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A 5-Step Checklist for Enrolling in Medicare

Wendy Connick, The Motley Fool

Enrolling in Medicare for the first time can be quite a task. There are so many important decisions to make and so many different factors to juggle that it can get more than a little overwhelming. Here's a way to approach the process one step at a time and end up with the best Medicare package for your needs.

Step one: Find your initial enrollment window

You probably already know that you become eligible for Medicare at age 65, but the timing for your initial enrollment period is actually a bit more complicated than that. Enrollment begins three months before the month you turn 65 and ends three months after the month you turn 65. That means you have a total of seven months to complete the initial enrollment process.

For example, let's say you're going to turn 65 next May. Your Medicare initial enrollment window would open Feb. 1, continue past your birthday, and close at the end of August. It's best to start the Medicare enrollment process as early as possible, because if you wait until your 65th birthday or later to enroll your coverage might not kick in until after your previous health insurance policy expires, leaving you with a potentially dangerous gap in coverage.

Cartoon checklist

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Step two: Choose Medicare Advantage or Medigap

Basic Medicare doesn't cover all your healthcare needs, so to supplement it, most retirees choose either a Medicare Advantage plan (aka Medicare Part C) or a Medigap plan. This decision can have major consequences, both immediately and in the future.

Medicare Advantage plans are provided by private health insurance companies. They replace original Medicare and provide additional coverage. By law, these plans must offer all the same benefits that original Medicare plans do, though they can charge enrollees different amounts for those benefits. Most Medicare Advantage plans also cover healthcare expenses that aren't included in original Medicare, such as prescription drug coverage. Further, unlike original Medicare, many Medicare Advantage plans have a network of medical providers and require you to use only those providers (or at least they charge you extra if you go outside the network).

Medigap is an add-on for original Medicare subscribers. Like Medicare Advantage, Medigap plans are offered by private insurance companies. However, Medigap plans are a lot less flexible: Each plan must follow one of several templates set by Medicare policy. There are 10 templates in all to choose from (the Medicare website includes a handy chart that you can use to compare the options each plan offers). All Medigap plans pay 100% of your Medicare Part A coinsurance and hospital costs, and most also cover 100% of your Part B coinsurance; beyond that, Medigap plans vary in what they cover. Providers will often charge a wide range of premiums for Medigap plans, even when those plans use identical templates and offer identical coverage. For that reason, it pays to shop around when choosing a Medigap plan.

As a rule of thumb, Medigap plans charge higher premiums than Medicare Advantage plans do -- the price you pay for having few, if any, deductibles to worry about (among other benefits). Medigap plans also never include prescription drug coverage, unlike most Medicare Advantage plans. Note that you may find it difficult to switch from Medicare Advantage to Medigap later on, as Medigap providers have the right to deny you coverage for pre-existing conditions, among other reasons, once you're no longer in your initial enrollment window. So, all else being equal, your best choice is probably to start with a Medigap plan.

Step three: Compare specific plans

Before making a final decision on Medicare Advantage versus Medigap, pull up the Medicare plan finder and browse through the plans available in your area. Some of the options you've considered may not be available. For example, if you've decided that Medigap plan G is perfect for you, but there are no plan G policies offered in your area, then you may need to go back to the drawing board. Comparing the premiums for specific policies may also influence your decision.

If you've decided to go with Medicare Advantage, there are two additional factors to consider: the plan network and the formulary. Most Medicare Advantage plans have provider networks, though not every plan will require you to stay within the network. However, it's best to choose a plan whose network includes your primary care physician and any specialists you see regularly. This will almost certainly reduce your charges for visits to these providers. The plan's formulary determines which prescription drugs are covered and how much you'll have to pay for those drugs. Check to make sure that your regular prescriptions are included in the formulary, preferably in one of the cheaper tiers.

Step four: Consider additional coverage

Choosing a Medigap plan or a Medicare Advantage plan that doesn't have drug coverage means you'll probably need to sign up for a Medicare Part D policy as well. Medicare Part D plans provide prescription drug coverage, which is a necessity for most retirees. As with Medicare Advantage plans, you'll want to look at the formularies for your Part D options and choose one that includes any prescriptions you're likely to be taking.

Step five: Check back during open enrollment

While your initial enrollment window varies based on your birthday, the annual Medicare open enrollment period is always from mid-October to early December. This is your opportunity to select your Medicare coverage for the following year. Whether you've loved or hated your initial experiences with the Medicare plans you selected, you'll definitely want to use this opportunity to compare your existing plans to your other coverage options.

You may find that the plan you really wanted is now available in your area, or certain plans may have changed their networks or formularies in ways that make them far more suitable. Or your chosen plan may be changing next year in ways that make it less suitable -- higher premiums, a more restrictive network, worse co-pays, and so on.

Once you get the hang of it, doing an annual review of Medicare plans during open enrollment will take just a few minutes of your time and will help ensure that you have the best possible health insurance coverage for the following year. Given how expensive healthcare is, even with superb coverage, taking a few minutes to optimize your health insurance is time well spent.

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