According to recent data, almost 70% of Medicare beneficiaries didn’t review or compare plans during Medicare’s Open Enrollment Period. The primary reason is that many find it challenging to navigate and understand all the available options, so they simply let their plans automatically renew. Needless to say, this isn’t the best approach, as it typically leads to overpaying for coverage, gaps in care, and missed savings.
In this post, I’ll walk you through the key details of Medicare and what you must know for the open enrollment period that began last week. With some big changes coming in 2025, it's crucial to make informed decisions now to avoid costly mistakes later.
What Is Medicare?
Whether you want it or not, when you turn 65, Medicare becomes a part of your life. It becomes your primary insurance, and most other health plans pay secondary. This means if you’re covered by an individual health plan, a small employer group plan, or a retiree plan, you must enroll in Medicare at 65. If you don’t, your claims may not get paid and you could face late enrollment penalties. The only exception is if you or your spouse are still working and have coverage through an employer with 20 or more employees. In that case, you can delay enrolling in Medicare without penalties.
So, as you approach your 65th birthday, find out if you can keep your current health after you turn 65 and it won’t trigger late enrollment penalties down the road. This is very important.
When you first enroll in Medicare, there are two main options: Original Medicare and Medicare Advantage.
Original Medicare has Part A, Part B, Medigap, also known as Supplement, and Part D.
Part A is your hospital insurance and covers things like hospital stays, skilled nursing facility care, and even some home health services.
Part B acts like your regular medical insurance and helps with doctor visits, outpatient care, and things like flu shots or screenings to keep you healthy.
Part D is a prescription drug plan designed to help you manage the cost of both generic and brand-name medications. It is offered by private insurance companies and on average, there are around 30 standalone Part D plans available, giving you a range of options to find the one that best fits your needs.
Medigap, also known as Medicare Supplement Insurance, fills in the gaps by covering what Parts A and B don’t, like copayments, coinsurance, and deductibles. There are a variety of Medigap plans available, each offering different levels of coverage. It's important to remember that Medigap only works with Original Medicare, not Medicare Advantage, and can help make your costs more predictable by reducing your out-of-pocket expenses.
Medicare Advantage is also known as Part C or “All-in-one” plan, is offered by private insurance companies and combines Parts A and B, often including additional benefits like vision or prescription drug coverage. One of the appealing features of Medicare Advantage is that you manage everything through one insurer, using just one card instead of separate ones for Part A, B, and D. However, convenience comes with trade-offs: you’ll need to deal with networks, referrals, and pre-approvals. In addition to that, you won't be able to purchase a Medigap policy. Finally, while the premiums might seem affordable, total costs - including copays and deductibles - can add up, so it's important to fully understand how Medicare Advantage works before enrolling.
Medicare Costs
Now, let’s talk about costs. Part A is generally premium-free if you or your spouse worked for at least 40 quarters and paid into Medicare. But when I say “free” I only mean no premiums - there are still other expenses, like deductibles, and if you stay in the hospital for more than 60 days, you may be on the hook for part of the daily rate.
Part B has a premium based on your income from two years ago. For 2025, they’ll look at your 2023 Modified Adjusted Gross income. The monthly premium is typically deducted from your Social Security check. If you haven’t started receiving Social Security yet, you’ll get a bill directly from Medicare. You’ll also pay an annual deductible before Medicare kicks in.
Parts A and B only cover 80% of your costs, which is why many people add Medigap to cover the remaining 20%.
Medigap plans are sold by private insurance companies and come in 12 standardized options, labeled A through N. Each plan offers the same coverage regardless of which company you buy it from, but premiums vary. Most people choose Plan G for its comprehensive coverage, though it comes with higher premiums.
As you can see, choosing the right Medigap plan can be challenging. However, focusing on both the cost and the coverage options is usually the best strategy to guide your decision-making process.
Medicare Advantage and Part D costs vary by provider and plan. To have your prescriptions covered, you’ll need to select a Medicare drug plan available in your area. There will be several options to choose from, each with its own drug list, coverage details, and pricing. Keep in mind, you’ll likely need to pay deductibles and coinsurance each time you fill a prescription until you reach a certain spending limit, which I’ll explain in more detail later.
How To Enroll in Medicare
Enrolling in Medicare is straightforward, but the timing is crucial. When you turn 65, you have a 7-month window to sign up, starting three months before your birthday and ending three months after. It’s best to enroll in those first three months, so your coverage starts the month you turn 65.
If you’re already receiving Social Security, you’ll be automatically enrolled. If not, you’ll need to sign up at SSA.gov for Part A and Part B. For Part D or Medicare Advantage, you’ll enroll through Medicare.gov.
If you miss the window, you may face penalties, so don’t wait.
There’s also a Special Enrollment Period that allows you to sign up for Medicare outside of the standard Initial Enrollment Period. For instance, if continue working after turning 65 and are covered by a qualifying employer health plan, you can delay Medicare enrollment without facing penalties. Just remember to sign up by the end of the seventh month after your employer coverage ends to avoid any late enrollment fees.
Similarly, for Medicare Part D, your enrollment timing depends on whether you have other creditable prescription drug coverage. If you’re covered by a retiree plan or another qualifying plan and that coverage ends, you must enroll in Part D within 63 days to avoid a late-enrollment penalty. Keep proof of your prior coverage, as Medicare may require it to verify that your previous plan was creditable. Missing this 63-day window can result in a penalty added to your Part D premium.
