In one of its last moves of 2020, the U.S. Congress punted on a terrific opportunity to help people navigate Medicare enrollment.
A little-noticed section of the $2.3 trillion COVID-19 relief and spending bill passed in December would have required the Social Security Administration to alert people nearing age 65 about their eligibility to enroll in Medicare, and the potential stiff costs and other risks if they fail to do so.
In typical fashion, this legislation was a Christmas tree with many ornaments hung. One of the best ornaments is key provisions of the BENES Act, a bill that Medicare advocates have been pushing for several years. The important changes that were approved will shorten long waiting times for coverage to begin and streamline other outdated features of Medicare enrollment.
Unfortunately, one part of the BENES Act that was left out of the final legislation would have required the Social Security Administration to inform people as they near age 65 that they are eligible to enroll in Medicare Part B—and to explain the consequences of mistakenly delaying enrollment.
Currently, Medicare has three enrollment periods. The Initial Enrollment Period (IEP) includes the three months before you turn 65, the month of your 65th birthday, and the three months after you turn 65 or become eligible for Medicare due to receiving Social Security disability benefits. Coverage begins one to three months later, depending on when you enroll. For people transitioning from employer coverage at a later age, a Special Enrollment Period (SEP) is available for eight months after other insurance ends, and coverage begins the first month after you enroll.
But if you miss either of those enrollment opportunities, you must wait for a General Enrollment Period (GEP) that runs from January 1 to March 31 each year; Medicare coverage under Part B and in some cases Part A does not begin until July 1. I’ve written about this problem, and The New York Times recently featured the story of a man who mistakenly terminated his Obamacare plan just ahead of his Medicare enrollment and was hit with a $22,367 bill for a suspected COVID-19 hospitalization.
Under the new law, coverage will begin the month after enrollment, starting in 2023. That is an extremely important improvement.
Left on the Cutting Room Floor
The provision that beefed up enrollment notification requirements was left out of the final legislation for reasons that have not yet been explained to me in any way I find credible. But the exclusion is very unfortunate.
Let’s review the basics.
If your client already receives Social Security benefits at age 65, Medicare enrollment is automatic. But for everyone else, it’s a proactive process.
Along with the aforementioned coverage gaps, failure to enroll at age 65 can saddle your clients with stiff late-enrollment surcharges. These are equal to 10% of the standard Part B premium for each 12 months of delay—a penalty that continues for the rest of their lives. The penalties can really add up over the years as base premiums rise. And for married couples, the penalties can effectively double if both spouses fail to enroll on time.
Medicare’s prescription drug program (Part D) comes with a much less onerous late-enrollment penalty, equal to 1% of the national base beneficiary premium for each month of delay.
Your clients need to enroll during the Initial Enrollment Period in order to avoid the late penalties—with one major exception: if they are still actively employed and covered by employer insurance. Later on, when “active” employment stops, there’s a Special Enrollment Period that allows delayed enrollment without incurring the late penalties. A spouse covered on a worker’s policy can do the same.
However, for anyone working for a firm with 20 or fewer employees, Medicare becomes the primary payer. In those cases, enrollment must occur at the first point of eligibility to avoid gaps in coverage and high out-of-pocket costs.
And the complications don’t stop there.
Let’s say you have a client who lost her job at 64 and is covered under COBRA. Can she keep that policy and delay Medicare enrollment? Well, she might want to keep COBRA if, let’s say, she is using it to cover family members. But she also must enroll in Medicare if she wishes to avoid the late penalties, because she is no longer “actively” employed by that insurance plan sponsor.
Or, let’s say she enrolled in a policy through the Affordable Care Act—she still needs to move to Medicare at age 65.
The complexity of all this is such that I sometimes refer to this confusing mess of laws as a Full Employment Act for Retirement Journalists.
It’s bad enough that Social Security no longer mails out these annual statements to all workers. The mailings have been cut back over the years to save money on printing and postage. Currently, the only people receiving paper statements by mail are those who are over age 60, have not claimed benefits and do not have an online account.
Until about a decade ago, all workers eligible for Social Security received a paper statement in the mail that provided useful projections of their benefits at various ages, along with reminders on the availability of disability benefits and at least some Medicare enrollment information.
For most of your clients, the only way to access the statement is by signing up for an online account at the Social Security website. This is well worth doing, and it is part of a broader agency strategy to handle more business with the public online.
But that begs the question as to why the final BENES Act language didn’t require beefed-up Medicare language. It would have been inexpensive to do and could have benefited many workers.
Advocates say they will try again on the Medicare guidance in future legislation. But no matter what happens, the episode serves as a reminder for financial planners of the critical importance of paying attention to Medicare enrollment for clients as they near age 65.
Mark Miller is a journalist and author who writes about trends in retirement and aging. He is a columnist for Reuters and also contributes to Morningstar and the AARP magazine.