Five ways to get the most from Medicare

Looking for ways to save money in retirement? Start with healthcare.

A healthy 65-year-old couple retiring this year can expect to spend $322,000 (today’s dollars) on Medicare premiums and dental insurance, according to Healthview Services, a maker of healthcare cost projection software. Add in deductibles, copays, hearing, vision, and dental cost sharing, and that figure rises to $404,000.

And healthcare costs are expected to rise an average annual rate of 5.47% for the foreseeable future, according to Healthview. That is almost triple the recent historical U.S. inflation rate and more than double the annual projected Social Security cost-of-living-adjustments.

“Historically, healthcare always has been a multiplier of U.S. inflation,” says Ron Mastrogiovanni, Healthview’s CEO. “It’s been fairly consistent.”

Those figures leave little doubt that sharpening up your pencil (or its digital equivalent) makes sense. Let’s consider five ways to optimize Medicare coverage, especially at initial enrollment–the point where many of the most costly mistakes occur.

1. Get Your Enrollment Timing Right

Most people need to enroll in Medicare during a seven-month initial enrollment period that begins three months before their 65th birthday and ends three months after.

If you already are receiving Social Security benefits at age 65, enrollment in Part A (hospitalization) and Part B (outpatient services) is automatic–you’ll receive a Medicare card in the mail with instructions on how to decline Part B if you don’t want it. Whether you should do so depends on what other insurance coverage you may have, and its source.

“We hear of a lot of mistakes about whether or not to take Part B at age 65,” says Casey Schwarz, senior counsel for education and federal policy at the Medicare RIghts Center, a nonprofit consumer advocacy group. “That can be really costly.”

Schwarz refers to the lifetime penalties seniors pay if they don’t enroll at the right time. For each 12-month period that you should have been enrolled in Part B, you will pay a 10% premium penalty when you do enroll–and that is a lifetime penalty. So getting the timing right is important.

If you are working at age 65 and have health insurance on the job, your employer remains the primary payer if the firm employs 20 or more workers. In this situation, you can delay enrolling in Part B without penalty and continue without the coverage so long as you work. Be careful to document that you had this coverage in case of any dispute with Medicare later on over penalties. If you work for a smaller firm, Medicare is the primary payer and you should enroll in Part B.

If you are enrolled in a high-deductible health insurance plan at work and use a health savings account, note that contributions to the HSA must stop when you join Medicare.

The Affordable Care Act also has caused some confusion around Medicare sign-up. Some people with coverage through the ACA marketplace exchanges mistakenly thought they could keep that coverage rather than sign up for Medicare at age 65. Any premium subsidies on ACA policies end when enrollees become eligible for Medicare, and ACA enrollment does not protect you from Medicare late enrollment penalties.

Insurance companies selling policies on the exchanges are forbidden from canceling coverage for people in these situations, but have been issuing warnings via email. Recently, Medicare said it will temporarily waive late enrollment penalties for people in this situation.

2. Prescription Drug Coverage–or Not?

Medicare Part D (prescription drugs) also carries late enrollment penalties, but the math here is less onerous. The penalty is 1% per month of late enrollment tacked onto your drug plan premium. Seniors who don’t have major prescription drug needs might be smart to wait to enroll, argues Philip Moeller, author of Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs.

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