Houston Chronicle - - EXTRA - By Mark Miller

Tony Far­rell turned 65 four years ago — the age when most peo­ple shift their health cov­er­age to Medi­care. But he was em­ployed and cov­ered by his com­pany’s group in­sur­ance.

When his birth­day came around, he be­gan re­search­ing whether he needed to move to Medi­care and de­ter­mined he could stick with his em­ployer’s plan, said Far­rell, a mar­ket­ing and mer­chan­dis­ing ex­ec­u­tive for spe­cialty re­tail­ers. At the time, he was work­ing for a com­pany that makes in­fomer­cials in San Fran­cisco.

Four months later, Far­rell was laid off, but he kept the com­pany’s health in­sur­ance for him­self and his fam­ily un­der the Con­sol­i­dated Om­nibus Bud­get Rec­on­cil­i­a­tion Act, the fed­eral law that al­lows em­ploy­ees to pay for cov­er­age as long as 36 months af­ter a worker leaves a job.

“I just thought, this is great — the cov­er­age won’t change,” he said. “I was just re­ly­ing on my own logic and ex­pe­ri­ence, and felt that if I didn’t need a gov­ern­ment ser­vice, I wouldn’t sign up for it.”

But Far­rell un­know­ingly ran afoul of one of the com­plex rules that gov­ern the tran­si­tion to Medi­care — and he is pay­ing the price.

Medi­care re­quires en­rollees to sign up dur­ing a lim­ited win­dow be­fore and af­ter their 65th birth­day. Fail­ing to do so leads to stiff late-en­roll­ment penal­ties that con­tinue for life, and po­ten­tially ex­pen­sive, long waits for cov­er­age to be­gin. There is one ma­jor ex­cep­tion: Peo­ple who are em­ployed when they turn 65 can stay with em­ployer-pro­vided group cov­er­age.

What Far­rell missed is that CO­BRA cov­er­age did not qual­ify him for that ex­emp­tion, since he was no longer ac­tively em­ployed. He didn’t re­al­ize his er­ror for more than a year, when the end of his CO­BRA cov­er­age ap­proached and he be­gan look­ing into Medi­care. The mis­take means that he will pay a la­teen­roll­ment penalty equal to 20 per­cent of the Part B base pre­mium for the rest of his life. This year, the penalty in­creases his stan­dard pre­mium of $135.50 to $162.60.

The tran­si­tion to Medi­care from other types of in­sur­ance is plagued by prob­lems like Far­rell’s — and there isn’t much of an early warn­ing sys­tem to alert peo­ple close to re­tire­ment age of the pit­falls. These com­plex rules also af­fect peo­ple mov­ing from Af­ford­able Care Act ex­change plans and re­tiree health cov­er­age. And

work­ers who use health sav­ings ac­counts in con­junc­tion with high-de­ductible em­ployer in­sur­ance need to watch out for tax is­sues re­lated to tim­ing.


Medi­care en­roll­ment in Part A (hos­pi­tal­iza­tion) and Part B (out­pa­tient ser­vices) is au­to­matic if you have claimed So­cial Se­cu­rity ben­e­fits be­fore your 65th birth­day — your Medi­care card will ar­rive in the mail, and cov­er­age be­gins the first day of the month in which you turn 65. There is no pre­mium charged for Part A in most cases, and you may be able to turn down Part B at that point with­out in­cur­ring late-en­roll­ment penal­ties if you are still work­ing and re­ceive your pri­mary in­sur­ance through work.

If you have not yet ap­plied for So­cial Se­cu­rity, sign­ing up for Medi­care re­quires proac­tive steps to avoid prob­lems.

Medi­care of­fers an Ini­tial En­roll­ment Pe­riod around your 65th birth­day. If you miss that win­dow, you will be sub­ject to a late en­roll­ment sur­charge equal to 10 per­cent of the stan­dard Part B pre­mium for each 12 months of de­lay — a penalty that con­tin­ues for­ever. That can re­ally add up. In 2017, 1.3 per­cent of Part B en­rollees (about 701,000 ben­e­fi­cia­ries) paid penal­ties, ac­cord­ing to the Con­gres­sional Re­search Ser­vice. On av­er­age, their to­tal pre­mi­ums were 31 per­cent higher than what they would have been.

