Risks of an Ill-Timed Switch to Medicare
Gloria Moebes is one of millions of workers who are changing the way Americans look at retirement. When she turned 65 last year, she didn’t even think about retiring. A bookkeeper at a Fresno-based accounting firm, she loves her work.
But she has a warning for other working seniors: Check your health plan before you turn 65 and call the Social Security Administration about your Medicare benefits. There’s a chance that your health plan will drop your coverage on your birthday, regardless of whether you sign up for Medicare.
This glitch cost Moebes $500 in medical expenses. Had she and her employer not been so aggressive, it could have cost her much more.
Moebes’ story started innocently enough. She went to the doctor this spring for a regular checkup and submitted the bill to her insurer. The health plan denied the claim, informing Moebes that her coverage had been dropped on her 65th birthday because she then qualified for Medicare.
Never mind that Moebes hadn’t signed up. Moebes had the ability to sign up for Medicare, so her group plan had the ability to unceremoniously--and quietly--drop her. Rotten luck, she thought. She paid $500 in doctor and lab fees from her own pocket and quickly called to sign up for Medicare. But the news got worse.
When she called Social Security, which administers the Medicare program, “the woman scolded me for not having called them when I turned age 65,” she says. “She told me that since I didn’t sign up for Medicare [within the seven-month sign-up period] at age 65, I would be penalized on my future premiums by having to pay an extra 10%. Also, I missed the enrollment period, so I wouldn’t be able to sign up until January. And then I wouldn’t be covered until July.”
That would leave Moebes without health coverage for 13 months. Additionally, the 10% penalty means she’d have to pay about $5 per month more for Medicare Part B (the doctor’s coverage portion of the program) premiums than people who signed up more promptly.
As it turns out, two federal laws can combine to create this problem for people who opt to work after turning 65.
The first is the Employee Retirement Income Security Act, or ERISA, which governs company health plans. This law allows company plans to coordinate coverage with government insurance programs, including Medicare. That means plans can cancel your health coverage when you qualify for government coverage under Medicare, says Gloria Della of the Department of Labor’s pension and welfare benefits division.
There is no requirement that the plan notify you at the time that your coverage is canceled, so people like Moebes can end up dropped without a clue.
Della recommends reading your plan’s Summary Plan Description, a lengthy document that describes how your company’s pension and welfare benefits programs work. Companies that coordinate coverage with Medicare must say so somewhere in that document. Employees can get a copy from their benefits department or plan administrator.
Meanwhile, Medicare has rules of its own. You have seven calendar months surrounding your 65th birthday to sign up--the three months before your birthday, the month of your birthday, and three months after. If you don’t sign up during that time, you can be subject to a waiting period and higher monthly Medicare premiums.
The reason: Because there’s a monthly premium, some people don’t sign up for Medicare Part B until they become sick, says Leslie Walker, a spokeswoman for the Social Security Administration in San Francisco. By the time they sign up, they are considerably sicker than the average Medicare beneficiary. To prevent Medicare from becoming simply the health insurer of last resort, the system discourages late sign-ups with a penalty rate.
For each year after your 65th birthday that you wait to sign up, you pay 10% more in premiums. If the monthly premium was $50, you’d pay $55 if you signed up at age 66 (or 65 after the seven-month sign-up period). If you waited until age 67, it would be $60; if you signed up at 68, you’d pay $65. That penalty is permanent. Moreover, Medicare only allows one “open enrollment” period a year for late sign-ups. That’s in January, and coverage starts the following July.
However, in cases like Moebes’ there is an out. Medicare has a “special enrollment period” designed for people who didn’t sign up during the normal time because they were working and presumed to be covered by a group plan. If you qualify for the special enrollment period, your Medicare coverage starts right away and the penalty is waived, Walker notes.
Unfortunately, you may not know about it. Although Social Security sent Moebes a host of booklets about her benefits, none of them mentioned the special enrollment period. She didn’t find out about it until her boss complained to his congressman on Moebes’ behalf. The congressman sent Moebes the response he got from Social Security, which mentioned the special enrollment period.
Moebes called the agency again and asked if she qualified.
“Then they said I could sign up for Medicare right away,” Moebes fumes. The special enrollment period “was not mentioned in anything I had received. How are you supposed to know to ask for it, if you don’t know anything about it?”
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Making Sure You’re Covered
Working past age 65? Here are a few tips to help ensure that you don’t face insurance woes because of the interplay between Medicare and private health plans:
n Check your employer’s “Summary Plan Description,” which spells out whether your health benefits are subject to cancellation when you become qualified for Medicare.
n Call Social Security, which administers the Medicare program. Ask whether you will be able to sign up for Medicare late without penalty.
n If your employer-provided coverage is canceled, call Social Security and ask if you can qualify for a “special enrollment period,” which will allow you to get immediate health coverage without being subject to late-sign-up penalties.
