Medicare Prescription Drug Coverage For Dummies
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Medicare is uncharted territory for most of the 10,000 people who come into the program each day. It's not a minefield, exactly, but lurking in the undergrowth are pitfalls and traps that can be costly unless people take care to dodge them.

Avoiding the commonest mistakes in Medicare can make a world of difference to your costs and sense of satisfaction with the program.

Legislation has already been introduced in Congress that would mandate a notice to be sent to prospective enrollees a few months before their 65th birthday. The notice would explain when and how people should enroll, according to their situation, and provide a number to call with questions. This legislation, known as the BENES Act, goes a long way toward helping people avoid enrollment pitfalls and provides additional protections. But as of this writing, Congress has not passed it.

Thinking You Must Reach Full Retirement Age before Signing Up

For many years after Medicare began, most people enrolled in the program and started drawing Social Security retirement benefits at the same time: when they turned 65. But things have changed.

Full retirement age for most people is now 66, which will gradually increase to 67 for those who were born after 1959. But if you want to avoid late penalties, you need to sign up for Medicare at age 65, unless you have health coverage from your own job or from your spouse's current place of employment. You don't need to wait until you are collecting Social Security benefits to enroll in Medicare.

Assuming You Don't Qualify If You Haven't Worked Long Enough

Earning at least 40 credits by paying payroll taxes at work — about 10 years' work — means just one thing: It ensures that you won't have to pay premiums for Part A benefits (which mainly cover stays in the hospital) after you join Medicare. But you don't need any work credits to qualify for Part B (which covers doctors' services, outpatient care, and medical equipment) and for Part D (prescription drug coverage). You can get Part B and Part D benefits just by paying the required monthly premiums, provided that you're 65 or older, and a U.S. citizen or a legal resident who's lived in the United States for at least five years.

You may also qualify for Part A benefits on your spouse's work record, or you can pay premiums for them. But if you wait to sign up for Part B until you've earned 40 work credits, you may have to wait several months for coverage and end up paying permanent late penalties.

Failing to Enroll in Part B When You Should

Signing up at the time that's right for you is critical. If you don't, you risk two consequences:

  • Delayed coverage: You can sign up only during a general enrollment period (GEP), which runs from January 1 to March 31 each year — with coverage not beginning until July 1 of the same year.
  • Late penalties: An extra 10 percent for each full 12-month period that you delayed enrollment is added to your monthly Part B premiums for all future years.
The exception here is if you have health coverage beyond age 65 from an employer for which you (or your spouse) actively work and the employer has 20 or more workers. In that situation, you can delay Part B enrollment without penalty until the job ends.

Otherwise, you need to sign up during your seven-month initial enrollment period, in which the fourth month is usually the month in which you turn 65.

Believing You Don't Need Part B If You Have Retiree or COBRA Coverage

Part B is optional, so you are not obliged to enroll. But you should be aware that retiree benefits and COBRA coverage, though provided by a former employer, do not count as "active" employment and therefore do not protect you from delayed coverage and late penalties if you want to sign up for Part B at some future date:
  • Retiree benefits: Carefully check with your retiree plan to see how it fits in with Medicare. In most such plans, Medicare automatically becomes primary coverage and the plan pays only for a few services that Medicare doesn't cover. In that case, if you fail to sign up for Part B when you're required to, you'll essentially have no coverage.
  • COBRA coverage: This allows you to continue on your former employer's health-care plan after your job ends, usually for about 18 months, while paying its full premiums. In this situation, to avoid late penalties you need to sign up for Part B before the end of your initial enrollment period at age 65, or (if your job ended after that period) no later than eight months after you stopped work.

Not Signing Up For Part D Because You Don't Use Prescription Drugs

Why pay Part D premiums if you need no medicines? Because you don't have a crystal ball and can't be sure that you won't get some unforeseen illness or suffer a serious injury that takes expensive drugs to treat. (Some cancer drugs cost thousands of dollars a month.)

Part D, like all insurance, provides coverage when you need it, but doesn't allow you to wait to sign up until the need becomes urgent. And if you delay enrollment, you risk having late penalties permanently added to your Part D premiums — unless you have "creditable" drug coverage from elsewhere (such as retiree benefits) that Medicare considers at least as good as Part D.

