MONEY Medicare

Here’s What to Do When You’re Ready to Sign Up for Medicare

Just follow these three steps to get coverage.

You’ve probably heard that Medicare enrollment rules are complicated. And it’s true—knowing when to sign up, or even if you need to if you working at 65, takes some research. But the good news is that actually signing up for the benefit is a relative breeze.

To enroll, there are three key steps to follow. But before you do anything, be sure you know exactly what kinds of Medicare coverage you want. Part A (hospital insurance) is free to those who have worked long enough to also qualify for Social Security retirement benefits. You can also qualify for free Part A if your spouse qualifies for Social Security.

Medicare Part B covers expenses for doctors, equipment and other outpatient expenses. The Part B application form itself has only a dozen lines for things like your name, address, and Social Security number. Still, it is surrounded by four pages of explanation.

Together, Parts A and B constitute basic or “original” Medicare, which is the coverage choice for some 70% of Medicare beneficiaries. The other 30% opt for Medicare Advantage plans through private insurers. But they still need to sign up first for Parts A (automatic for most enrollees) and Part B. Now here’s how to enroll:

1. Start with Social Security. Medicare enrollment is administered by the Social Security Administration, which offers three options for signing up for basic Medicare. Given how important this is, my feeling is that it’s best to enroll in person. I suggest you make an appointment at your local Social Security office—don’t just drop in unannounced. You can call 1-800-772-1213 to schedule your visit. Make sure you check out the hours when the office is open.

If you choose not to take the in-person route, you can simply enroll by phone. Just call the number listed above. But be very clear that you want to sign up for Medicare only (assuming that’s the case.) The person on the other end of the line is there to handle applications for lots of Social Security benefits as well, not just Medicare. You don’t want to accidentally sign up for Social Security as well.

You can also sign up online, which Social Security has been encouraging people to do both for retirement benefits and Medicare. Their online application emphasizes that you need not visit an office. If you do opt for online enrollment, make sure you read this brief guide or view the video that explains how to sign up. The agency also provides a checklist of information you will need before signing up.

2. Take care of Medigap. Once you have basic Medicare in place, you’ll need to make decisions quickly on other forms of coverage. If you want a Medigap policy, which covers many things not covered by basic Medicare, you should sign up within six months of getting Part B coverage. During this period, you have what’s called a guaranteed issue right of being able to buy a policy regardless of any adverse existing health issues. You are protected from excessive premiums related to either your age or your age.

If you miss this window, however, all bets may be off. Insurance companies are not required to sell you these policies and can charge you much higher rates if they do. (There are special circumstances, such as losing access to a retiree health insurance policy, that will trigger a 63-day window during which your guaranteed rights are restored.)

3. Consider Medicare Advantage and Part D. If you want a Medicare Advantage plan or a Part D drug plan, their enrollment windows are the same as for Medicare Part B. You must first sign up for basic Medicare before contacting a private insurer for a Medicare Advantage Plan or a stand-alone Part D plan.

Signing up for Medicare would be even easier if the government made additional efforts to educate people about the process and alerted them to their possible upcoming enrollment windows.

Five U.S. House members recently sent a letter to the heads of the agencies responsible for Medicare, asking them to do just that. A spokeswoman for the group said their letter was based in part on a report last fall from the Center for Medicare Rights.

“No federal entity is currently responsible for notifying people nearing Medicare eligibility about the need to enroll if they are not already receiving Social Security benefits,” the report said. After 50 years in business, Medicare can do a lot better here.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: When Good Investments Are Bad for Your Retirement Savings

MONEY Medicare

How to Time Your Medicare Enrollment

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Robert A. Di Ieso, Jr.

Q: When should I sign up for Medicare?

A: Most pre-retirees know that Medicare coverage kicks in when you turn 65. But that’s not the whole story. If you want to enroll in Medicare without hassles and costly penalties, you need to know exactly when to sign up for the program you want. There are different enrollment periods, so it’s trickier than you might think. Many older Americans fail to sign up at the right time, which can lead to higher premiums or leave you with coverage gaps, studies have found.

