Don't Get Trapped By Medicare Enrollment Rules

The rules for enrolling in Medicare are strict, and the cost of making a mistake can be high.

EDITOR'S NOTE: This article, originally published in the June 2010 issue of Kiplinger's Retirement Report, has been updated as of October 2011. To subscribe, click here. (opens in new tab)

Retiring past age 65? You may choose to stick with your employer's health plan rather than signing up for Medicare. But you could risk going without insurance for several months, and pay an annual penalty for life, if you don't follow Medicare's strict enrollment rules.

When you turn 65, you're eligible to sign up for Medicare Part B, which covers outpatient services. You may decide that it's easier or cheaper to continue with your employer coverage -- either opting to take corporate retiree medical benefits or going with COBRA. Under the federal COBRA law, companies with at least 20 employees must allow former workers to buy into the group health plan for up to 18 months.

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That could be a big mistake. When you turn 65, you can forgo Medicare without consequence if you're still working and are covered by your employer's group health plan. But once you leave the job, you must enroll in Part B within eight months after the month you retire, even if you continue to be covered by your employer's health plan. This eight-month period is known as the "special enrollment period."

If you miss this deadline and your employer coverage expires, you could find yourself uninsured for many months. You will not be allowed to enroll in Medicare Part B until the next "general enrollment period," which runs from January 1 to March 31. Your coverage won't begin until July. Plus, you may be subject to late penalties. "You should enroll in Part B as early as you can," says Joe Baker, president of the nonprofit Medicare Rights Center. "The penalties and waiting periods for not doing so can be substantial and ongoing."

Some retirees realize they have made a mistake when the group health plan rejects their claims. When you turn 65, a retiree health plan or COBRA will pay only for medical expenses that Part B won't cover, says Baker. Even if you decide not to enroll in Medicare, your former employer's plan will consider the government insurer to be the primary payer.

In some cases, it could take time for the health plan to realize that the beneficiary is eligible for Medicare. Once the insurance company discovers its error, though, it could stop paying claims and may try to recoup the benefits it already paid out, Baker says.

Falling Into a Coverage Gap

These enrollment rules came as a big surprise to Kent Evanson, who lives in Glen Ellen, Ill. He left Merrill Lynch as a financial adviser at the end of June 2008 at age 69. Because he liked his employer plan, he decided to go on COBRA rather than enroll in Medicare.

Over the next year or so, the plan rejected a couple of Evanson's medical claims. Its reason: Because he was eligible for Medicare, the plan considered itself to be the secondary payer. "I was paying $1,000 a month in premiums for nothing," he says. "I wanted out."

By that time, however, Evanson had missed the eight-month enrollment window. When he went to sign up for Medicare in July 2009, he was told he would have to wait until January 1, 2010, to apply, and that coverage would not begin until July 1, 2010.

Even if you leave your job before you turn 65, you could face trouble if you ignore the enrollment rules. Assume you retired in January 2011 and went on COBRA. You turned 65 nine months later, in October 2011. In this case, the "initial enrollment period" applies to you. The initial enrollment period starts three months before the month of your 65th birthday and ends three months after your birthday month. Because your 65th birthday was in October 2011, your initial enrollment period would run until the end of January 2012.

Let's say you decided instead to stick with COBRA for the full 18 months, until it expired in June 2012. You would not be able to enroll in Part B until the next general enrollment period starting January 1, 2013. And you would not be covered until July 2013, about a full year after your COBRA coverage ends.

A coverage gap is bad enough but, to add insult to injury, you'll also be hit with lifetime penalties for missing an enrollment period. For each 12-month period you delay enrolling when you're eligible, you'll pay a penalty of 10% of your Part B premium -- forever.

Paul Loukides, 73, learned that the hard way. When he was 62, Loukides took an early-retirement offer from Albion College in Michigan, where he had taught film and creative writing. The deal included health coverage until he was 70. He paid premiums to cover his wife, Nora, who is the same age.

Loukides says he called the local Social Security Administration to check on the Part B requirements. "The person told me that all I had to worry about was to make sure I switched to Medicare before my health benefits expired," he says.

After a bit of a tussle over whether it was the secondary payer, the employer plan agreed to be the primary payer and covered his medical bills during retirement. For Loukides, the plan's decision was more evidence that he didn't have to enroll in Part B.

Before the couple turned 70, Paul visited the Social Security office in Charlottesville, Va., where they had moved. The representative gave him the stunning news: He and his wife would each pay a 40% lifetime penalty. "They told me I could appeal but that it was hardly worth doing," he says. "It was a clear rule, they said -- I may have employer-based coverage, but I was not employed. That is a wonderful kind of distinction."

Now the couple pays close to $1,000 a year in late-enrollment penalties. Loukides says he could understand a one-time late charge to encourage younger seniors to join the Medicare patient pool. "But now I have to pay a lifetime tax?" he says. "It's grossly unfair."

You can file for "equitable relief" with the Social Security Administration if you believe that a government official steered you wrong on enrollment issues. Be sure to include the dates and times you spoke with a representative. (Loukides didn't keep records.)

If you need help with Medicare enrollment issues, get in touch with the Medicare Rights Center ( (opens in new tab); 800-333-4114).

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Susan B. Garland
Contributing Editor, Kiplinger's Retirement Report
Susan Garland is the former editor of Kiplinger's Retirement Report, a personal finance publication whose subscribers are retirees and those approaching retirement. Before joining Kiplinger in 2006, Garland was a freelance writer whose work appeared in the New York Times, the Washington Post, BusinessWeek, Modern Maturity (now AARP The Magazine), Fortune Small Business and other publications. For 12 years, Garland was a Washington-based correspondent for BusinessWeek, covering the White House, national politics, social policy and legal affairs. Garland is a graduate of Colgate University.