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3 Medicare Decisions That Could Sorely Backfire on You

Motley Fool - Sun Apr 14, 2:18AM CDT

While some expenses of yours may go down in retirement, one expense that's likely to rise is healthcare. In fact, last year, Fidelity estimated the cost of healthcare in retirement at $157,500 for a typical 65-year-old retiree. Ouch.

As such, it's important to do what you can to keep your healthcare costs manageable. And being strategic with Medicare could affect your healthcare spending for the better. With that in mind, here are a few decisions that might not end up working out so well for you.

A person at a laptop taking notes.

Image source: Getty Images.

1. Waiting to enroll

You're eligible for coverage under Medicare once you turn 65. However, your initial Medicare enrollment window begins three months before the month of your 65th birthday and ends three months after that month. So all told, you get seven months to enroll in Medicare on time.

But if you don't sign up for Medicare during that period, you could end up facing steep penalties for late enrollment. Specifically, you'll face a lifelong 10% surcharge on your Part B premiums for each 12-month period you were eligible to sign up for coverage but didn't.

Now rest assured that if, come age 65, you're still covered by a qualifying group health plan through a job (yours or a spouse's), you won't automatically face that penalty. But if you don't have health coverage at 65, or you're not on a qualifying group plan (usually defined as having 20 enrollees or more), then you'll need to be mindful of that penalty and sign up accordingly.

2. Choosing Medicare Advantage from the start

Original Medicare consists of Parts A and B plus a Part D drug plan. As an alternative, you can sign up for a Medicare Advantage plan.

Medicare Advantage plans are offered by private insurers and work similarly to the types of plans many workers are offered through their employers. They also commonly offer more benefits than original Medicare does, which is what tends to make them appealing. But while signing up for Medicare Advantage could work to your benefit, it could also lead to higher costs, depending on the state of your health.

Another issue you might encounter with Medicare Advantage? You could have a hard time finding in-network providers. If you're forced to go out of network to tend to your health-related needs, you could end up spending more than you have bargained for. As such, think carefully before opting for Medicare Advantage.

Also, if you start off on Medicare Advantage, you might miss out on the opportunity to secure Medigap, or supplemental insurance for Medicare, at a reasonable price point. Medigap isn't compatible with Medicare Advantage, but if you don't sign up when you're first eligible for Medicare, the cost to put that coverage in place could become exorbitant.

3. Sticking with the same Part D drug plan because you're used to it

When you sign up for Medicare Advantage, your plan usually includes prescription drug coverage. With original Medicare, you'll need a separate Part D drug plan for that purpose.

You might decide to stick with the same Part D drug plan year after year because you're used to it and don't like change. But that's a move that could cost you.

It could be that the specific drugs you take are less expensive under another Part D plan. Or you could be paying more than you need to for Part D because your prescription needs have changed and you're on very inexpensive medication. So it's always a good idea to explore your Part D plan choices during Medicare's annual open-enrollment period each fall.

It's natural to worry about paying for healthcare as a retiree. But the more savvy you are with your Medicare decisions, the less of a financial burden healthcare might end up being as a whole.

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