First, though, there are exceptions to the age 65 sign-up date. You may still be covered by your employer’s health care plan, for example, or if you are eligible for Medicare due to a disability, you can sign up earlier.

Initial Enrollment Window: Medicare has established a seven-month Initial Enrollment Period, which includes the three months before you turn 65, your birthday month, and the three months afterward. This window applies to all forms of Medicare—Parts A (hospital), B (doctor and outpatient expenses), C (Medicare Advantage), and D (prescription drugs).

Medigap Enrollment: There is a separate six-month open enrollment period for Medicare Supplement policies (also called Medigap), which begins when you’ve turned 65 and are enrolled in Part B. During this period, insurers must sell you any Medigap policy they offer, and they can’t charge you more because of your age or health condition. This guaranteed access may be crucial because if you miss this window and try to buy a Medigap policy later, insurers may not be obligated to sell you a policy and may be able to charge you more money.

General Enrollment: If you missed enrolling in Part A or B during the Initial Enrollment Period, there is also a General Enrollment Period from January 1 through March 31 each year. Waiting until this period could, however, trigger lifetime premium surcharges for late Part B enrollment, which can end up costing you thousands of dollars. And your coverage won’t begin until July.

Part D drug coverage is not legally required. But if you don’t sign up for it when you first can, and later decide you want it, you will face potentially large premium surcharges. For example, if you missed enrolling during your initial enrollment period and then bought a policy, a premium surcharge would later take effect if you were without Part D coverage for 63 days.

Special Enrollment: There are lots of special conditions that can expand your penalty-free options for when you sign up for Medicare. And there also are what’s called Special Enrollment Periods for people who’ve moved, lost their employer group coverage or face other special circumstances. These special periods may have enrollment windows that differ in length from the standard ones.

Philip Moeller is an expert on retirement, aging, and health. He is co-author ofThe New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: How to Make Sure Medicare Really Covers Your Hospital Stay

 

MONEY Medicare

How to Avoid Losing Out on Medicare If You’re Still Working at 65

Older workers need to watch out for these Medicare enrollment mistakes.

For anyone who plans to keep working after they turn 65—and that’s a growing number of people—planning for Medicare can be complicated. Last week’s column discussed the dizzying array of enrollment periods and other sign-up timetables for people who turn 65 and sign up for Medicare. In this column, I’ll explain the tricky transition from employer insurance to Medicare.

Roughly a third of Americans aged 65 to 69 remain in the work force—a rate 50% higher than only a decade ago. So the adage that everyone must get Medicare when they turn 65 is not true for more and more older Americans.

If you continue to work and have employer group health insurance, you probably do not need to sign up for Medicare. Also, if you lose employer coverage and do get Medicare, and then get a new job with employer health coverage, you usually will not need to keep Medicare. This often surprises people who think they must remain covered by Medicare for the rest of their lives once they get it the first time.

That said, there are exceptions and caveats to that general rule. So to avoid potential stumbling blocks, consider these three key guidelines:

Small business workers may need to sign up. If you’re about to turn 65, and you work for an employer with fewer than 20 workers, yes, you probably need to sign up. In these small-employer plans, Medicare becomes what’s called the primary payer of covered insurance claims for employees 65 and older. Your employer plan is the secondary payer.

If you fail to enroll, Medicare can deny you primary health insurance for many months. And when you finally do sign up, you often face premium surcharges that will last the rest of your life, which could cost you thousands of dollars. As a I mentioned last week, the initial enrollment window for Medicare lasts for seven months—three months before turning 65, the month you turn 65, and three months after your birthday month.

Check your employer’s Part D plan. For people working for larger employers, you don’t face this enrollment rule. However—and there are almost always howevers when it comes to Medicare—there’s a technical requirement for avoiding Medicare coverage, which could be a potential stumbling block to coverage.

Medicare requires that a person’s employer drug coverage be “creditable”—meaning that it must be at least as good as a Medicare Part D prescription drug plan. If that’s not the case, the person would need to sign up for a Part D plan. If you don’t, you will face lifetime premium surcharges for failing to do so on a timely basis.