If you miss both your Initial and Special Enrollment Periods, the General Enrollment Period gives you another chance to enroll in Medicare Parts A and B. It runs from January 1st to March 31st, with coverage starting one month after you sign up. However, enrolling during this time may result in penalties, such as a 10% increase in your Part B premium for each year you delayed. While it offers a second opportunity, it’s best to enroll during your initial or special periods to avoid extra costs and delays.
At the same time, from January 1st to March 31st, the Medicare Advantage Open Enrollment Period allows those already in Medicare Advantage plans to make changes. You can switch to a different Medicare Advantage plan or return to Original Medicare (Parts A and B). If you return to Original Medicare, you can also join a standalone Medicare Part D plan. This period is only for Medicare Advantage changes and doesn’t apply to those with Original Medicare alone.
Medicare’s Annual Open Enrollment
If you are already on Medicare then from October 15 to December 7 each year, you can make changes to your Medicare coverage. During the open enrollment, you can switch from Original Medicare to a Medicare Advantage plan or vice versa, change Medicare Advantage plans, or join, switch, or cancel your Part D coverage.
Even if you’re happy with your plan, it’s smart to review it since insurance companies change their premiums, deductibles, and coverage each year. Open enrollment is the perfect opportunity to ensure your plan still offers the best coverage and cost for your needs.
Open Enrollment Tips
When comparing plans, especially Part D, don’t just focus on premiums - look at the cost of your medications. Formularies and prices can vary between plans.
Many people who aren't currently taking medications often skip enrolling in Part D, but I strongly advise against this. Even if you don’t need prescriptions now, there’s a good chance you will in the future. If you don’t have proof of creditable drug coverage - typically from an employer plan or your spouse’s employer - you could face a late enrollment penalty. The longer you go without Part D, the higher that penalty will be.
Fortunately, many Part D plans have $0 premiums, so there’s no reason not to enroll and avoid potential penalties down the road.
If you’re on COBRA, be aware that you can only switch to Medicare during the open enrollment period otherwise you will have to wait until it fully runs out - so make sure to shop for a new plan during the open enrollment period and transition in time.
If you are already enrolled in Medicare, sometime in November you’ll receive your income-related monthly adjustment amount (IRMAA) determination notice. If your income has dropped due to retirement, act quickly to appeal and potentially lower your surcharge.
Lastly, once you enroll in Medicare Parts A and B, you must stop contributing to an HSA if you have one. The only way to continue contributing after 65 is by staying on an employer plan with 20+ employees and delaying Medicare and Social Security enrollment, as signing up for Social Security automatically enrolls you in Medicare Part A.
Medicare Changes for 2025
Now, let’s talk about the changes coming in 2025. There’s both good and bad news. I’ll start with the bad news first and then will wrap up everything on a positive note.
Due to changes from the Inflation Reduction Act, some Medicare Advantage and Part D plans are being discontinued in certain areas, leaving policyholders without coverage. This has led to premium increases for Part D plans, with some jumping from $5 to $20 a month – this is a hefty price increase. Additionally, the Part D maximum deductible is rising to $590. If you don’t act by December 7, 2024, you may be automatically switched to a more expensive plan. It’s a good idea to shop for new plans since there are still affordable Part D options with $0 premiums.
Also, if you received a letter from your insurance company stating that your Medicare Advantage plan is being discontinued, you have the right to enroll in a guaranteed issue Medicare Supplement plan. Be sure to explore this option, as it can offer continued coverage without the need for medical underwriting, ensuring you don't face coverage gaps.
Now for the good news: overall, the average premium for stand-alone Part D plans is dropping to around $40, down from nearly $42 last year, and Medicare Advantage premiums are staying stable.
Starting in 2025, out-of-pocket drug costs will be capped at $2,000 per year, effectively eliminating the “donut hole.” This is a big win for those with high medication costs and means huge savings for people who previously spent thousands on prescriptions, though this cap only applies to covered drugs.
Additionally, keep in mind that manufacturer coupons or discounts cannot be used if you're utilizing Medicare insurance.
In some cases, paying out-of-pocket and applying a manufacturer coupon may be a cheaper option for medications not covered by Medicare.
If you’re still working and covered by an employer group plan, you can delay enrolling in Medicare and keep your employer coverage. However, be cautious: with the new $2,000 out-of-pocket cap for prescriptions, some employer plans may no longer qualify as “creditable coverage.”
If your plan isn’t considered creditable, you could face late enrollment penalties when you eventually switch to Medicare.
To avoid this, confirm with your employer whether your plan meets the creditable coverage criteria. If not, check if your spouse’s plan qualifies. If neither does, it’s highly recommended to enroll in Medicare to avoid penalties, which can permanently increase your premiums.
Lastly, starting in January 2025, Medicare will introduce a new Prescription Payment Plan to help spread out drug costs over the year in monthly installments. Everyone can participate in this plan, regardless of their income level. When you fill a prescription, especially for expensive brand-name medications, you'll first pay the $590 deductible. Then, you'll cover a copayment or coinsurance. The good news is that your total out-of-pocket expenses for covered medications will not exceed the $2,000 annual cap. Thanks to this new payment plan, you can divide those costs into manageable monthly payments over 12 months, making it easier to budget for your medication costs throughout the year.
Final Thoughts
Medicare Open Enrollment is your chance to review and update your coverage to avoid overpaying or missing out on benefits. Automatically renewing your plan could lead to higher costs and coverage gaps. With changes coming in 2025, like rising Part D deductibles and a $2,000 out-of-pocket cap on prescriptions, it’s crucial to stay informed and proactive.
If you need our helping in reviewing your Medicare options, feel free to schedule a complimentary Medicare Open Enrollment Plan Analysis meeting.
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