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Three Key Medicare Decisions

While not an overly complicated benefit, initially signing up for Medicare can be an overwhelming and anxiety-inducing process.

The intersection of health and wealth—it’s the foundation of a happy and successful retirement. And a major component in that equation will be your client’s retirement health care coverage provided through Medicare.

While not an overly complicated benefit, initially signing up for Medicare can be an overwhelming and anxiety-inducing process. Medicare consists of an alphabet soup of plans, coverage choices, premium levels and enrollment rules. All that said, there are a few key decisions your client will be required to make regarding their Medicare coverage:

  • What components of Medicare should your clients choose to sign up for and how much can they expect to pay for the coverage?
  • What are your clients’ options if they plan to keep working beyond age 65?
  • When will they need to enroll?

Here are some issues to discuss with your clients to help them make the best decisions.

Decision No. 1: Which Coverage Option?

Rather than waiting until the last minute to begin researching coverage options, the time to start planning is now—even if your client is still several years away from their 65th birthday. Begin by reviewing the different parts of Medicare with your client and what each component covers:

  • Part A (hospital coverage) covers things like inpatient hospital stays, some home health care, skilled nursing facility care and hospice; requires no out-of-pocket annual premiums; but has both annual deductibles and copays.
  • Part B (medical coverage) covers things like doctor visits, outpatient services, X-rays and lab tests, as well as preventive screenings; carries both annual deductibles and copays; and requires monthly premium payments.
  • Part C (Medicare Advantage) is a private all-in-one alternative to Medicare that covers the services associated with Parts A and B (and usually Part D). On the plus side, these bundled plans tend to be more affordable and may offer broader coverage (for example, vision, hearing and dental. Providers must be Medicare-approved. But the plans typically come with greater restrictions, and most plans act as HMOs and require plan participants to go to their network of doctors and health care providers.
  • Part D (prescription drug coverage) is an optional add-on prescription drug coverage that requires monthly premiums, annual deductibles and copays. Your client will need to enroll in an approved plan and be covered under both Medicare Parts A and B (or Part C).
  • Medigap is offered by private insurers to help fill any coverage gaps in Part A and Part B such as copayments, coinsurance, deductibles and potentially foreign travel health emergencies. There are 10 different types of Medigap plans—some cover more out-of-pocket costs than others.

When considering Medicare elections, try to factor in your client’s anticipated future health care needs. Does your client have any preexisting conditions or a family history of chronic disease? If so, your client may want to explore more robust coverage options such as a Medigap policy.

Medicare is generally available to anyone age 65 or older (as well as to younger people with qualifying disabilities). Part A is available premium-free if your client paid Medicare taxes for at least 10 years (40 quarters) of their working life. If your client has fewer work credits than that, however, they’ll be required to pay a monthly premium. For 2021, the premium would be $259/month if your client had 30–39 quarterly credits or $471/month if your client has fewer than 30 quarterly credits. 

High-income earners may also need to factor income-related monthly adjustment amount (IRMAA) surcharges into their Medicare cost calculations. Depending on your client’s modified adjusted gross income (AGI) from two years prior and their tax filing status, they may fall into one of five income brackets that are subject to incrementally higher surcharges.

For example, a married filing jointly taxpayer had a 2019 modified AGI of $500,000. For 2021, this income amount falls in IRMAA Bracket 4 ($330,000 to $750,000), so their monthly Part B premium would increase from $148.50 to $475.20, and they’d be subject to a $71 surcharge in addition to what they pay for their Part D coverage.

Any Part B IRMAA surcharges are added to your client’s Part B premium, while Part D IRMAA surcharges are paid separately to Medicare. It’s important to note that Medicare treats IRMMA payments the same as any other premium bill. If your client doesn’t pay the surcharge on time, they could potentially lose their coverage.

Decision No. 2: Employer Plan or Medicare?

