4 Common Mistakes to Avoid When You Enroll in Medicare

If you're close to retirement age, you might soon be eligible for Medicare. The federal health insurance program is an important resource, helping you cover the costs of hospital stays, doctor's visits, and prescription medication. The challenge? Signing up for Medicare can be complicated. It's not unusual for new enrollees to make mistakes, and these mistakes can prove costly.

Your goal is to sign up for Medicare services on time and correctly to avoid financial hits. Here are some common mistakes to watch out for when enrolling in Medicare coverage.

Thinking you haven't worked enough to qualify

You might think that just because you haven't worked much, or at all, that you can't sign up for Medicare. That isn't true.

To be enrolled in Medicare Part A, you might hear that you need to rack up 40 eligibility credits by paying Social Security and Medicare payroll taxes. That comes out to about 10 years of work for most people. But this only means that you won't have to pay for Medicare Part A coverage, which covers medical services provided by hospitals. You can still sign up for Medicare Part A if you haven't worked long enough to earn those 40 credits. You'll just have to pay a premium.

Some people are automatically enrolled in Medicare Part B — the insurance that helps cover doctor visits, trips to the outpatient clinic, and any expenses for medical equipment — when they sign up for Part A (together, the two comprise Original Medicare), while others enroll separately. You don't need any work credits to sign up for Medicare Part B. You can qualify for this part of Medicare even if you've worked fewer than 10 years. You just need to be 65 or older and a U.S. citizen or legal resident who's lived in the country for at least five years. The same holds true for Medicare Part D, which covers prescription medications. As long as you already have Parts A and/or B, you can enroll in Part D. (See also: How to Make Sense of the Different Parts of Medicare)

Signing up too late

Medicare.gov is clear about the risks of signing up too late for Medicare. In many cases, you'll need to sign up for Medicare coverage during your seven-month initial enrollment period. That period includes the three months before you turn 65, the month you turn 65, and the three months after.

There is an exception: You can delay signing up for Medicare coverage if you have health insurance coverage past the age of 65 from an employer for which either you or your spouse still actively work. If this employer has 20 or more employees, you can delay Medicare enrollment until the job ends and not face a penalty. If your employer has fewer than 20 employees, you should sign up for Medicare when you are first eligible.

If you do sign up late — especially for Part B coverage — you will face a stiff penalty. According to Medicare.gov, your monthly premium for Medicare Part B will be 10 percent higher for each full 12-month period that you could have had this coverage but didn't sign up for it. And that penalty will last as long as you are enrolled in Part B coverage.

Here's an example from Medicare.gov: Say your initial enrollment period ended Sept. 30 of 2009. You didn't sign up for Part B coverage until the general enrollment period in March of 2012. Your Part B penalty will be 20 percent. That's because you waited two full 12-month periods before signing up.

There is a penalty for signing up late for Medicare Part A, too, if you don't qualify for premium-free coverage and instead have to pay. Again, your monthly premium might increase by 10 percent. You'll have to pay this penalty for two times the number of years you could have had Part A coverage but didn't sign up for it.

Again, here's an example from Medicare.gov: Say you were eligible for Part A coverage for two years before finally signing up. You will have to pay the higher premium for four years — twice the number of years in which you waited to enroll. (See also: 5 Common Medicare Myths, Debunked)

Skipping Medicare Part D

Medicare Part D helps cover the costs of prescription medicine. It's not free — you'll have to pay a monthly premium. Because of this, you might be tempted to skip this coverage, especially if you're healthy today and you don't take any medications.

Don't. You can't predict how healthy you'll be in the future. You can't predict whether one day you will need costly prescription medications.

Sign up for Part D coverage as soon as you are eligible. Like with Medicare Part A or B, if you wait too long — any continuous period of 63 days or more after your initial enrollment period ends, unless you have approved medication coverage from a different source — you will face a penalty added to your monthly fee.

Not understanding what open enrollment means

Medicare does offer its own open enrollment period, which runs every year from Oct. 15 to Dec. 7. If you are new to Medicare, though, this isn't when you must sign up. New enrollees get their own enrollment periods.

The open enrollment period starting Oct. 15 is reserved for those already receiving Medicare and who want to change their coverage choices for the next year.

If you are enrolling for the first time, you still need to sign up for Medicare sometime during your seventh-month initial enrollment period.

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4 Common Mistakes to Avoid When You Enroll in Medicare

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