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Nothing could be more devastating to your personal finances than an uninsured illness or accident. Yet each year, many Americans inadvertently find themselves caught in between insurance coverage as they change jobs or wait too long to apply for Medicare. The rules are tricky, and worth examining, especially now that changes are coming in short-term “gap” policies.

Medicare Transition

Everyone wants to minimize insurance premium costs. So if you have coverage at work, or from a working spouse, you can delay signing up for Medicare coverage when you reach Medicare eligibility at age 65.

You might be told to sign up for Medicare Part A, which covers hospitalization. In fact, some small company insurance plans actually require workers over 65 to be enrolled in Medicare Part B, so company insurance can be a “secondary payer”. Part A is free.

Just one warning: Once you enroll in Medicare, you can no longer contribute to a pre-tax Health Savings Account.

When you finally retire from your company, you’ll transition to Medicare during a “special enrollment period” that lasts eight months. You do not have to wait for the annual year-end Open Enrollment period. Go to Medicare.gov to sign up, ensuring there is no “gap” in coverage between the time you (or your spouse) loses company coverage.

When you sign up for Medicare Part B, you’ll also want to choose a supplement to cover additional costs. You’ll also sign up for Part D, drug coverage – even if you are not currently taking prescription drugs – to avoid a late enrollment monthly penalty.

Although all of this can be intimidating, the Medicare.gov website will walk you through the process, doing comparisons. You can get all of these signups done directly from their website. Or, you can use a Medicare advisory service, such as the one provided by www.65Incorporated.com, where Diane Omdahl’s advice in complicated situations can save a lifetime of expensive mistakes. Insurance agents and websites such as www.eHealthInsurance.com will also guide you at no extra cost.

Beware COBRA

If you’re still working at age 65, and then lose your job, you may be offered COBRA – a one-year extension of your current benefits. The company may do you a “favor” of offering to pay for this extension as part of your layoff package. But this “free coverage” could be your most costly mistake.

Medicare expert Diane Omdahl warns:

“Those who did not enroll in Part B at age 65 and continue working have one opportunity to apply without penalty or delay, their Part B Special Enrollment Period. This is an eight-month window that begins with the last day of employment or coverage, whichever comes first. If someone who has 12 months of paid COBRA waits until the end, he or she will be four months too late to enroll.

It is not pleasant for those who missed their SEP. Their next opportunity to get Part B will be during the General Enrollment Period, January 1 through March 31 and coverage will take effect the month after enrolling. I usually hear something like, “So, what am I going to do for healthcare coverage until then?”

As if that isn’t bad enough, there is a second issue. They could face a Part B late enrollment penalty, which is 10 percent of the standard Part B premium for every year (12 months) that enrollment was delayed. One year late enrolling in Part B would cost an additional $17.49 a month in 2024.”

As you can see, it’s critical to get initial Medicare enrollment done correctly. Mistakes can be costly over the rest of your lifetime. Says Omdahl: “If you have the opportunity to take COBRA coverage after age 65, enroll in Medicare Part A and B before it starts>>. That way you’ll avoid one of the biggest Medicare mistakes.”

Filling the Gap

Here’s one more warning for anyone who loses a job and needs to resort to purchasing individual healthcare. Starting September 1, short-term health policies will be limited to a three-month term, with only a one-month extension. And these policies do not cover pre-existing conditions.

Louise Norris, health policy analyst at HealthInsurance.org advises that if you have a gap between leaving one job and qualifying for insurance coverage at your next job, a short-term policy might be the solution. But if your insurance needs might last longer than the new four-month maximum, you should turn to the Obamacare website, www.Healthcare.gov.

A gap in health insurance could turn into a deep gully for your finances. It pays to get the facts. That’s the Savage Truth!

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(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)

©2024 Terry Savage. Distributed by Tribune Content Agency, LLC.