves as your primary option will make it easier for you to manage your insurance going forward.

In sum: avoiding common Medicare mistakes

With healthcare costs climbing over time, it’s important to fully understand your Medicare options to help combat these expenses—especially during retirement. While navigating the Medicare maze isn’t always easy, you can now see that it’s fairly simple to sidestep some of these common (and costly) mistakes without exerting too much effort.

Still have questions about Medicare? Schedule a FREE Discovery call with one of our CFP® professionals.

FAQs

No, a financial limit does not exist for Medicare as it’s a lifetime benefit.
In addition to long-term care, Medicare doesn’t cover many healthcare-related expenses including copays, deductibles, dental and vision services, and hearing aids.
While Medicare Advantage plans are advantageous for many (in 2023, 51% of Medicare beneficiaries (30.8 million people) were enrolled in a Medicare Advantage plan, per data published by independent research organization KFF), they aren’t for everyone. Click here to read more about Medicare Advantage plans.