Here on the AgingOptions and Life Point Law Blog, we typically put a special emphasis on Medicare-related articles during fall open enrollment. But the fact is that as many as 10,000 baby boomers every day are turning 65, which means they’re becoming Medicare-eligible for the very first time. As it happens, there are some critically important things these new enrollees need to know even before they sign up – because there are Medicare enrollment mistakes that can cost us plenty, and sometimes for the rest of our lives.

We came across this related article on the Kiplinger website, written by financial planner Joelle Spear. She writes about one New England man in particular whose Medicare mistakes drew a lot of publicity. Unless you want to be a poster child for “expensive lessons learned the hard way,” we suggest you take a look at this Kiplinger article and the accompanying checklist. Getting Medicare enrollment wrong can cost you thousands of dollars more than you should be paying.

An Excellent Plan, with “Brutal” Penalties

“For seniors who aren’t covered by a health plan at work, Medicare is nearly always the most affordable and comprehensive alternative,” Spear writes in her Kiplinger report. “But as good as Medicare is, the penalties for not signing up for it at the right time can be brutal.”

As proof, Spear cites what she refers to as a cautionary story in the Boston Globe published a few months back. The title of the Boston Globe article says it all: “Don’t make the Medicare mistake that this couple made. It cost them dearly.” It’s the story of Alan and Bethann Cregg.

“In the story,” Spear writes, “Alan Cregg signed up for Medicare Part A (which covers some but not all inpatient medical costs) when he turned 65 three years ago. This was the right thing to do, since for most people there are no monthly premiums for Part A. However, because he was covered by his wife’s employer’s health insurance plan, he didn’t sign up for Medicare Part B for outpatient care or Part D prescription drug coverage.”

Job Loss Plus COBRA Equals a Huge Surgical Bill

So far, so good – but then the Creggs made a common and costly error. “The trouble started when Cregg’s wife lost her job,” Spear writes. “Because she wasn’t 65 yet, she signed them both up for COBRA coverage through Cigna insurance. Believing that being on COBRA was the same as having employer health insurance, Cregg once again didn’t sign up for Medicare Part B.” This turned out to be a very expensive misunderstanding of Medicare’s definition of “active coverage.”

A year later, Alan Cregg had knee surgery, and initially Cigna said they would cover the costs. “But after he had the procedure done, the insurer changed its mind,” says Spear. Cigna told Cregg that he should have signed up for Medicare Parts B and D instead of going on COBRA. “Cregg ended up paying the entire $20,000 medical bill out of his own pocket,” the article says.

After a back-and-forth appeal battle that went on for another full year, and prompted no doubt by the bad publicity generated by the Boston Globe article, Cigna finally agreed to reimburse Cregg for his knee surgery. “While this may sound like a happy ending,” Spear explains, “it really isn’t. Why? Because Cregg will probably still have to pay a surcharge on his Medicare premiums for the rest of his life.”

The Price of Delaying Medicare Enrollment

“When you’re eligible for Medicare but are no longer ‘actively covered’ by your company’s health care plan, you have eight months to sign up for Medicare Part B from the day you lose that coverage,” Spear explains. However, as Alan and Bethann Cregg discovered, when they went on COBRA, Medicare’s coverage requirements weren’t met.

“Being on COBRA doesn’t count as ‘active coverage,’” says the Kiplinger article. “Neither does post-employment health care coverage you could receive through your retirement plan.” Once the Creggs went on COBRA, the Medicare enrollment clock started ticking and eventually ran out.

“If you miss this eight-month special enrollment period,” Spear writes, “you might not be able to sign up again until the next Medicare general enrollment period, which lasts from January 1 to March 31 every year. And if you wait a year or more before signing up, you’ll have to pay a 10 percent late-enrollment premium penalty for each full year you don’t sign up. That penalty never goes away.”

(There is an appeal process. But as this article explains, Medicare’s rules for reversing a surcharge are pretty strict – and as the old saying goes, ignorance of the law is no excuse.)

Delaying Part D Drug Coverage Can Also Trigger Penalties

As Kiplinger explains, delaying enrollment in Medicare Part B isn’t the only mistake that will cost you. You’ll also get penalized if you don’t sign up for Medicare Part D prescription drug coverage in a timely manner. In fact, you have even less time to sign up for Part D coverage than for Part B.

“Once your special enrollment period begins, you have two months to sign up for Medicare Part D,” says Spear. “If you miss this deadline, you’ll pay a cumulative 1 percent penalty for each month you delay signing up. For example, if you wait a full year before signing up, your penalty will be 12 percent more than the standard monthly Medicare Part D premium.”

That’s the bad news. The worse news: like the Medicare Part B penalty, the Part D penalty is permanent, too. These surcharges stay with you forever.

Your Medicare Enrollment Checklist

Given that harsh reality, says Spear, “it’s important to know when you should first sign up for Medicare and under which conditions you may or may not need to enroll based on your current employment situation.” She offers a three-part checklist which we’ve abbreviated here. We encourage you to check out the original article, or, better yet, get some good advice from an expert who knows the intricacies of the system. (You can always contact us for a referral.)

1. Figure out if and when you need to sign up for Medicare.

“If you turn 65 and are still covered by your employer’s health plan, you may not need to enroll in Medicare,” says Spear – but this depends on several factors. If your company has more than 20 employees, she writes, “your group health plan probably meets Medicare’s ‘creditable coverage’ standards.” But if you work for a smaller company whose group health plan doesn’t meet Medicare’s standards of creditable coverage, you probably will need to sign up for Medicare Parts A, B and D within the applicable special enrollment period. Talk to your human resources department or benefits administrator to get their advice.  

2. Sign up for Medicare Parts B and D immediately if you’re no longer covered by employer health insurance.

“Don’t make the mistake Alan Cregg made,” Spear warns. “If you or your spouse loses your employer group health insurance for any reason and either one of you is age 65, enroll in Medicare within eight months.” This applies if you can’t find a new job with a company that offers creditable group health care coverage, or if you’re ineligible for coverage because of employment status.

Even though COBRA isn’t considered “active coverage,” if you’re eligible you can still sign up even after you’ve enrolled in Medicare – but you may not want to. “In these situations, COBRA may pay only for expenses that Medicare doesn’t cover,” Spear advises. “And since COBRA premiums can be extremely expensive, it may not be worth it to double your coverage this way.”

3. Don’t worry if you’ve signed up for Medicare and then get another job where you become eligible for employer health insurance.

After you get covered by Medicare, stay that way, says the article. “Once you’re enrolled in Medicare, you should never drop your coverage even if your new employer offers a creditable group health plan,” says Spear. “Should you sign up for your company’s plan, your medical expenses may be paid by your employer’s plan, Medicare or a combination of both.”

The bottom line is that Medicare can be deceptively complicated. As Spear concludes, “The issues around Medicare enrollment are complex, especially if you’re still working and need to figure out whether you should enroll immediately or whether you can put it off until you retire.”

The article ends with sound advice. “If your employer doesn’t have the knowledge to help you figure out what to do, consider contacting a local representative of the State Health Insurance Assistance Program (SHIP),” Spear suggests. “These consultants can work with you at no charge to help you understand and evaluate your available Medicare options. To find a SHIP counselor in your area, visit www.shiphelp.org.”  There you can search state-by-state for a no-cost advisor near you.

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(originally reported at www.kiplinger.com)