Meet our writers


News January 2015

Dollar Sense

When You’re 64: Initial Enrollment in Medicare is a Critical Time. What You Don’t Know or Don’t Do Can Cost You for the Rest of Your Life

By Teresa Ambord

Part B covers outpatient costs, and for most people, requires the recipient to pay a premium. For that reason, some people who have other coverage (like retiree coverage) decline Part B. That may seem like a wise choice, but it is potentially a mistake that will cost you for the rest of your life, so be careful.

Are you nearly 65? If you are and you already collect Social Security or Social Security Disability, you will automatically be enrolled in Medicare Parts A and B. However, if you turn 65 and are not collecting benefits – perhaps because you are still working – you must take action to enroll in Medicare yourself. To avoid problems, you need to enroll during your Initial Enrollment Period, and pay close attention to what kind of coverage you currently have. Failing to get this right could cost you dearly for the rest of your life.

One of the most important things you need to understand is how Medicare works in coordination with other coverage you may have. If you are newly eligible for Medicare and you have other coverage – like COBRA, retiree coverage from your employer, or employer-sponsored health insurance -- you must find out for sure if that coverage is primary or secondary to Medicare. Not knowing this or misunderstanding can leave you completely uncovered. If your insurance will only pay secondary to Medicare, but you do not have Medicare, you may find out the hard way that you are not covered. Here is how other coverage coordinates with Medicare.

  • Retiree coverage. If you have retiree coverage from your previous employer, once you are eligible for Medicare, the retiree coverage will always be the secondary insurer to Medicare. Again, that means the retiree coverage is not obligated to pay your medical expenses (or can limit what it will pay), even if you do not have Medicare.
  • COBRA coverage. If you have COBRA coverage, it is always secondary to Medicare.
  • Employer-sponsored coverage, and you are age 65+. If you become eligible for Medicare because you reach age 65, Medicare will be your primary coverage if your employer company has no more than 20 employees. If your employer has more than 20 employees, the employer-sponsored coverage is primary.
  • Employer-sponsored coverage, and you are disabled. If you become eligible for Medicare because of disability, Medicare is primary for employers with no more than 100 employees.


Declining Part B Medicare Can be a Costly Mistake

Part A Medicare – which covers inpatient costs -- is generally free to eligible individuals, based on a sufficient work history. That’s why most people go ahead and sign up for Part A. Part B covers outpatient costs, and for most people, requires the recipient to pay a premium. For that reason, some people who have other coverage (like retiree coverage) decline Part B. That may seem like a wise choice, but it is potentially a mistake that will cost you for the rest of your life, so be careful.

Here’s an example from Medicare to illustrate what can happen. Mr. R. retired at age 55, and was provided with retiree coverage by his employer. At 65 he signed up for Medicare Part A, which was premium-free. But he declined Part B, which would require him to pay a premium, because he believed his retiree insurance would cover him. His reasoning seemed clear – why pay a Part B premium when you have other coverage? He did not realize that retiree coverage is always secondary to Medicare. When he incurred $10,000 in medical expenses, he was shocked to learn that his retiree coverage denied the claims. That’s when he realized he’d made a mistake. He had no choice then but to wait for the next enrollment period and sign up for Part B. Not only was he uncovered for thousands of dollars of actual expenses, but when he did sign up, his premiums were much higher.

For people like Mr. R. who miss their Initial Enrollment Period (when they first become eligible for Medicare) or who need to make changes, they must wait till the General Enrollment Period. (The three enrollment periods are detailed in the sidebar.)

It’s bad enough that you could have a period when you are not covered. But you could also be subject to egregious penalties that for your lifetime.


Lifetime Late Enrollment Penalties

Sounds awful, right? And it is. For each year that you should’ve been enrolled in Part B and were not, you will pay a 10% penalty on your monthly Part B premium. Here’s an example provided by Medicare: Mrs. G. delayed signing up for six years past the date she became eligible. Her premium for 2014 would be $104.90 per month. But she will pay a 60% penalty (6 years times 10% per year), or $167.64, per month, for the rest of her life. Steep? Yes!


