February 14, 2017 2:30 PM

A 65-year-old couple can expect to pay around $260,000 in medical costs during retirement, and advisors should be ready to help clients prepare for this expense by taking advantage of available Medicare benefits.

According to the Employee Benefits Research Institute, Medicare currently addresses about 62 percent of an individual’s medical expenses. But that coverage does not instantly go into effect when a person turns 65. First, enrollment requirements must be met. Retirees and their financial advisors or retirement income planners investment must plan ahead to avoid delayed benefits and even penalties.

Retired couple walking outside
Here are three tips on following Medicare enrollment requirements to help your clients avoid coverage delays and penalties.  

1. Enroll Before 65th Birthday to Get Immediate Coverage

Medicare can begin as early as the first day of the month an individual turns 65. However, senior citizens must enroll three months before their birth date for medical coverage to begin on time. One important distinction is that individuals already receiving Social Security benefits or with a disability are automatically enrolled. Qualified beneficiaries can enroll anytime during their birthday month and the following three months without penalty; but, coverage may not begin for up to two more months.

While individuals with personal or retiree healthcare coverage may feel no hurry to apply for benefits, Medicaid typically becomes the primary insurance payer once individuals qualify for it. In most situations, the previous insurance becomes a secondary payer or no longer pays at all.  

Those qualified for Medicare waiting longer than three months after their birthday to apply for it must wait until the next open enrollment period during the following January 1 to March 31. In these instances, coverage doesn’t start until July 1, causing possible gaps in health care coverage that result in out-of-pocket expenses to cover doctor visits, prescriptions as well as sudden hospital stays that can cost thousands of dollars.

2. Special Enrollment for Working Seniors

In situations where individuals or the spouse of a couple are still working, and the employer’s health insurance is the primary plan, qualified persons can apply for Medicare during a special enrollment period (SEP) without a late penalty. (To safeguard against misconceptions, working seniors should verify if their company requires them to apply for Medicare when they turn 65.)  

Working seniors can enroll in Part A and Part B of Medicare while under group plan coverage or within eight months after employer health care coverage ends. A senior in this situation most likely will want to enroll in Medicare Part A at age 65 since there is no cost and Medicare could cover gaps in the employer’s plan. If an individual wants to continue to contribute to an HSA health savings account, they may should evaluate their options.  

As COBRA and retiree health insurance are not recognized as employee health insurance, neither qualify for a SEP. Individuals with these types of extended health care coverage should apply for Medicare during the initial enrollment period.

3. Avoid Penalties for Late Enrollment

Substantial penalties that permanently increase premiums exist for those that don’t follow Medicare enrollment rules. With this government benefit working to reduce often exorbitant health care costs, it’s critical seniors avoid additional costs that can be easily prevented by adhering to government rules.

  • A late enrollment penalty to Medicare Part A includes a 10 percent higher premium for twice the number of years when an individual initially was eligible. For example, if someone is eligible for Medicare Part A for five years and didn’t apply, they will pay a 10 percent higher premium for 10 years. That’s quite a slap on the wrist for not applying for benefits that could fill the gap in existing insurance.
  • Similar penalties, although not as harsh, are in place for missing Medicare Part B enrollment periods. Those that do not sign up during the initial seven-month enrollment that includes the month turning 65, as well as three months before and after that date, may incur a 10 percent penalty for each full 12-month period that an individual should have had coverage but did not. As previously outlined, people that defer Medicare coverage due to an existing employer health care coverage are not penalized as long as they follow requirements specified under the SEP.  
  • Penalties also apply for missing enrollment periods for Medicare Part D that helps cover the costs of prescription drugs. As with Medicare Parts A and B, the enrollment period for Part D is the seven-month period around the 65th birthday. Subscribers can still avoid penalties as long as they do not have any period of 63 or more days in a row without prescription drug coverage that qualifies as “creditable prescription drug coverage.” Those over age 65 who are participating in an employer plan that provides creditable coverage will receive a letter each year to that effect. If enrollment is not timely and a penalty applies, it is calculated by multiplying 1 percent of the national base beneficiary premium ($35.63 in 2017) by the number of full, uncovered months that an individual was eligible but did not have coverage.

When your clients get close to age 65, make it a priority to review all Medicare options and rules. By following enrollment requirements, your retiring clients can take advantage of the full benefits of Medicare, reducing the burden of healthcare costs during retirement.


To gain more insights on how to prepare your senior customers for using Medicare benefits to their advantage, watch the replay of the webcast “10 Tips for Helping Your Retired Clients Manage Health Care Expenses,” presented by David A. Littell, JD, ChFC, Professor of Taxation, The American College of Financial Services. Follow the link below to watch the webcast replay.

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