Read This Before You Take Medicare Benefits

By Dan Caplinger Markets Fool.com

Older Americans look forward to becoming eligible for Medicare for the first time, because the program provides healthcare benefits that last the rest of your life. However, signing up for Medicare involves some difficult choices, and it's essential to make the right decisions for your personal situation. If you want to get the most from Medicare, you'll need to pay special attention to four key aspects of the program and how they apply to you.

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1. Don't wait until your 65th birthday to sign up for Medicare

For most Americans, Medicare first becomes available at age 65. But that doesn't mean you should wait until your 65th birthday to sign up for the program. You're allowed to apply for Medicare beginning three months before you turn 65, and that's the best time to move forward.

Image source: Getty Images.

The reason is that it takes time for Medicare to process paperwork and get you active in the system. If you apply early, then you can be assured that your Medicare coverage will start promptly on your 65th birthday. If you wait, however, then delays of up to three months can occur before your coverage will start. That can be a costly mistake if something happens in the interim.

2. You could owe penalties if you miss signing up during your initial enrollment period

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The other reason why it makes sense not to delay signing up for Medicare is that there are costly penalties that you could have to pay if you don't. These penalties vary for each part of Medicare. For Part A hospital insurance, a 10% penalty applies, and you'll have to pay it for two years for every year that you were late in enrolling. However, that penalty is only applicable if you didn't earn free Part A coverage during your career, and so only a small number of people pay Part A penalties.

However, Part B medical coverage and Part D prescription drug coverage impose penalties that are more commonly owed and can be even more punitive. Medicare Part B charges a 10% penalty for each 12-month period that you were late taking benefits, so if you missed the deadline for two years, then you'd pay a 20% penalty on your monthly premiums for the rest of your life. Medicare Part D has a more complicated formula that imposes a 1% penalty surcharge for every month that you didn't have coverage. All combined, these penalties make it valuable to get coverage when you first need it.

3. If you have other healthcare coverage, know how it interacts with Medicare

Those who have coverage under an employer group health plan either from their own employer or from a spouse's employer don't have to sign up for Medicare during their initial enrollment period when they turn 65, and they can avoid penalties. Instead, you'll be able to enroll during a special enrollment period when your group health coverage goes away.

However, some group health plans will require that you sign up for Medicare even while you're still covered. If your employer has 20 or more employees, then group coverage is the primary coverage, and Medicare picks up secondary costs. For employers with fewer than 20 employees, that relationship is reversed, making Medicare the primary payer. In that case, employers often require workers to take Medicare in order to allow the private group health plan to take the backup role. It's worth talking to your HR department to find out how Medicare interacts with your group coverage.

4. Look beyond traditional Medicare to cover other needs

Medicare doesn't cover all of your healthcare needs. To fill the gaps, you have two options. Medicare supplemental insurance, also known as Medigap policies, will pay things like copayments, deductibles, and coinsurance amounts that regular Medicare doesn't cover. In addition, Medigap policies provide out-of-pocket maximums that put an upward cap on your total expenses if you face a major health problem, which Medicare doesn't do by itself.

The other option is to choose a Medicare Advantage plan in lieu of original Medicare. Medicare Advantage plans are offered by health insurers, and they are required to offer many of the same baseline benefits as original Medicare, as well as added features that can make them more attractive. Medicare Advantage plans have out-of-pocket maximums as well, limiting potential health-related financial losses.

Medicare is a valuable benefit, but you have to make the most of it. By knowing these aspects of Medicare in advance, you'll be in a better position to make smart decisions with your healthcare.

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