How likely is it that your drug coverage would not be credible? Honestly, I have never gotten a reader question or spoken to anyone whose employer drug coverage was found to fall short. But if it did, the employee likely would not know until it was too late. Since it is a rule, employees approaching 65 should get confirmation from their human resource manager that your drug coverage passes this test.

Consider signing up for Part A anyway. Even if you do not need to enroll for Medicare at age 65, you should probably sign up for Medicare Part A, which covers hospital expenses and short-term stays in nursing homes. Part A premiums are waived for people whose work records qualify them for Social Security. Normally, this requires working 40 quarters in jobs where Social Security payroll taxes are paid.

Medicare Part A is a secondary payer in this scenario, which means it can help out with expenses not covered by employer group insurance. It does carry a steep-sounding deductible of $1,260 for each covered stay. But the cost of even brief hospital stays easily can soar to many multiples of this deductible, making Part A a nice benefit to have.

Signing up for Part A does have a big downside. By doing so, you will no longer be eligible to contribute to a tax-advantaged health savings account (HSA). If you have an HSA now, you will need to compare the potential benefit of Part A coverage with the loss of your ability to contribute to the account. If you choose to give up contributing to your HSA, however, you will still keep any accumulated funds for as long as you wish. And that money won’t be taxed if you spend it on qualified medical expenses.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: This Is the Biggest Mistake People Make When Signing Up for Medicare

MONEY Medicare

This Is the Biggest Mistake People Make When Signing Up for Medicare

calendar with pills on days
Alamy

To sign up for the right program at the right time, start marking your calendar now.

Most pre-retirees know that Medicare coverage kicks in when you turn 65. But that’s not the whole story. If you want to enroll in Medicare without hassles and costly penalties, you need to know exactly when to sign up for the program you want. There are different enrollment periods, so it’s trickier than you might think. Many older Americans fail to sign up at the right time, which can lead to higher premiums or leave you with coverage gaps, studies have found.

First, though, there are exceptions to the age 65 sign-up date. You may still be covered by your employer’s health care plan, for example, or if you are eligible for Medicare due to a disability, you can sign up earlier. In my column next week, I will discuss strategies for people who won’t be enrolling at 65. But this week we’ll focus on traditional sign-up rules. Now for a quick rundown of the five—yes, five—different enrollment periods for Medicare:

Initial Enrollment Window: Medicare has established a seven-month Initial Enrollment Period, which includes the three months before you turn 65, your birthday month, and the three months afterward. This window applies to all forms of Medicare—Parts A (hospital), B (doctor and outpatient expenses), C (Medicare Advantage), and D (prescription drugs).

Signing up for Medicare Advantage (MA), the managed health care version of Medicare, also requires you to have Parts A and B. You can drop your MA plan anytime within the succeeding 12 months and just use what’s called original or basic Medicare (Parts A and B).

Medigap Enrollment: There is a separate six-month open enrollment period for Medicare Supplement policies (also called Medigap), which begins when you’ve turned 65 and are enrolled in Part B. During this period, insurers must sell you any Medigap policy they offer, and they can’t charge you more because of your age or health condition. This guaranteed access may be crucial because if you miss this window and try to buy a Medigap policy later, insurers may not be obligated to sell you a policy and may be able to charge you more money. (Note: Medigap policies may not be sold to people with Medicare Advantage plans.)

General Enrollment: If you missed enrolling in Part A or B during the Initial Enrollment Period, there is also a General Enrollment Period from January 1 through March 31 each year. Waiting until this period could, however, trigger lifetime premium surcharges for late Part B enrollment, which can end up costing you thousands of dollars. And your coverage won’t begin until July.

If you enroll in Part B during the General Enrollment Period, there is another window—April 1 through June 30—during which you can sign up for a MA plan with or without Part D drug coverage. In most cases, coverage also will take effect July 1.

