7 Mistakes that Prevent People Turning 65 from Choosing the Right Medicare Plan

1. The "Observation Status" Trap

• Observation status is a classification a hospital gives some patients usually due to billing and/or auditing concerns. Observation is considered outpatient care which is covered by Part B of Medicare. The problem arises if the patient is released from the hospital, but told they need therapy and are sent to a SNF, skilled nursing facility. Medicare only covers skilled nursing home rehab if the patient has a medically necessary, 3-consecutive day inpatient stay. Observation days do not count, leading to potentially thousands of dollars in uncovered nursing home costs for the patient.

2. High, Unlimited Out-of-Pocket Costs

• Many new enrollees choose Original Medicare (Parts A & B) without realizing it does not have a cap on out-of-pocket spending. 

3. Missing the "Medigap" Guarantee Window

• Medigap or Medicare Supplement plans may not be what is best for you. However, if a medigap plan is what you are looking for, when you decide to enroll in one is extremely important. Here's why; Medigap plans have what is called a guarantee window where insurers cannot use medical underwriting to deny you coverage or charge you higher premiums. If you miss this window you and are able to get approved by an insurance company for coverage, you could be faced with paying much higher premiums to keep the policy for life.

4. False Assumptions about Coverage

• Most beneficiaries or soon-to-be beneficiaries assume that Medicare covers long term "custodial" care. This is basically any service that helps beneficiaries with bathing, dressing, eating, or long term stays at nursing homes. This is not the case and the worst part, most people don't know this until they are applying for these services after being enrolled for many years.

5. Hidden Costs in Medicare Advantage Networks

• Choosing Medicare Advantage plans (Part C) for their low premiums and extra benefits such as, dental and vision coverage, is often a great strategy for those turning 65. however, if you are not aware of your plans network rules and you see a doctor outside of your network, you may have to pay for 100% of the cost.

6. "Invisible" Penalty for Prescription Drugs

• If you don't take medications at 65, you might not consider enrolling in Part D (Prescription Drug) coverage, and even though you don't need it now. It might be worth giving a second look. There is a permanent, lifetime late enrollment penalty if you go 63 days without a "creditable" drug coverage. This results in you paying higher premiums for the rest of your life if you decide to sign up later on.

7. Incompatibility with HSAs

• If you are still working at 65 and are covered by a high deductible plan with an HSA (Health Savings Account), all parts of Medicare could be a problem for you. Once you enroll in Medicare, even if it's just Part A, you can no longer contribute to an HSA tax-free. If you do decide to continue contributing, you could face a 6% IRS penalty.