Many people think Medicare is free. It isn’t. First, you have to budget for some basic costs – like premiums. Then, Medicare covers many of your health care costs, but not all.
So you’ll want to understand your choices well enough to make good ones, or you risk paying a hefty price.
Here are ten costly mistakes you’ll want to avoid.
1. Not understanding the out-of-pocket costs that come with your plan.
Original Medicare covers 80% of authorized Medicare expenses. That leaves you to cover 20% of what Medicare does approve and everything it doesn’t. And that figure is open-ended unless you add a Supplement Insurance (or Medigap) plan to your coverage.
With Medicare Advantage, you will have out-of-pocket expenses to pay for deductibles, copayments and coinsurance up to a stated limit. (In 2022, the maximum is $7,550, but most plans are lower.) In addition, out-of-pocket limits for prescription drugs can be an additional $7,050.
2. Not choosing your Supplement Insurance plan carefully.
Medicare Supplement Insurance (or Medigap) plans cover the 20% of authorized Medicare expenses that Original Medicare does not. Plans come in ten standard versions, each covering specific percentages of costs, regardless of what private insurer sells you the plan. So pick the plan that best meets your budget and health status.
And look out for a surprise expense called “Part B excess charge,” as only two of the ten plans protect you from it. What is it? If doctors accept Medicare assignment (and 95% do), they agree to what Medicare pays. But a doctor who doesn’t accept Medicare assignment can charge you up to 15% more than the Medicare-approved price for the service. That’s the “excess charge,” and it can add up quickly.
Action step: Check out what each Medigap plans covers at the Medicare.gov website.
3. Not acting during your Medigap Open Enrollment Period
Your Medigap Open Enrollment Period (OEP) begins when you are at least age 65 and enrolled in Medicare Part B. Delaying Part B enrollment delays the start of your OEP, too. OEP is a one-time opportunity to get the most cost-effective plan for you, not an annual open enrollment period.
During your 6-month OEP, you can get any Medigap plan you choose, regardless of pre-existing conditions. And you can change Medigap plans. Every insurer has to accept you. But after that, insurance companies can demand underwriting and charge more because of your health – or reject you outright.
If you are rejected by all insurers, with Original Medicare you face paying the 20% of approved Medicare expenses that Medicare doesn’t cover. Or you could face a higher premium or not being fully covered.
4. Not understanding all the late enrollment penalties.
Missing enrollment deadlines can mean paying premium penalties for years.
If you’re late signing up for Part A, your penalty can go up 10% for twice the number of years you were late. With Part B, the penalty is 10% of the premium for each year you are late and payable for as long as you have Medicare Part B. Part D penalties start 63 days after your Initial Enrollment Period (the seven months around your 65th birthday) ends. They will be calculated by multiplying a national index by how long you had no coverage.
Some exceptions exist, such as if you have other qualified insurance.
5. Not thinking about how your health might change with the years.
You might be in excellent health at 65 and not think about how it could deteriorate over the next 25 or 30 years.
With Original Medicare, your decision can affect your coverage for decades. Think carefully about buying the best Medigap plan you can afford because, once you have pre-existing conditions, it’s difficult to add a Medigap plan or buy a more comprehensive one. As a result, you could be stuck with an inadequate plan (although you could still move to Medicare Advantage.)
With Medicare Advantage, you’re only making a 12-month decision because you need to renew your contract each year. Your financial exposure is lower because renewal lets you tailor your next 12-month plan to your current needs.
6. Buying the same plan for yourself and your spouse.
There may have been some advantages to buying coverage with your spouse with traditional health care insurance. But not with Medicare. Here you purchase individual policies based on your individual needs.
For example, Original Medicare (plus Medigap) may be better for someone who needs the flexibility to see any doctor anywhere in the country. And a low-premium-high-deductible Medicare Advantage plan may benefit someone who uses minimal insurance.
Part D prescription drug plans work the same. Your medications will be different, so you should each find the plan that offers the best “tailored” coverage.
Action step: The medicare.gov website has a plan finder that can help you choose.
7. Not checking into Medicare financial assistance programs.
Several financial assistance programs exist to help people having trouble paying out-of-pocket expenses like premiums, deductibles, copays and prescription drugs. Here are some of them:
Extra Help helps pay for your Part D prescription drug coverage.
Your state’s Medicare Savings Programs can help with Medicare Part A and/or Part B premiums.
The federal government’s Medicaid program can help with your medical care costs.
PACE (Program of All-Inclusive Care for the Elderly) helps keep joint Medicaid/Medicare beneficiaries living in their communities.
Action step: The medicare.gov website can help you find programs to meet your costs.
8. Thinking Original Medicare pays for prescription drugs.
Original Medicare only covers prescription drugs administered in the hospital or a doctor’s office. For everything else, you’ll want to buy a Part D Prescription Drug plan from a private insurer – or you’ll pay for all your medicines yourself.
But with Medicare Advantage, there is a good chance a prescription drug plan is bundled into your policy.
In either case, check the plan “formulary” or list of covered drugs. Each plan covers different medications at different prices, so find the plan that saves you the most.
Remember, Part D plans are renewed each year, and insurers can change their formularies and pricing. So review plans each year at the medicare.gov website.
9. Going to providers outside of your Medicare Advantage plan’s network.
With Medicare Advantage, you’ll likely be restricted to providers in your plan’s network. So you’ll want to be sure your favorite doctors and hospitals are listed as providers there. Otherwise, you’ll have to switch to other doctors and facilities or pay for part or all of the service.
Remember, Medicare Advantage plans are renewed each year during open enrollment (usually from October 15 to December 7). Check that your preferred providers are still within your plan’s network or change networks.
10. Ignoring the fact that you plan to travel in retirement.
Original Medicare covers you for any doctor or hospital that accepts Medicare anywhere in the U.S. It also covers some limited emergency situations when you’re traveling abroad. And some Medigap plans pay 80% of the cost of medical care received during foreign travel.
Medicare Advantage coverage is usually restricted to specific geographic areas. However, plans must offer the same emergency coverage as Original Medicare. Beyond that, check individual policies to understand the coverage if you intend to travel nationally or internationally in retirement.
And if you have chronic health conditions or prescription needs, consider buying additional travel health insurance before traveling or risk considerable out-of-pocket costs.