Dave Ramsey Has a Blunt Warning to Americans on Medicare

If you are turning 65, it is likely that you are about to become eligible for Medicare.

Money expert Dave Ramsey has a warning to help people in this situation avoid one of the biggest financial mistakes seniors make.

Why some seniors do not enroll in Medicare Part B

Most people who turn 65 are ready to enroll in Medicare Part B, which is the portion of the program that covers services from health care providers, preventative care, and outpatient care.

However, a smaller number of seniors at that age may not need the program just yet.

This is especially likely if you are still working and get your health insurance coverage through your employer.

It also may apply if you get coverage through a spouse who has health insurance at their workplace.

A small window to join Medicare

During the year you turn 65, you are eligible for what is known as Medicare's Initial Enrollment Period (IEP).

The IEP runs for seven months. It begins three months before your birthday month and lasts for three months after your birthday month.

Ramsey's warning is for those who decide not to sign up during this time.

"If you don't want to sign up for Medicare at 65, you don't get to just sit back and ignore everything," he wrote last year.

The penalty for not signing up for Medicare on time

If you choose not to sign up at 65, you must have health insurance that is roughly equivalent to the coverage you would get through Medicare.

Examples of such coverage would include health insurance through your employer or a plan you have purchased through a federal or state health insurance marketplace.

It might also include coverage that you get through a spouse's health insurance plan at their workplace.

These circumstances make you eligible for a Special Enrollment Period (SEP) that helps you avoid penalties.

If you are not eligible for an SEP and you do not sign up for Medicare during your IEP, you could be financially penalized when you do sign up later.

Typically, your Part B premium increases by 10% for each year you were eligible to sign up for Medicare but did not do so.

This is not a one-time penalty. Instead, you pay an extra fee for as long as you remain on Medicare.

Do you have to prove that you have coverage?

Ramsey wrote that "you must prove to the government that you have comparable health coverage through your employer or the marketplace" if you want to avoid a penalty.

"Proof could be as simple as an insurance card with both your and your employer's names on it," Ramsey wrote.

But that's not exactly true. In most cases, you do not need to prove that you have creditable coverage through your employer at the time you delay coverage.

Rather, you need to have your employer fill out Medicare Form CMS-L564 to confirm you had creditable coverage. You then submit this form with your application for Medicare Part B when you decide to enroll.

However, there are exceptions where you should inform the government right away if you plan to delay signing up for Medicare.

For example, if you are enrolled in Social Security or Railroad Retirement Board benefits, you are automatically enrolled in Medicare Part B unless you inform the government that you do not wish to enroll.

In addition, if you work for an employer that has fewer than 20 employees, you typically are required to enroll in Medicare during your IEP to avoid penalties.

The key to avoiding Medicare penalties

The key to avoiding such penalties is to make sure you are eligible for what is known as a Special Enrollment Period (SEP).

There are a handful of things that make you eligible for an SEP. They include:

• Having health insurance through your job or your spouse's job
• Having health insurance through a family member's job if you are disabled
• Losing Medicaid coverage on or after Jan. 1, 2023
• Missing the chance to sign up due to being impacted by a natural disaster that occurred on or after Jan. 1, 2023
• Missing the chance to sign up due to receiving misleading information from your health plan or employer on or after Jan. 1, 2023
• Being released from incarceration that prevented you from signing up on or after Jan. 1, 2023
• Volunteering and serving in a foreign country
• Being enrolled in TRICARE

Other conditions also may make you eligible for an SEP. If you qualify for an SEP due to having health insurance through an employer, your SEP typically begins the month after your IEP ends. Your SEP ends eight months after the group health plan coverage or the employment ends, depending on which of these events occurs first.

Rules differ for other situations that create your SEP.

What happens if you sign up late for Medicare Part D?

Medicare Part D is the portion of the program that covers prescription drug costs. There is also a permanent premium penalty if you sign up late for this coverage.

The penalty is an extra 1% in premium costs for each month you are late. You might have to pay this penalty if you don't join Part D when you are first eligible for Medicare or go 63 days or more without creditable coverage.

However, as with Part B, there are ways to avoid this penalty. They include having creditable coverage that is equivalent to what you would get through Part D or being eligible for Medicare's Extra Help program.

If you have such creditable drug coverage through your employer, a union, or a similar entity, you should receive a notice to this effect each September.

The Centers for Medicare & Medicaid Services (CMS) urges you to hold on to this statement so you have proof should you decide to join Medicare Part D later.

Bottom line

Like most government programs, Medicare is confusing. Before you delay filing for Medicare benefits, make sure you are eligible for a Special Enrollment Period.

Also, ask your employer to confirm that you have creditable health insurance coverage as it is defined by the federal government.

Failure to do these things could result in higher Medicare costs down the road, putting your financial fitness in jeopardy.

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