Part D drug coverage is not legally required. But if you don’t sign up for it when you first can, and later decide you want it, you will face potentially large premium surcharges. For example, if you missed enrolling during your initial enrollment period and then bought a policy, a premium surcharge would later take effect if you were without Part D coverage for 63 days.

Special Enrollment: There are lots of special conditions that can expand your penalty-free options for when you sign up for Medicare. And there also are what’s called Special Enrollment Periods for people who’ve moved, lost their employer group coverage or face other special circumstances. These special periods may have enrollment windows that differ in length from the standard ones.

Open Enrollment: If you already have Medicare, there is an Open Enrollment Period every year, when you can select new MA and drug plans, including moving back and forth between basic Medicare (Parts A and B) and MA. It runs from October 15 through December 7.

For those with MA plans, there is also a special MA disenrollment period from January 1 through February 14, when you can move back to basic Medicare and also get a Part D plan if you need one (most MA plans include Part D).

Don’t feel bad if you can’t keep track of so many different enrollment periods. Who could? The A, B, C, Ds of Medicare are confusing enough. Just keep track of this column. And consider using your computer or smartphone’s calendar to enter key Medicare enrollment dates as you approach your 65th birthday .

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: How to Make Sure Medicare Really Covers Your Hospital Stay

MONEY Health Care

How to Find the Best Hospitals

stethoscope heart
Jeffrey Hamilton—Getty Images

Think Yelp for the hospital-gown set.

Are the bathrooms clean? That’s just one of the many questions you’ll see answered on Medicare’s Hospital Compare website, a trove of information designed to help you select where to get medical care.

In April the site added its first-ever ratings of hospital stays based on patients’ assessments—think Yelp for the hospital-gown set. You can see ratings for a dozen aspects of the hospital experience, including cleanliness of rooms, nurses’ communication skills, and clarity of discharge instructions.

Drawing upon this and other data gathered by Medicare—ranging from timeliness of stroke care to possible overuse of MRIs and CT scans—you can make better decisions about what hospital to use the next time you need one, whether or not you’re on Medicare.

The information on Hospital Compare, however, can be overwhelming. Picking a hospital based on familiarity or convenience often trumps sifting through quality-of-care data—not necessarily a good thing, says Christina Boccuti, a Medicare expert at the Kaiser Family Foundation. Here’s a quick guide to using the site.

Cast a narrow net. Before you even start, call doctors you might work with to see what hospitals they use. Next, check with your health insurer to see whether these hospitals are in your network.

At Hospital Compare, you can study up to three area hospitals at a time. Focus on your own health needs among 10 major categories (surgical care or pregnancy and delivery, for example), general medical outcomes, the cost of care, and hospital “value”—costs relative to a patient’s well-being.

Money

Don’t sweat the small stuff. Surveys of patient experiences are summarized on a scale of one to five stars. Among hospitals, pay attention only if there’s at least a two-star difference, says Boccuti. Similarly, ignore small differences in ratings and outcomes. If 68% of one hospital’s patients say their pain was always well controlled, vs. 70% who say so elsewhere, that’s no big deal. Instead, look for large-magnitude differences across numerous measures.

Seek out volume. When you need an operation, a good rule of thumb is to go with the surgeon who’s done the procedure 600 times, not the one who’s on his sixth. Generally, the same rule holds true for comparing hospitals. So click on the rightmost tab, labeled “Number of Medicare Patients,” and look for the relevant condition or procedure. You’re probably better off picking a place that has treated hundreds of patients, not a handful. As is the case with all the data on Hospital Compare, you won’t get a definitive answer to the question “What hospital should I choose?” But you will be pointed in the right direction.

Philip Moeller, co-author of The New York Times bestseller, Get What’s Yours: The Secrets to Maxing Out Your Social Security, is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Social Security

This Is the Maximum Benefit You Can Get from Social Security

If you're fortunate enough to earn a hefty salary throughout your career, a Social Security jackpot awaits.

If Social Security had a lottery jackpot, it would go to the small number of persons who collect the absolutely highest retirement benefits allowed under agency rules.

