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It seems simple, right? You sign up for Medicare at some point after you turn 65, and those benefits will be there for you when you need them in a worry-free manner.

Unfortunately, not always.

A recent survey by the Medicare Rights Center in New York revealed many Baby Boomers nearing retirement age (51 to 69) didn’t realize signing up late for Medicare Part B, which covers outpatient care and doctor’s visits, could result in headaches and significant financial penalties.

According to the Centers for Medicare & Medicaid Services, nearly 700,000 people paid late fees in 2012.

Since it’s obvious there’s considerable confusion about this important benefit, I thought it would be helpful to outline some important facts about Medicare Part B:

Enrollment for Medicare lasts for seven months: three months before your 65th birthday month, and three months afterward. If you aren’t collecting Social Security benefits at age 65 and miss this window, you could get stuck paying a lifelong penalty of 10% a year on the Part B premium for each year you fail to enroll.

You are automatically signed up for an insurance package that includes both Medicare Part A (hospital coverage) and Part B only if you're collecting Social Security benefits when you turn 65. Part A for most people is free and Part B has a standard monthly premium of $104.90.

You should also be aware of the following scenarios that can also affect enrollment in Medicare Part B. Confusion over the rules behind these specific situations has also led to extra fees and frustration that could have been avoided.

1. Health benefits through employer

You may be able to put off signing up for Medicare Part B without incurring a penalty if you are still employed and covered under your company’s health plan. Check with a financial professional about the details, however, as there may be certain stipulations.

Note: When you quit working after age 65, you will have eight months to sign up for Medicare Part B before incurring a late penalty. 

2. Continuing company health plan coverage after separation from employment

If you continue your employer’s health plan through COBRA after you’ve left the company or lost your job, it will not considered coverage based on active enrollment, and is therefore not a substitute for Medicare.

Many companies offer to extend work-based insurance for a period of time after you leave your job. You should note that penalty-free Medicare enrollment must be within eight months of your separation from employment, however—not after your work-based insurance period ends.

3. Retiree benefits

Don’t delay enrolling in Medicare, even if you are receiving retiree health benefits from a former employer. Doing so may result in the Part B penalty.

4. Private insurance

If you're covered by a private health insurance policy, be sure to cancel it when you turn 65 in order to enroll in Medicare.

Contact your health insurance company directly to complete the cancellation process, as it is not allowed to terminate your coverage unless you personally notify the company.

Take away:

If you still have questions or confusion over when to enroll in Medicare in order to avoid financial penalties and/or gaps in coverage, don’t hesitate to contact a local Social Security Administration representative.

Take good notes while you’re on the phone, including the name of the person and date. That way, if you’re given incorrect information that causes you to incur a penalty, you’ll have proof to hopefully help remedy the situation.

The bottom line is to carefully consider your Medicare options before you turn 65. Do your research and double check the rules behind your specific situation to save yourself both financial and emotional stress during your golden years.

Author Ron L. Brown, CFP®

Ron is a CERTIFIED FINANCIAL PLANNER™ and president of R.L. Brown Wealth Management. He specializes in retirement, estate, and business planning for professionals and entrepreneurs. Ron assists his clients with creating a financial plan to ensure they are able to live their ideal lifestyle during retirement and leave a strong legacy for their family. Ron has been featured in The Wall Street Journal, US News, Yahoo Finance, Investopedia, and numerous other high profile financial publications.

More posts by Ron L. Brown, CFP®

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