The Easy Way You Can Avoid Medicare Late Enrollment Penalties

One of the biggest financial shocks retired Americans tend to face is healthcare costs. A lot of people incorrectly assume that health coverage through Medicare is free, only to realize there are numerous out-of-pocket costs involved.

Some of those costs relate to deductibles and coinsurance. But Medicare Part B also charges a monthly premium that tends to increase from year to year.

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Worse yet, some enrollees get stuck paying surcharges on their Part B coverage for signing up for Medicare late. Here's how to ensure that the same thing doesn't happen to you.

Know when to sign up for Medicare

If you sign up for Medicare during your initial enrollment period, you won't have to worry about a late enrollment penalty. Your initial enrollment period starts three months before the month of your 65th birthday and ends three months after that month.

However, it doesn't always pay to sign up for Medicare during your initial enrollment period. It may be that you're still working, or that a spouse of yours is still working, and you have coverage through a workplace health plan. In that case, why pay a monthly premium for Medicare B when you don't need to?

Of course, what some people might do in that situation is sign up for Medicare Part A only during their initial enrollment period, since Part A doesn't charge a monthly premium. But even that doesn't always make sense.

Enrolling in any part of Medicare renders you ineligible to contribute to a health savings account. These accounts offer huge tax breaks, so if you're still on a group health plan, you may not want to give up the option to contribute.

If you're covered by a qualifying group health plan at the time of your initial Medicare enrollment period, you won't automatically be penalized for signing up late. Instead, you'll get an eight-month special enrollment period that begins once your employment ends or your employer coverage ends -- whichever comes first. As long as you enroll in Medicare during that eight-month window, you can avoid lifelong Part B surcharges.

Don't set yourself up for higher costs

Medicare is expensive enough without being hit with a penalty for enrolling late. Pay attention to when you're supposed to sign up so you don't make a mistake you'll regret.

Just as importantly, if you're planning to sign up for Medicare past your initial enrollment period because you already have healthcare coverage, make sure your health plan is creditable -- meaning, that it offers coverage that's as good as Medicare and therefore qualifies for a special enrollment period.

Group health plans of 20 or more employees usually qualify, but double check to make sure. COBRA, on the other hand, does not qualify for a special enrollment period. Be certain to understand the rules so you don't get penalized.

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