How high are the hurdles to claiming the maximum amount? Pretty darn high. A worker needs to have wage earnings large enough to equal or exceed the agency’s annual ceiling on earnings subject to payroll taxes for at least 35 years.

The earnings ceiling this year is $118,500. And that number has nearly doubled in the past 20 years from $60,000 in 1995.

Social Security bases your benefits on your highest 35 years of earnings after adjusting each year’s earnings to reflect wage inflation. In other words, your top 35 years, as documented via your payroll stubs, may not be your top 35 once they’re adjusted for wage inflation. Still, you can be certain that if you’ve earned at or above the annual payroll-tax ceiling for at least 35 years—lucky you!—a benefits bonanza awaits.

The size of that benefit check will also depend on wage inflation. This year’s top monthly benefit at 66, or full retirement age (which is the benchmark the agency uses), is $2,663 ($31,956 a year). By contrast, the average Social Security payout is a more modest $1,287 ($15,444 a year).

If you wait until age 70 to claim, delayed retirement credits will boost your payment to $3,515 in today’s dollars ($42,182 a year). The actual amount you’d receive in four years also would include accumulated cost of living adjustments.

If you haven’t already done so, open an online Social Security account to access the agency’s record of your earnings each year. By comparing what you have earned each year to that year’s earnings ceiling, you can see how close you are to being eligible for the benefit jackpot. For the uber-geeky, Social Security provides each year’s top benefit and the average inflation-indexed wages used in its calculations.

Clearly, few workers qualify for the highest payout. While claiming ages are rising, fewer than 2% of all Social Security beneficiaries wait to file for benefits until age 70, when they reach their maximum level.

The maximum benefit payouts in future years will depend on how much wage inflation there has been. This will determine the new ceiling for earnings on which payroll taxes must be paid, which in turn will drive a new jackpot number.

Even so, we do know that the top benefit won’t change much next year. Rates of general inflation have been so low that some people think the annual cost-of-living adjustment for 2016 benefits will be very small or even zero. Of course, you may be comforted that this also means your benefit dollars are not being eroded by inflation.

And if you’ve earned enough money to qualify for the highest payout, odds are you’re not too worried anyway about missing out on a few more benefit dollars.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Are Social Security Benefits Taxable?

MONEY Social Security

Same-Sex Marriage Rights Can Boost Social Security Benefits By Up to $250,000

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David Paul Morris—Bloomberg via Getty Images Sandy Stier, left, and Kris Perry wave to supporters after being married in City Hall in San Francisco, California, U.S., on Friday, June 28, 2013.

According to an analysis by investment advisory firm Financial Engines

Allowing same-sex couples to legally marry and enjoy all the Social Security benefits granted to heterosexual spouses will provide many couples hundreds of thousands of dollars more than they can get as single filers, according to a recent analysis by Financial Engines, an investment advisory firm.

Same-sex marriage already is legal in 75% of the states and today’s Supreme Court ruling now guarantees the right for same-sex couples to marry nationwide.

Financial Engines recently issued a case study showing exactly how much a same-sex couple stands to gain by taking advantage of spousal and survivor benefits that would not be available to them if they had to file for Social Security as single persons. The study does not include other benefits that also could be available to such couples, including child, disability, and divorce benefits.

“Social Security is complex but for same-sex couples, there are a lot more opportunities to earn greater lifetime benefits when they have the right to marry,” says Christopher Jones, chief financial officer.

The company estimates that the right to marry can yield an additional $20,000 to $250,000 in lifetime benefits. The value of spousal and survivor benefits is even larger for heterosexual couples, he notes, because there tends to be a greater age range among spouses in opposite-sex marriages. These age differences increase the potential values of marriage benefits, especially survivor benefits, Jones says. Women outlive men, and spend more than 11 years on average as widows, he says, so survivor benefits are enormously important to them.

The claiming scenario in the Financial Engines white paper involves a fictional couple, Henry and Logan, who are approaching their 64th and 62nd birthdays. Henry earns $80,000 a year and will be entitled to a full Social Security benefit at age 66 (full retirement age) of $2,500 a month. Logan has earned much less, and his age-66 benefit will be only $1,100 a month. What neither man can know, but Financial Engines’ storytellers do, is that Henry will die at age 84 and Logan at age 90.

