For Americans working past 65 with employer coverage, one wrong turn in the Medicare enrollment maze when they switch to Medicare can mean coverage gaps, disrupted care, large out-of-pocket costs and lifelong late-enrollment penalties.
Historically, most Americans’ eligibility for full Social Security retirement benefits and Medicare coverage dovetailed at age 65, with automatic Medicare enrollment when 65-year-olds signed up for Social Security retirement benefits. However, since 2000, the age to collect full Social Security retirement benefits has risen gradually from 65 to 67, and people are working longer, fraying the decades-old enrollment link between Social Security and Medicare.
And the problem is likely to get worse as more older Americans opt to keep working past 65 as the full Social Security retirement age reaches 67 for those born in 1960 or later. Since 2000, the proportion of Americans enrolling in Social Security by age 65 has dropped by 20 percentage points, from 81.6 percent in 2000 to 61.5 percent in 2014 (see Exhibit 1).
Today, people who delay Social Security retirement benefits until after age 65 receive no official government notice about how to avoid penalties or coverage gaps when they choose to enroll in Medicare later.
Transitioning correctly from employer or other health coverage to Medicare is the No. 1 problem cited by health insurance counselors, brokers, insurers, large employers and consumer advocates working with seniors, according to a new qualitative study from the American Institutes for Research (AIR) Center on Aging.
Based on interviews with State Health Insurance Assistance Program (SHIP) counselors, brokers and employers, the study’s findings are detailed in two new AIR Center on Aging issue briefs—Medicare Enrollment Maze Puts Older Americans at Risk for Financial Penalties and Coverage Gaps and Medicare Complexity Taxes Counseling Resources Available to Beneficiaries.
By one estimate, 750,000 Medicare beneficiaries in 2014 were paying lifetime Part B late-enrollment penalties. The average penalty added more than $8,000 to the lifetime cost of their Medicare Part-B premiums.
Avoiding penalties when people work past age 65 depends largely on whether their employer coverage is primary or secondary to Medicare. That, in turn, hinges on two main factors: whether coverage is based on current employment and the size of the employer. With a few exceptions, an individual must proactively enroll in Medicare during a special enrollment period or face lifelong Part B late-enrollment penalties and go as long as 16 months without coverage.
All of the Part B enrollment periods have different time frames to apply and schedules for when coverage takes effect. To confuse matters more, all of the Part B enrollment periods differ from the annual open enrollment period each fall when people can change their Medicare Part D, Medigap or Medicare Advantage coverage.
Even with an extensive portfolio of online and print resources, many beneficiaries need personalized counseling to understand their options and make informed choices. The SHIPs—state-run programs that receive federal grants—train and manage a network of staff and volunteer Medicare counselors who provide free counseling to beneficiaries.
SHIP appears to be a highly cost effective way to provide one-on-one support to help Medicare beneficiaries make more informed choices about their coverage options. The $51.9 million spent on SHIP in 2013 provided one-on-one counseling to more than 2.6 million of the 52.5 million Medicare beneficiaries for less than $20 per beneficiary served.
For too many beneficiaries working past 65, the transition to Medicare has become a Rube Goldberg operation—what should be relatively straightforward is overly complicated without good reason. Better beneficiary notice and information may help, but the entire Medicare enrollment process needs a thorough review and overhaul to make the coverage transition easier and more logical.
A solid first policy step would be to require the federal government to notify all people approaching age 65 of Medicare enrollment requirements—something no government agency now does. Other possible policy solutions include educating employers about transitioning older workers to Medicare coverage, streamlining and harmonizing Medicare enrollment periods, enhancing health insurance counseling services for older Americans, and strengthening appeal rights for beneficiaries who face late-enrollment penalties.