To Inform:

When a client turns 65, a furry giant suddenly appears in their life – the “Medicare Bear.” It seems simple to understand, but in all reality it’s big, confusing, filled with surprises, and can flash its teeth at you if you take a wrong step. Our job in helping our clients live their great life is to try and tame this beast and help navigate through this season in their lives.

It’s key to understand why this beast can do so much damage. Medicare is not just an application that you get in the mail leading up to your 65^th birthday – it determines what your health coverage will look like for the rest of your life. A misunderstanding or missed deadline can lead to increases in premiums, gaps in coverage, or financial penalties.

Medicare Parts Summary

Before we go any further, I wanted to take a moment to quickly recap the different parts of Medicare.

Part A – “Hospital Insurance”

Covers:

• Inpatient Hospital Care
• Skilled Nursing facility Care (one helps with coverage up to 100 days)
• Hospice Care

Part B – “Medical Insurance”

Covers:

• Doctor Visits
• Outpatient Care
• Preventative Services (Screenings, Vaccines)
• Medical Equipment (Wheelchairs, Walkers)

Part C – “Medical Advantage”

• Offered by private insurance companies approved by Medicare

Part D – “Prescription Drug Coverage”

Covers:

• Outpatient Prescription Medications

When to Apply for Benefits?

Most people think that you must wait until the day of your 65^th birthday to enroll in Medicare benefits, but this is not the case. Individuals technically have a 7 month period where they can enroll, referred to as the Initial Enrollment Period (IEP). This starts 3 months prior to your birth month and spans for the 3 months following your birth month. The sooner that you can enroll, the better, as your coverage start date will vary depending on when you enroll for your benefit.

Working Past Age 65?

When an individual turns age 65 and is still working, they do not necessarily need to apply for Medicare benefits. If you are still working past 65 and are considered to have “credible” health insurance coverage through your employer, you can wait to apply for Medicare up to 8 months after you have stopped working. This also can apply if you are a spouse that is covered with credible employer health insurance plan through your spouse. One important thing to note is that not all employer plans are considered to be “credible.” It is key to consult with your employer to verify before deciding to delay Medicare.

When you stop working, you typically have an 8 month “grace period” called a Special Enrollment Period (SEP) in which you can sign up for Parts A and B without a penalty.

Health Savings Account and Tax Considerations

Enrolling in any facet of Medicare, even Part A, will disqualify you from contributing to a Health Savings Account (HSA). If you do contribute to an HSA while covered under Medicare, you will be subject to annual excise tax of 6% of the amount contributed. This tax will be assessed annually until the violating contribution has been withdrawn from the account. This problem often comes to the surface when an individual applies for Social Security at age 65 and does not realize that by doing so, they are automatically enrolled in both Medicare Parts A and B. An easy way to avoid this is to make sure HSA contributions stop 6 months before an individual signs up for Social Security.

Also, there is another danger that lies with Medicare called IRMAA. This is an income related surcharge on Part B and Part D premiums (quick note – Part D, used to cover your prescription drugs, is additional benefit that you have to elect to enroll in) that comes into play when one exceeds a certain income threshold. For tax year 2025, these thresholds start for single tax filers at $106,000 of income and $212,000 for married tax filers. As advisors, it is important for us to keep these figures top of mind as it may help avoid income-related premium increases.

Conquering the Beast!

The Medicare Bear is not just a silly metaphor or catchy title that I came up with. The financial risks are very real and can happen to anyone if they are not careful. We often encourage our clients to coordinate with a Medicare specialist when enrolling. They can be a great tool in defining a clear road map, assisting in benefit enrollment, and informing on other coverage needs and options.

Written by Zach Granger, Wealth Advisory Associate