At present, both men plan to begin claiming Social Security at their upcoming birthdays—Henry at 64 and Logan at 62. By claiming before their full retirement ages, both men will be hit with early claiming reductions. As single filers, over the course of their lives, they will receive a total of $797,280 in 2015-value benefits—$520,080 for Henry and $277,200 for Logan.

If they were legally married, however, this total would grow by $140,832, or 18%, to $938,112. As the higher earner, Henry’s lifetime benefits would still be $520,080. But by taking advantage of spousal and survivor’s benefits, Logan would receive a 50% jump in his benefits, to $418,032.

To further optimize benefits, Financial Engines next considered what would happen if both men deferred their claiming dates. Such deferrals, the firm notes, are available to all married couples, and could help many people add substantial amounts to their lifetime Social Security benefit totals.

In this example, Henry waits until 68 and then “files and suspends” his benefits so that when Logan, his spouse, turns 66, he can file for spousal benefits based on Henry’s much larger retirement benefit.

By filing a restricted application, Logan will not trigger filing for his own retirement benefits, which will increase 8% a year from age 66 until age 70, when they will be larger than his spousal benefit and worth claiming. Henry will also wait until 70 to claim his own retirement benefit. It will have risen to $3,300 a month by then, and this larger amount will also become Logan’s survivor benefit for eight years after Henry passes away.

Under this set of claiming decision’s Henry’s lifetime benefits, stated in current 2015 dollars, will rise modestly, from $520,080 to $554,400. Logan’s benefits, however, will soar to $585,888, due to four years of spousal benefits ($60,000), 12 years of his own retirement benefit ($209,088) and eight years of survivor benefits ($316,800). As a couple, their lifetime benefits would be $1,140,288—nearly 22% larger than their initial claiming scenario as a couple, and 43% larger than their initial filing plans as individuals.

Read next: What the Same-Sex Marriage Ruling Means for Couples’ Finances

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Social Security

Why Social Security’s Advice Is Often Wrong

man with too large pants
Freudenthal Verhagen—Getty Images

Following even the agency’s most basic instructions may be a bad idea.

Social Security advice is always well-intentioned, usually helpful—and often wrong. That was one of the most eye-opening findings of doing two years of research on Get What’s Yours, the recent book on Social Security that I co-authored.

In trying to provide advice that is easily understood and applies to most people, the agency often glosses over complex program rules and claiming scenarios. Unfortunately, if people make bad claiming decisions as a result, they are the ones who pay the price, not some representative at a Social Security office or on the other end of the phone line in a huge call center.

Most recently, I came across this online advice in the frequently asked questions section of the Social Security website:

“How far in advance can I apply for Social Security retirement benefits?”

“You can apply for Social Security retirement benefits when you are at least 61 years and 9 months of age.

“You should apply three months before you want your benefits to start.

“Even if you are not ready to retire, you still should sign up for Medicare three months before your 65th birthday.”

On first glance, what could be wrong with these statements? After all, the earliest age at which retirement benefits begin is 62. So coming in three months earlier makes sense, right? And every Baby Boomer has known for a long time that Medicare, the federal health insurance program, begins at age 65. So what could be wrong with reminding people to sign up when they turn 65?

In fact, there are lots of Social Security benefits that do not start at age 62. Broadly defined, “Social Security retirement benefits” include all benefits provided by the agency, not just a worker’s own retirement benefits. Retirement and spousal benefits generally can’t be started younger than age 62. But survivor benefits may be taken as young as age 60.

Social Security Disability Insurance benefits can be triggered at any age for the disabled person. Disabled persons also can collect survivor benefits as young as age 50 if they are disabled and either their spouse or divorced spouse dies.

Waiting until 61 years and 9 months is thus not the right advice for everyone. Applying three months before you want benefits to start may be accurate but, as we’ve found, many people have no idea about the earliest age they may begin benefits. Often, they also have no idea of the latest or best age at which they should begin benefits.

