Medicare facts you need before 65

By Kiplinger's Personal Finance Magazine

If you'll celebrate your 65th birthday within the next year or so, get ready for a big gift from the government: Medicare coverage. But this present comes with strings attached in the form of complex enrollment rules that could cost you money if you're not careful.

Among other things, you'll have to figure out how Medicare dovetails with your workplace or retiree coverage. You'll need to understand its coverage gaps. You'll also have to choose between managed-care benefits and fee-for-service coverage.

"It was a hugely intensive effort," says Judy Kerstein, a department-store marketing director in New York City who turned 65 last January.

When you should sign up

To reduce the chance of foul-ups, contact the Social Security Administration (1-800-772-1213) three months before your 65th birthday. Medicare's initial enrollment period runs for seven months, starting three months before the month you turn 65 and running three months after your birth month.

Everyone is eligible for Medicare at age 65, even when an individual's normal retirement age for Social Security benefits is later. If you were born in 1942, for example, your full retirement age is 65 and 10 months. A senior who waits until then to sign up for Medicare will have missed the initial enrollment period for Part B coverage, which covers outpatient care. That senior will have to wait until the general enrollment period, which runs from Jan. 1 to March 31 for benefits starting July 1.

But don't wait too long -- you'll incur a 10% premium penalty for each year you wait beyond your initial enrollment period. You'll pay that surcharge as long as you have Part B. You can sign up for premium-free Part A, which covers hospital services, at any time with no penalty.

For the Part D drug plan, you must apply during the initial enrollment period to avoid a penalty, which accrues monthly. If you miss the initial period, you can sign up during the last six weeks of the year for coverage that begins Jan. 1. You can avoid the Part D late fee if you can prove you had drug coverage elsewhere that is at least as good as the Medicare benefit.

If you opt for fee-for-service care, make sure you sign up for a Part D plan as well as private supplemental coverage to fill Medicare's coverage gaps, called Medigap. An alternative is a Medicare Advantage managed-care plan, which includes gap and drug benefits. This option likely will be cheaper than traditional Medicare, but you may lose the provider choice of fee-for-service care.

If you have workplace benefits

Individuals who continue to work can qualify for a special enrollment period that exempts them from penalties, says Howard Houghton, the coordinator of the Virginia Insurance and Counseling Assistance Program for Fairfax County. To qualify, you must enroll in Part B while you're covered by a group plan offered by your employer or your spouse's employer -- or within eight months after that coverage ends or the employment ends, whichever is first.

Deane Beebe of the Medicare Rights Center says the advocacy group last year heard from a retiree who was assessed a 230% Part B penalty when she signed up 20 years after her special enrollment period ended. The retiree, who had group coverage into her late 60s, had falsely assumed her two decades of retiree health benefits would play the same role as active-worker coverage when it came to waiving the late fee.

Newly eligible beneficiaries who are still covered by workplace insurance can choose the parts of Medicare they want. You can sign up for Part A or Part B, or both, but you can't get drug coverage unless you enroll in one of these parts. Does your spouse need your workplace coverage? There's a chance you could lose those benefits if you join a Medicare Advantage or Part D plan, so check first.

For questions, call Medicare at 1-800-633-4227 or visit the agency's Web site.

This article was reported and written by Christopher J. Gearon for Kiplinger's Personal Finance Magazine.

Published Jan. 23, 2007