Medicare enrollment and costs

In short

You have probably heard that Medicare starts at 65, and that part is true enough. What trips folks up is the timing, because the sign up window is short and the penalties for missing it can follow you for years. If you are close to 65, look up your own Initial Enrollment Period, which is the seven month stretch around your 65th birthday. Find out whether you or your spouse still has health coverage through a job you are working, since that changes your deadline. Ask your benefits office whether any retiree plan or COBRA coverage you have will let you delay Part B, because those two are treated differently. Check what you will pay for Part B, the part that covers doctor visits, on the official Medicare site. Then put your dates on the calendar today.

The whole of it

What it is

A friend of mine turned 65 last spring and told me, "I figured the government would just mail me a card and that would be that." Some people do get it that way, but many do not. Medicare is the federal health insurance program for people who are 65 or older, and for some younger people with certain disabilities. It comes in parts, and each part covers a different slice of your care.

Part A covers hospital stays. Part B covers doctor visits, outpatient care, and some medical supplies. Part D covers prescription drugs. Together, Parts A and B make up what people call Original Medicare. There is also Medicare Advantage, sometimes called Part C. These are plans sold by private insurance companies that bundle A and B, and often D, into one package.

Here is the thing to keep in mind. Medicare does not pay for everything. It has deductibles, which is what you pay first before coverage kicks in, and coinsurance, which is your share of a bill after that. Knowing those costs ahead of time is how you keep them from surprising you.

How it works

If you are already getting Social Security benefits when you turn 65, you will usually be signed up for Parts A and B on your own. If you are not, you have to enroll yourself. That is the part people miss.

Your Initial Enrollment Period runs for seven months. It starts three months before the month you turn 65, includes your birthday month, and ends three months after. Sign up early in that window and your coverage can begin sooner. Wait until the last month and your coverage can start later.

Working past 65 changes the picture. If you or your spouse has health coverage through a current employer, you may be able to delay Part B without a penalty. When that job coverage ends, you get a Special Enrollment Period to sign up. COBRA is different. It lets you keep an old employer plan for a time after you leave. Medicare.gov says COBRA does not count as job coverage for Part B timing, and it does not give you a Special Enrollment Period. Waiting on Part B while you hold COBRA can bring a late penalty. Retiree coverage is a mixed case. Whether a retiree plan counts depends on the plan, so ask its administrator plainly. Then check the answer against what Medicare.gov says.

If you miss your window and had no other qualifying coverage, you can face a late enrollment penalty on Part B. That penalty is added to your premium, and it can last as long as you have Part B. Part D has a late penalty too. It is worth a phone call to avoid.

The numbers, and where to find yours

Let me be plain about something. Medicare costs change every year, and I would rather point you to the source than hand you a number that has gone stale. Everything here comes from the official Medicare program at Medicare.gov and from the Social Security Administration.

The standard monthly premium for Part B is the current figure, which the official source publishes each year. The yearly deductible for Part B is the current figure, which the official source publishes each year. Part A has its own deductible for each benefit period, which is the current figure, which the official source publishes each year. Many people pay nothing for Part A itself, because they or a spouse paid Medicare taxes while working for long enough. Medicare.gov explains the work history rule.

Now for a wrinkle that catches higher earners. If your income is above certain thresholds, you pay an extra amount on top of the standard Part B and Part D premiums. This is called IRMAA, which stands for Income Related Monthly Adjustment Amount. The income line where it begins is the current figure, which the official source publishes each year for a single filer. Social Security decides this using your tax return from two years earlier. That lag matters a great deal when you are drawing down savings, and the worked example below shows why.

To find your own figures, go to Medicare.gov and use the plan finder, or call 1 800 MEDICARE. Your Medicare and You handbook, which Medicare publishes each year, also lays out the costs for the current year.

A worked example

Let me tell you about a woman named Ruth. She is 66, single, and she retired from a school district last year. She wants to understand what a big withdrawal will do to her Medicare bill.

Ruth kept working until 64 and then stopped. This year she has a pension of 30,000 dollars. She also takes 20,000 dollars from her traditional IRA to cover living costs. Her Social Security is 24,000 dollars. For simplicity, say all of it counts toward her income, though Social Security is only partly taxable in real life.

Add it up. 30,000 plus 20,000 plus 24,000 comes to 74,000 dollars. That is Ruth's rough income for the year. She compares 74,000 dollars to the IRMAA line, which is the current figure, which the official source publishes each year. If she is under it, she pays only the standard Part B premium.

Now suppose Ruth sells a rental property and takes a large gain in one year. Say that pushes her income up by 60,000 dollars. Her new income is 74,000 plus 60,000, which equals 134,000 dollars. If that lands above the IRMAA line, her Part B and Part D premiums go up two years later. Social Security looks back at her tax return from two years before.

That two year lag is the whole lesson. A one time jump in income can raise premiums for a year, and then they drop back down. Ruth cannot change the past, but she can plan around it. She can spread big moves over more than one year. Retirement is one of the life changing events that can lower income. If it has, she can ask Social Security to use a more recent year. That request is made on a form Social Security provides.

Ruth also compares Original Medicare with a Medicare Advantage plan. She looks at the monthly premium, the yearly out of pocket limit, and whether her doctors are in the plan's network. She does not pick by price alone. She picks by what fits her health and her budget.

Where it goes wrong

I have seen good, careful people get caught by simple things. The first is assuming it happens on its own. If you are not collecting Social Security yet, nobody enrolls you. You do it.

The second is trusting the wrong kind of coverage. COBRA does not protect you from a Part B late penalty, and retiree plans vary from one to the next. People lean on them, skip Part B, and then face a penalty. Check before you decide.

The third is forgetting the drug plan. Even if you take no medicine today, the Part D late penalty can grow the longer you go without drug coverage. Cheap insurance is worth having.

The fourth is ignoring the two year look back on income. When you draw down an IRA or sell an asset, your taxable income can jump. That can push your premiums higher later. Plan your withdrawals with that in mind.

The fifth is picking a plan once and never looking again. Plans change what they cover and what they charge each year. Medicare has an open enrollment window each fall, when you can review your choices and switch if you like. A review costs you an hour, and it shows you what your plan will cost next year.

Questions to answer before you leave this page

When does my Initial Enrollment Period start and end, and have I written those dates down? Do I or my spouse have coverage from a job we are still working, and have I asked the benefits office what it means for Part B? If I have COBRA or a retiree plan, have I asked the plan and checked Medicare.gov before I delay Part B? Will my income this year and next year cross the IRMAA line, and if so, can I spread out a big withdrawal? Do I want Original Medicare with a separate drug plan, or a Medicare Advantage plan, and are my doctors covered either way? What will my monthly premiums add up to, and does that fit inside my retirement budget? Have I looked at Medicare.gov and called 1 800 MEDICARE to check the figures for this year?