A weird situation came up the other day that we wanted to tell you about. One of the agents we work with received a call from a 68-year-old client who had not signed up for Medicare when he was first eligible. He was not yet receiving Social Security checks, so he was not automatically enrolled in Medicare Part A when he turned 65. Instead, the client kept the individual health plan that covered himself, his wife (who is under 65), and his eight-year-old granddaughter who he has custody of.
When the client received another double-digit renewal increase on his individual plan, the agent convinced him that it was time to go ahead and sign up for Medicare, warning him that there would be a penalty since he didn’t take Part B when he was first eligible.
The gentleman went to the Social Security office at the beginning of January to sign up for Medicare Parts A and B. When his card arrived in the mail, he noticed that his effective date for Medicare Part A was July 1, 2017 while his effective date for Medicare Part B was July 1, 2018. “Is this a mistake?” he asked the agent. It was not.
Medicare Part A
For most people, there is no charge for Medicare Part A when they turn 65. As long as they have contributed through payroll deductions to the Medicare program for 40 quarters (the equivalent of 10 years) or are married to someone who has done so, they qualify for premium-free Medicare Part A.
For people who choose to go ahead and start receiving Social Security checks, not only is Medicare Part A free when they turn 65, it’s automatic – the government signs them up for Medicare Part A whether they want it or not. In fact, individuals receiving Social Security at age 65 are required to take Medicare Part A; delaying Part A would cause their Social Security checks to stop as well.
People who are not receiving Social Security at age 65, though, are not automatically enrolled in Medicare Part A. If they want it, they have to sign up. When they do, their effective date is actually backdated six months, which is what happened with this client: he had delayed Medicare Part A because he wasn’t receiving Social Security checks, finally signed up for Part A, and saw that the coverage was retroactively effective to July 1, 2017.
While the retroactive effective date could potentially benefit someone who had a claim during that six-month timeframe, it can create issues for others. Specifically, Medicare Part A disqualifies people from HSA eligibility, so if the client had made contributions to his Health Savings Account between July 1 and December 31, 2017, he would need to contact the HSA administrator and back those funds out of the account to avoid paying taxes and an excess contribution penalty.
Because of the way Medicare Part A works, those who delay Part A when they turn 65 should stop making HSA contributions six months before they intend to sign up for Medicare.
Medicare Part B
Medicare Part B is a different story. Unlike Medicare Part A, it’s not free when people start receiving it; instead, people pay for Medicare Part B through deductions from their Social Security check or by paying for it directly to the government.
Additionally, people like this client who postpone Medicare Part B and do not have group coverage from active employment (COBRA does not count as active employment) can only sign up between January 1 and March 31, and their coverage becomes effective July 1. That’s why this gentleman’s effective date for Medicare Part B was July 1, 2018. Additionally, late enrollees pay a 10 percent penalty for every year they were eligible for Part B but not enrolled, and that penalty continues for the rest of their lives.
If you don’t know, don’t guess
This is a great example of why agents who don’t sell Medicare-related products like Medicare supplements or Medicare Advantage plans should not guess when answering their clients’ questions. The truth is that Medicare is fairly confusing for those who don’t specialize in it, and common-sense answers are usually wrong. If you get a question that you don’t know the answer to, it is far better for you and your client to contact an agent who works in the Medicare market than to guess at the answer.
Another option is for you to learn the Medicare market. This market segment continues to experience high growth as more and more baby boomers turn age 65, and it is much more stable than the individual market. If you’re considering selling Medicare products and would like to talk it over, give us a call. We’ll tell you everything you need to know.