But the more serious consequence of not enrolling is going without coverage. If you don't sign up with a Part D plan when you're first eligible — and don't have creditable drug coverage from another source — you must wait until the next open enrollment period. This runs from October 15 to December 7 each year, with coverage beginning January 1. One solution to this conundrum: Pick the plan with the lowest premium, so you get coverage at the least cost.

Picking a Part D Drug Plan for the Wrong Reasons

The "wrong" reasons include choosing a plan on the basis of its premium, or because it has a familiar name, or because that was the plan your spouse or best friend chose.

The "best" way to pick a plan is according to the specific prescription drugs you take. That's because Part D plans do not cover all drugs and they charge widely differing co-pays, even for the very same drug. Co-pays, much more than the premiums, determine how much you will spend out-of-pocket in any plan.

You can compare coverage and costs for your own drugs among the different Part D plans available to you by using the plan-finder program on Medicare's website.

Misunderstanding Enrollment Periods

You may have read about "open enrollment" and gotten the idea that this is the only time you can sign up for Medicare. Not true! In Medicare, open enrollment (October 15 to December 7 each year) is only for people who are already in the program and want to change their coverage for the following year.

If you're joining Medicare for the first time, you get your very own enrollment period. This may be your seven-month initial enrollment period (around the time you turn 65) or a special enrollment period if you have health coverage from an employer for which you or your spouse actively work, or some other time frame depending on your situation — for example, if you qualify for Medicare due to disability, live outside the United States, or are a legal immigrant.

If you miss your personal deadline because you're waiting for open enrollment, you risk delayed coverage and permanent late penalties.

Being Too Late to Buy Medigap with Full Protections

Medigap supplemental insurance is extra coverage that you can choose to buy privately to cover some or most of your out-of-pocket expenses in traditional Medicare, such as deductibles and co-pays. But to get the full federal protections, you need to buy it at the right time and you must be 65 or older. If you buy a Medigap policy within six months of enrolling in Part B or in a few other specific circumstances, Medigap insurers can't deny you coverage or charge higher premiums based on your current health or pre-existing medical conditions. Outside those time frames, they can do both — unless you live in one of the few states that provide additional protections.

The six-month window that you're allowed after enrolling in Part B is a one-time opportunity. So if you sign up for Part B when you turn 65 but continue to have employer insurance from your own or your spouse's current employment beyond the six-month deadline, you will fail to qualify for federal protections if you want to buy a Medigap policy when you (or your spouse) stop work.

However, if you enrolled in Part B under age 65 because of disabilities, you get another opportunity for federal protections if you buy a Medigap policy during the six months following your 65th birthday.

Failing to Read Your Annual Notice of Change

This important document comes in the mail each September if you're enrolled in a Medicare Advantage plan (HMO or PPO) or a Part D prescription drug plan. It specifies what changes the plan will make in its costs and coverage for the following year. For example: The plan may increase or reduce its premiums, or place your drugs in a pricing tier that charges higher co-pays for your drugs than what you pay now.

Carefully reading this notice provides you with the information you need to compare your current plan with others that will be available to you next year. You can make this comparison during open enrollment, which runs from October 15 to December 7. If you find a plan that gives you a better deal, you can switch to another for the following year.

In contrast, failing to read this notice can result in nasty shocks on January 1 if you stay with a plan that hikes its charges in the new year.

Not Realizing You May Qualify for Help to Lower Your Costs

Medicare comes with many expenses — premiums, deductibles, co-pays — that many people find hard to pay. So if your income is limited, be sure to check out three programs that can reduce those costs if you qualify:
  • Medicaid is a state-run program that provides virtually free health insurance for people with very low incomes. If you qualify, Medicare will be your primary insurance and Medicaid will be secondary, paying your out-of-pocket expenses in Medicare and covering some services that Medicare doesn't provide.
  • Medicare Savings Programs are run by the state and pay Part B premiums and sometimes other expenses for people with incomes under the limits set by the state.
  • Extra Help is a federal program that provides low-cost or reduced Part D prescription drug coverage for people with incomes and savings below a certain level.

To see whether you qualify for any of these programs, contact your State Health Insurance Assistance Program (SHIP), which provides free counseling on Medicare and Medicaid issues.

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