Medi­care’s pre­scrip­tion drug pro­gram (Part D) comes with a much less oner­ous late en­roll­ment penalty, equal to 1 per­cent of the na­tional base ben­e­fi­ciary pre­mium for each month of de­lay. In 2019, the base monthly pre­mium is $33.19, so a seven-month de­lay would tack $2.32 onto your plan’s pre­mium.

Late en­roll­ment also ex­poses you to sig­nif­i­cant gaps while wait­ing for Medi­care cov­er­age.

Medi­care has three en­roll­ment pe­ri­ods. The Ini­tial En­roll­ment Pe­riod in­cludes the three months be­fore you turn 65, the month of your 65th birth­day and the three months af­ter you turn 65. Cov­er­age be­gins one to three months later, de­pend­ing on when you en­roll. For peo­ple tran­si­tion­ing from em­ployer cov­er­age at other ages, a Spe­cial En­roll­ment Pe­riod is avail­able for eight months af­ter other in­sur­ance ends, and cov­er­age be­gins the first month af­ter you en­roll. But late en­rollees must wait for a Gen­eral En­roll­ment Pe­riod that runs from Jan. 1 to March 31 each year — and Medi­care cov­er­age does not be­gin un­til July 1.

“The penal­ties are bad enough, but the real risk is wait­ing for cov­er­age to be­gin,” said Joe Baker, pres­i­dent of the Medi­care Rights Cen­ter, a con­sumer ad­vo­cacy and pol­icy group. “You face the risk of large out-of-pocket ex­penses, med­i­cal bills or debt, or in­abil­ity to ac­cess care. It in­creases the re­liance on emer­gency room care and cre­ates need­less health risks.”

Far­rell, for ex­am­ple, ap­plied for Medi­care one day af­ter gen­eral en­roll­ment ended, in April 2016. “I didn’t re­al­ize un­til too late that I had missed the dead­line,” he said. As a re­sult, his Part B cov­er­age did not be­gin un­til July 2017 — he was for­tu­nate to find a com­mer­cial in­sur­ance pol­icy to plug that gap while he waited.


If you’re still em­ployed at 65

Peo­ple who are ac­tively em­ployed at age 65, and their spouses, may de­lay en­roll­ment in Medi­care. The key word here is “ac­tive,” as Far­rell dis­cov­ered. “CO­BRA does not count as ac­tive em­ployer group cov­er­age,” said Philip Moeller, au­thor of Get What’s Yours for Medi­care: Max­i­mize Your Cov­er­age, Min­i­mize Your Costs. “If you lost your em­ployer cov­er­age, you still need to sign up for Medi­care when you turn 65.”

There is one other ex­cep­tion to the ac­tive em­ploy­ment rule: If you work for a com­pany with 20 or fewer em­ploy­ees, Medi­care be­comes the pri­mary payer, so sign up when you turn 65.

“In­sur­ers and em­ploy­ers au­dit this reg­u­larly, and if you be­come se­ri­ously ill, the in­surer will re­al­ize you should have been on Medi­care,” Baker said. “They will re­fund your pre­mi­ums but they also can claw back any pay­ments they may have made that should have been cov­ered by Medi­care.”

If you have a health sav­ings ac­count

More em­ploy­ers are of­fer­ing high-de­ductible health in­sur­ance plans, and that is creat­ing an ad­di­tional com­pli­ca­tion for some work­ers when they re­tire and en­roll in Medi­care. These plans of­ten are paired with tax-pre­ferred health sav­ings ac­counts, which ac­cept con­tri­bu­tions from em­ploy­ers and work­ers to off­set out-of-pocket ex­penses.

HSAs can ac­cept con­tri­bu­tions only from peo­ple en­rolled in high-de­ductible plans — and Medi­care does not meet that def­i­ni­tion. Con­tri­bu­tions must stop when you en­roll in Medi­care, al­though with­drawals can con­tinue, and you’ll owe taxes on any dis­al­lowed pre­tax con­tri­bu­tion that you may have made. And the tim­ing can be com­pli­cated, be­cause Medi­care Part A cov­er­age is retroac­tive for six months for en­rollees who qual­ify dur­ing those months. For those en­rollees, HSA con­tri­bu­tions must stop six months be­fore their Medi­care ef­fec­tive date in or­der to avoid tax penal­ties.