Social Security does address many of these issues elsewhere, including providing an extensive questionnaire to help people know the various benefits to which they are entitled. But, of course, you have to know where to look. And if you have already made an ill-informed claiming decision, you won’t be motivated to even look.

Likewise, in the case of Medicare, following the agency’s advice can be very costly. To most people, signing up for Medicare at 65 means exactly that. Basic Medicare consists of Part A for hospital care and Part B for doctor and other outpatient expenses. Part A premiums are steep—more than $400 a month—but are waived for anyone who has paid Social Security payroll taxes for 40 or more quarters of work during their lifetime. The Part B monthly premium is $104.90 a month in 2015 for most people but can be a lot higher for big wage earners.

If people reach age 65 and continue to be covered by an employer group health insurance plan, they usually do not need to sign up for Medicare. (People covered by plans at small employers with 20 or fewer employees normally do need to sign up.)

What happens to people who do sign up, even though they have an employer plan? Usually, nothing. Either Medicare or their employer lets them know that they do not need Part B, so they save that premium. For a long time, however, people have been told to sign up for Part A anyway. Even if they never use it, it’s free, so what’s the harm?

Well, the harm is that signing up for Part A of Medicare prevents a person from participating in a health savings account, which is offered in increasingly popular high-deductible health plans. Most people are unaware of this rule. But once it’s been triggered, they not only can lose a valuable tax benefit but also face penalties for unintentionally continuing to participate in their HSA.

Social Security often explains its benefits in a “one size fits all” way. But this is not a one-size fits all program. It entails a complex mix of multiple benefits, claiming decisions, and penalties for not following the rules—rules that Social Security needs to do a much better job of explaining.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY

How to Profit From a Spouse’s Social Security Benefits—Even After Divorce

roll of money with wedding band around it
iStock

You can enjoy the fruits of your ex's labor.

A big surprise about Social Security for many people is the payoff they can get by claiming benefits based on their spouse’s earnings. But a bigger surprise is in store for some people: how large those benefits can be even if you’re divorced.

Some background: You can collect Social Security based on your husband’s or wife’s earnings instead of your own, and that’s also true after the marriage is over—as long as you were wed for at least 10 years and aren’t currently remarried. (Unless your ex already gets retirement or disability checks, you also have to wait two years after the split.)

If you claim a spousal benefit at full retirement age—66 until the year 2020—it can be equal to as much as half of what your spouse (or ex-spouse) can collect at his or her full retirement age.

This enables a possibly lucrative claiming tactic. Let’s say your spouse, or your ex, is due $2,500 a month. At 66, you can claim $1,250 a month as a spouse. Meanwhile, you can defer what you’re due based on your own earnings, letting that increase by 8% a year (plus inflation boosts) until you’re 70. If, by then, your own monthly check will exceed your spousal payment, you’d start getting the higher amount. In this case, you’d pocket $60,000 over four years while your own future benefits grow.

Divorce’s Larger Payoff

Nice deal, right? Well, the deal is just as good for your ex. In an intact marriage, only one of you can claim as a spouse while deferring your own retirement benefit. But if you’re divorced, Social Security lets each of you collect on your spouse’s record while allowing your own eventual monthly check to grow. (For an ex to collect, the other has to be at least 62 or disabled.)

Delay, But Not Too Long

Married or divorced, you should wait until full retirement age to claim the spousal benefit. While you can start collecting at age 62, you’d get only 70% of what you’d receive if you held out until 66. But unlike your own benefits, which grow until age 70, spousal ones max out at 66. So it doesn’t pay to delay any longer. (One possible reason to claim early—other than urgent need—is if you’re caring for children 18 and under; you might earn more benefits on their behalf.)

As a married couple, deciding which of you should collect spousal benefits, and when, can be complicated. If you’re divorced, though, you don’t have to coordinate your claiming. It’s an easier call.