Creditable Coverage? Yet Another Possible Penalty

You may know that Part D coverage is for prescription drugs. Once you reach eligibility for Medicare, if you have other coverage (for example, employer-sponsored coverage), your insurer must send you a notice informing you whether your coverage is “creditable.” That means, equal or better than Part D coverage. If it is creditable, you can choose to not sign up for Part D. However, if it is not creditable, you are expected to enroll for Part D coverage.

If you delay enrolling in Part D for any reason, you will pay a lifetime Part D late enrollment penalty. This penalty is equal to 1% for each month that you lacked creditable coverage, over the national base premium (which is currently $32.43 per month).

Here’s an example from Medicare: Mrs. G. from the previous example also delayed enrolling in Part D for six years, or 72 months. That is 72 times $.32 or $23.34 additional every month, on top of the usual premium of $32.43 per month. That’s a total monthly premium of $55.77 per month.

Open Enrollment for Part D is October 15 through December 7, each year.


Not Much Mercy if You Fail to Enroll

Is there any recourse if you miss signing up properly for Parts A and B? Only if you can prove that you were given misinformation by a federal source, regarding enrollment. It’s called “equitable relief” and again, requires you to prove your case. Note: being given incorrect information by any other source, including your employer does not qualify you for relief. The bad information must have come from a federal source.

In addition, people who are low income and have few assets can enroll in a Medicare Savings Plan if they failed to sign up for Part B when they should. They may be able to avoid the late enrollment penalties going forward, but any medical charges incurred while the individual was without coverage will remain.

Clearly, you must pay attention to the details surrounding Medicare enrollment. Procrastination puts you in jeopardy of paying much more than you need to for the benefits you need. If you are nearing 65 and need to sign up for Medicare but are not sure of the details, contact your local Medicare office, or log onto for some help with enrollment.

This article is based on a report from Medicare, which you can download by logging onto: Once the site opens, click the white and red PDF button on the right side.


Sidebar: Three Possible Enrollment Periods You Need to Know

The Initial Enrollment Period is when you first become eligible for Medicare. This period – lasts seven months and begins three months before your 65th birthday -- includes your birth month and extends three months beyond. If you wish for coverage to begin in the month you turn 65, sign up in the three months before. Here’s an example: Let’s say you were born in June. Your Initial Enrollment Period begins three months prior to June, so you may sign up beginning March 1st. Coverage will then begin in June. If you wait to sign up in June, July, August or September (the last month of your Initial Enrollment Period) the start of your coverage is delayed.

Special Enrollment Periods are available only to those who have employer-sponsored coverage (not COBRA, not retiree coverage, not private coverage, and not coverage through the Veterans Administration). Those who qualify for Special Enrollment can delay signing up for Part B without paying penalties. The period is eight months long, and begins when employment or employer-sponsored coverage ends, whichever is sooner. So let’s say you retire on December 31st but you have employer-sponsored coverage through the following March. Your eight-month period begins in January, and extends through August. To enroll in Part B Medicare without incurring late penalties, it is critical that you sign up during this period.

General Enrollment Period. If you miss your Initial Enrollment Period and do not qualify for Special Enrollment, you may sign up for Part B in January through March, each year, for coverage beginning in July of that year. Of course that means there is a significant gap in coverage.


Take-away Points from This Article:

  • If you’re eligible for Medicare and not already receiving Social Security, you need to take action to sign up for Medicare.
  • If you have other coverage, find out for sure how it coordinates with Medicare.
  • Know when your Initial Enrollment Period is and sign up during that time, to avoid lifelong penalties.
  • If you do not have “creditable coverage” for prescription drugs, sign up for Medicare Part D or end up paying penalties.


Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

Meet Teresa