If your client is working past age 65 and covered by their employer’s health plan, they can choose to defer signing up for Medicare without incurring any penalties. In this case, they’ll be required to enroll for Part A and/or Part B during their special enrollment period (SEP) that begins the month after their employment or group coverage ends (whichever comes first) and lasts for eight months. If your client chooses to continue their employer health coverage under COBRA, however, it won’t delay the start of their SEP enrollment window.

Even if they’re still working and covered by an employer’s plan, your client may want to enroll in Medicare Part A when they turn age 65 because it’s usually premium-free. The only real downside is that your client will no longer be eligible to contribute any additional pre-tax dollars to their employer health savings account (HSA). Generally, your client should stop contributing to an HSA six months before they enroll in Medicare. if your client decides to enroll in Medicare at 65 and stop contributing to an HSA, they can continue to use their HSA for qualified medical expenses for as long as they have funds in their HSA. They’ll therefore already be signed up and can simply add Part B and D (or choose a Medicare Advantage plan) during their SEP to postpone paying the monthly premiums until they actually need the coverage.

Decision No. 3: How to Meet Deadlines and Avoid Penalties

For most people, Medicare coverage begins the first day of the month they turn age 65. If your client has already started receiving Social Security benefits, they’ll automatically be signed up for Medicare Part A and Part B. If they haven’t yet made a Social Security benefit claim, they’ll need to submit a Medicare application.

To avoid any coverage gaps or potentially higher premiums, if they’re not still covered by their employer’s plan, they must sign up during their seven-month initial enrollment period (IEP) spanning the three months preceding and following the month in which they turn age 65.

In addition to the seven-month IEP and the SEP eight-month enrollment period that kicks in after they leave their employer’s plan, here are other annual enrollment dates they’ll want to be aware of:

  • General enrollment period: Those who missed their IEP and SEP can sign up during Medicare’s General Enrollment Period (Jan. 1 to March 31) with coverage taking effect on July 1.
  • Open enrollment period: Clients can join, switch or drop a plan each year from Oct. 15 through Dec. 7 with new coverage taking effect the following Jan. 1.
  • Part C open enrollment period: If your client enrolled in a Part C Medicare Advantage plan, they can change plans each year between Jan. 1 and March 31.

Unlike Social Security, which rewards individuals for delaying their benefits, depending on the circumstances, your client could be penalized with higher monthly premiums if they fail to enroll in Medicare on time. While the penalties for Part A and Part D are small, the penalty for Part B can be substantial.

  • Part A: Your client may be assessed a 10% increase in their monthly premium if they don’t qualify for premium-free coverage and fail to enroll when they’re first eligible. This penalty will be assessed for twice the number of years they delay signing up. So, if your client waits two years beyond their first eligibility to enroll, they’ll be required to pay the higher premiums for four years.
  • Part D: While typically small, penalties for late enrollment in a Medicare prescription plan are assessed for as long as individuals have coverage. The amount is calculated as 1% of the “National Base Premium ($33.06 in 2021) for the total number of months of delay enrolling in Part D. For the same two-year (24-month) delay above, it would translate into a $7.90/month penalty (0.24 x 33.06).

Here’s where the penalties can become quite steep:

  • Part B: For failing to enroll in Part B, the penalty is 10% for each 12-month period of delay. Let’s say your client turned age 65 in March of 2014 but didn’t enroll in Medicare until March of 2021 (and had no employer plan during that time). Your client’s monthly premium will be 70% higher for as long as they have coverage.

There’s no late enrollment penalty for Part C or Medigap insurance (although your client could be subject to underwriting and Medigap rates may go up dramatically if they delay signing up). Additionally, they’ll have an opportunity to dispute any penalties and/or surcharges that are assessed by filing an appeal with the U.S. Centers for Medicare & Medicaid Services. Forms can be found on their website at

In most instances, the entire Medicare enrollment process can be completed online at The site provides extensive information along with resources to help your client select the right coverage for their circumstances

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