That leads to a second piece of advice if you’re divorced: Try to remain on good terms with your ex. The reason is that it’s very hard to calculate when and whether to apply for spousal benefits without having your spouse’s earnings record in hand. You can’t always get that from Social Security ahead of time (try by making an in-person appointment). The surest way to get the numbers you need is for your ex-spouse to hand them over.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of the New York Times bestseller, Get What’s Yours: The Secrets to Maxing Out Your Social Security, and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY health insurance

Why Too Many Health Insurance Choices Are Costing You Money

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David Malan—Getty Images

Consumers are bewildered by dozens of health plan options—and they're making expensive mistakes. Insurers could learn from 401(k) plans.

It’s time for health insurance plans to take a page out of 401(k) playbooks. People need simpler choices, as well as guidance that will nudge them toward the best plan for their needs.

That’s what 401(k)s are designed to do—though it took years for plans to evolve. As the traditional employer-managed defined benefit pension began to disappear, the early generations of 401(k)s and other defined contribution plans presented workers with new and complicated sets of investment choices.

Employees were so overwhelmed that many did nothing, leading Congress to pass reform laws to simplify 401(k) decisions, including providing default plan choices and using auto-enrollment—putting employees into plans unless they opt out. Today many employers are going a step further by turning 401(k)s into pension-like plans, removing the need for decisions unless workers choose to make them.

But health insurance is still stuck in an old-school 401(k) world. Obamacare exchanges have created extensive menus of plan choices that many consumers don’t understand. The exchange concept has also become popular among employer plans for both current workers and retirees. Exchange providers, led by big employee-benefits firms, are signing up lots of health insurers to offer employers and their workers extensive sets of plan choices.

The confusion extends to Medicare, as consumers are often required to choose among 30, 40 or more Medicare Advantage plans or Part D prescription drug plans. They are simply overmatched by the task, research shows.

As with 401(k)s, the primary problem consumers face with health insurance choices is that they don’t understand how the policies work, studies show. Nor do they understand the industry jargon—in the case of health insurance, that may mean even basic terms like deductibles and co-payments.

Consider this alarming study: A Fortune 100 company offered 48 new health insurance plans to more than 50,000 employees. All of the plans were offered by the same health insurer and offered identical coverage. They differed only by premiums, deductibles and other cost-sharing variables.

In roughly 80% of their selections, workers made bad decisions—opting for the low-deductible but high-premium plans that cost them more money yet provided no additional insurance protection. Lower-income and female employees made particularly bad choices.

The amounts of wasted money often equaled 40% or more of the employee’s annual premium expenses. Employees who chose low-deductible plans paid $631 more on average in premiums, but saved only $259 a year in out-of-pocket costs compared with available higher-deductible plans.

Even more discouraging, when researchers went back and told employees about their mistakes, it had very little effect. More than 70% of employees did not understand insurance well enough to make an informed choice. Further, it had never occurred to the workers that their employer would include lousy choices in its plan offerings, the researchers found.

Improving insurance literacy is crucial in helping employees understand how to make better choices. But as behavioral research with 401(k)s has shown, the most effective solution is to reduce the number of plan choices and their complexity.

“The promise of recent reforms that expand choice and aim to increase provider competition is premised on the assumption—challenged by our research—that enrollees will make sensible plan choices,” the researchers concluded.

So how can you be a better health care consumer? Justin Sydnor, one of the researchers and an economist at the University of Wisconsin business school, suggests the dreaded school math-class crucible: the story problem. First consider how much you expect to spend on health care. Then calculate whether your total payments would be higher with a low-deductible plan or a high-deductible plan. Asking people to compare premiums with out-of-pocket expenses helped set his research subjects on the right course.

If you’re not sure how to estimate your future health care spending (and that’s true for most people), run several calculations based on varying medical costs, Syndor says. For example, what would your out-of-pocket costs be if your health expenses were, say, $2,000 or $5,000 or $10,000 over the next year? You also can seek help from their employer’s health plan administrator or from the free counseling available for Obamacare and Medicare enrollees.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Americans with Obamacare Are Still Afraid of Big Medical Bills

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