If in­sured un­der the af­ford­able care act

An­other com­mon er­ror is stick­ing past age 65 with a com­mer­cial pol­icy ob­tained through the Af­ford­able Care Act mar­ket­place ex­changes.

Fed­eral law re­quires that you switch to Medi­care at age 65. Like CO­BRA, mar­ket­place cov­er­age is sec­ondary to Medi­care; switch­ing to Medi­care later must be done dur­ing the Gen­eral En­roll­ment Pe­riod, leav­ing you ex­posed to pos­si­ble long cov­er­age de­lays like the one ex­pe­ri­enced by Far­rell — along with penal­ties.

Ini­tially, peo­ple who made this mis­take were re­quired to re­pay any sub­si­dies re­ceived for their poli­cies, and they were sub­ject to the stan­dard late-en­roll­ment penal­ties.

Wide­spread con­fu­sion about the prob­lem led the Cen­ters for Medi­care & Med­i­caid Ser­vices to al­low peo­ple to ap­ply for re­lief from the late en­roll­ment penal­ties. The re­lief al­lows some peo­ple to end their ex­change cov­er­age and en­roll in Part B with­out penal­ties or gaps in cov­er­age, and in other cases to have their penal­ties re­duced. The re­lief is avail­able through Septem­ber of this year. If you are on re­tiree cov­er­age

Some re­tirees re­ceive cov­er­age from for­mer em­ploy­ers that sup­ple­ment Medi­care — typ­i­cally help with meet­ing cost-shar­ing re­quire­ments or pre­scrip­tion drug cov­er­age. Re­tiree ben­e­fits are al­ways sec­ondary pay­ers to Medi­care. A com­mon er­ror is turn­ing down Part B cov­er­age in the be­lief that this sup­ple­men­tal cov­er­age is pri­mary — and end­ing up with no pri­mary cov­er­age.

In this sit­u­a­tion, late Medi­care sign-up must be done dur­ing the Gen­eral En­roll­ment Pe­riod and ex­poses you to late en­roll­ment penal­ties.

There’s a push for change

If the rules gov­ern­ing the tran­si­tion to Medi­care sound com­pli­cated, rest as­sured that ex­perts agree. “Mov­ing into Medi­care from other kinds of health in­sur­ance can be so com­pli­cated that it should be a re­quired chap­ter in Re­tire­ment 101,” Moeller said. The only gov­ern­ment warn­ing about the risks as­so­ci­ated with late en­roll­ment comes in the form of a brief no­tice near the end of the an­nual So­cial Se­cu­rity Ad­min­is­tra­tion state­ment of ben­e­fits.

The Medi­care Rights Cen­ter and other ad­vo­cacy groups have pro­posed leg­is­la­tion that would re­quire the fed­eral gov­ern­ment to no­tify peo­ple ap­proach­ing el­i­gi­bil­ity about en­roll­ment rules, and how Medi­care works with other types of in­sur­ance. The leg­is­la­tion — the Ben­e­fi­ciary En­roll­ment No­ti­fi­ca­tion and El­i­gi­bil­ity Sim­pli­fi­ca­tion Act — would also elim­i­nate cov­er­age gaps ex­pe­ri­enced by en­rollees dur­ing the Ini­tial En­roll­ment Pe­riod and Gen­eral En­roll­ment Pe­riod. The leg­is­la­tion was in­tro­duced in Congress last year and will be rein­tro­duced this year.

In the mean­time, Baker pro­poses a sim­ple rule of thumb to help peo­ple ap­proach­ing Medi­care el­i­gi­bil­ity to avoid costly er­rors. “If you are el­i­gi­ble for Medi­care, you should re­ally con­sider it to be your de­fault, pri­mary cov­er­age,” he said. “If you are go­ing to de­cline Medi­care, think very care­fully and take the time to re­ally un­der­stand all the rules.”

Tony Far­rell missed a dead­line to ap­ply for Medi­care and now pays a penalty. When sign­ing up for the health cov­er­age, tim­ing and co­or­di­na­tion are ev­ery­thing. Here are key points to re­mem­ber, es­pe­cially if you are work­ing past age 65.

Ja­son Henry / New York Times

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