The annual Medicare open enrollment started last week and runs through Dec. 31. Thinking about Medicare at this time is a retirement planning essential for anyone 65 or older.
Here's how to get your Medicare benefit right:
Sign up on time. While initial sign up for Medicare doesn't have a lot to do with open enrollment, doing it wrong is a big mistake. If you don't sign up for Medicare on the government's timetable, you'll pay a lifetime penalty that can seriously eat into your retirement income. So if you're approaching age 65, now's a good time to think about when and how you're going to go about this.
The "initial enrollment period" for Medicare is either the three months before the month of and the three months after your 65th birthday. If you sign up during the three months before your birthday, your coverage starts at the beginning of the month when you reach 65. If you wait until your birthday month, coverage starts the following month. But if you procrastinate and sign up after your birthday month, you may have to wait as long as six months for coverage to start.
Don't overlook Medicare Part B. Medicare Part A covers hospital care. Medicare Part B covers everything else. Medicare Part A is free to anyone who has paid into the system for 10 years or more -- or is married to someone who has paid in. Part B has a monthly fee that is linked to income. For most people, it costs somewhere between $95 and $120 per month. If you don't sign up initially for Part B because you or your spouse continue to work at a job that offers health insurance, then you lose that health insurance (or leave the job and choose COBRA) and don't sign up promptly for Part B, there is a permanent 10 percent increase in cost for every year that you fail to sign up.
Penny-wise can be pound-foolish with Medicare Part D. There is also a penalty for failing to sign up for Part D, the prescription-drug benefit, which has an average cost of $41 per month. Some people don't sign up because they don't spend $41 per month on drugs. But pinching pennies can be the wrong approach. For every month that you could have enrolled but didn't, you'll pay an extra 1 percent. In the first year, that's only about $4, but it's cumulative. Over several years, it can cost you big bucks.
It is also a good idea for everybody enrolled to take another look at their Part D prescription drug coverages during the open enrollment period. The policies change annually; this year, there are even more differences because of health care reform. I wrote about the need to review Part D a couple of weeks before open enrollment began. This is just a reminder.
That leaves only choosing a Medicare Advantage or Medigap policy, something else Medicare recipients shouldn't overlook. We'll talk about that potentially complicated step tomorrow.