Enrolling within eight months of a client's 65th birthday is crucial.
Making the transition from an employer health plan to Medicare by way of COBRA coverage can be problematic. Each decision point along the way involves is subject to very specific deadlines. Miss one and you may find yourself in health insurance limbo.
It can be difficult to see a perfect storm forming. A confluence of seemingly unrelated events merged into a nightmare for our hard-charging attorney who never planned to retire. He had turned 65 in late 2008 but continued working as a partner in his law firm.
Fortunately, he did sign up for Medicare Part A (hospital coverage) at age 65. Remember that Part A is free if you have paid Medicare taxes during your working years. Part B carries a premium that adjusts by income level. Our attorney did not enroll in Medicare Part B (doctor Coverage) since he was still enrolled in his firm's employee health insurance plan and didn't want to "pay twice" for the same coverage.
The heart attack last year was sudden, but not totally unexpected. What was a shock was how fast and how deeply depressed he became to the point where he had to be institutionalized for several weeks. Unbeknownst to us at the time, he never physically went back to his office. The firm sent him a COBRA application this past spring and he signed up.
Around November, just before she turned 65, his wife came in to review her Medicare options. During the discussion, we inquired about the choices her husband had made and discovered he was on COBRA and that he had never signed up for Part B. Medicare Part B enrollment is required to obtain prescription drug coverage from Medicare Part D and to obtain any of the Medigap supplemental policies. He didn't need any of this while on the employer plan or with his COBRA continuation, so they were not aware of any problem.
Coordination of Benefits
It is not uncommon, especially in this economic climate, for 65-year-olds to keep working. They should talk with their health plan administrators to find out how their employer coverage coordinates with Medicare. Larger plans are typically considered as primary and Medicare as the secondary insurer, while smaller plans normally have the reverse approach. Most plans require that employees who are Medicare-eligible sign up for at least Part A because it is free.
The Timing Issues
Enrollment in Medicare Part A and Part B is available with no questions asked for seven months (the three months before you turn 65, your birthday month, and the three months after your birthday month). Enrolling during this seven-month window is your key to guaranteed and penalty-free access to coverage. There will be no questions about any medical conditions or previous insurance coverage.
You can delay enrollment if you are still covered under an employer group policy, but once that group coverage ends, you must enroll within eight months or you will face multiple deadlines, penalties, delay of coverage and the possibility of having to pass medical screening to obtain coverage. If you fail to enroll in Part B within eight months of leaving work, you have to wait until the next open enrollment period and then wait an additional three to six months after that before your coverage becomes effective. You may also incur penalties for late enrollment. Keep in mind that without enrollment in Part B, you are not eligible to enroll in Part D or obtain any Medigap (supplemental) policies. He had enrolled for Part A but not Part B because he had group coverage.
COBRA Doesn't Count!
The trap here is that COBRA continuation does not count as employer group coverage in terms of justifying the delay in Medicare enrollment. So the eight-month clock starts ticking when the employer group coverage ends, NOT when COBRA continuation ends. If his wife hadn't casually mentioned his COBRA coverage to us, he would have missed his eight-month window and faced a very real gap in doctor and prescription drug coverage, as well as serious hurdles in getting future coverage, considering his enormous mental and physical health issues.
Looking back, we realize that in normal retirement circumstances he most likely would have been encouraged by his firm's human resources department to review his Medicare enrollment status. However, since his retirement was unexpected and rather haphazard, these conversations never happened. It is also probably a bit unwise to rely on your employer to keep you informed of all the nuances of Medicare enrollment.
Even when clients are not planning to retire at age 65, it is still an important planning milestone for many reasons. Your client contact system should be able to identify those clients or spouses who will turn 64 in 2010. Contacting them on their 64th birthday to schedule a planning appointment well before their 65th birthday is an effective way to avoid Medicare missteps such as this one. Start conditioning your clients now to expect to come in and visit you when they're 64.
This article was cowritten by Christine Costello, PhD, a senior wealth advisor with Focus Wealth Management. She has devoted her career to researching and addressing the specific retirement issues facing women. She and Helen Modly can be reached at firstname.lastname@example.org.
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