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Nearly every American needs to sign up for Medicare, both Medicare Part A and Medicare Part B, in the three months before their 65th birthday. But some situations require special handling to avoid future Medicare traps and gaps.

American Medicare rules are complicated, and they are about to become even more complicated. Nearly every American benefits from signing up for Medicare Part A and Medicare Part B during the three months before their 65th birthday, but some situations require special handling. Here are 10 potential traps resulting in expensive gaps in Medicare coverage and lifetime part B premium surcharges that you can avoid.

1. You could access Medicare services except you don't live in the United States.

Medicare is available to every American citizen (although some who did not pay into the system will have to buy even basic coverage), but Medicare-covered services are only available to American citizens and permanent residents who live in the United States. (There are a few exceptions for residents of portions of Minnesota and Washington state who can only reach certain healthcare providers in Canada.)

Medicare won't pay for services provided outside the United States. But if you want to come back to live in the USA permanently later, you don't want to pay extra for enrolling in the system late. 

If you spend even part of the year in the United States, consider enrolling in Part A and Part B even if you live abroad. You may be able to schedule expensive procedures for times you will be in the United States, and you will avoid the 10% surcharge for every year after 65 that you don't sign up.

2. You have health insurance coverage through your employer, but it has a high deductible.

As long as you maintain continuous health insurance coverage through your employer, you don't have to sign up for Medicare Part B to avoid a late enrollment penalty. (But be aware that Medicare does not operate on an honor system. They will definitely check to make sure you had continuous coverage before they let you enroll in Part B after age 65 without paying a penalty rate for the rest of your life.) Some employer policies, however, have high deductibles or require seeing doctors or going to hospitals in a very limited network.

If deductibles or service networks are a problem, it can make sense to go ahead and sign up for Part B. The $100-$200 a month you pay for coverage can go a long way toward paying deductibles of $5,000 or $10,000 or more.

3. You're the boss where you work (or you are self-employed), and you decide you like the policy you have now, so you continue coverage under COBRA.

COBRA, in this context, does not refer to the snake but instead to the Consolidated Omnibus Budget Reconciliation Act of 1985, which first allowed people to continue to be covered by employer health insurance after they left their jobs. COBRA coverage almost always requires paying the full premium, but it is useful if you want to continue seeing the same doctors and going to the same hospitals that you could access while you were employed.

The potential in electing COBRA after the age of 65 is that the company has to continue to offer the policy after you retire for you to be covered by it. This gets tricky if you happen to own the company that was providing your healthcare insurance. And even if your company offers continuous coverage, the Medicare people may apply special rules. You might be counting on getting your Part B when COBRA expires at $110 a month, but there could be some rule that makes it cost $500 a month if your COBRA doesn't count. Often it's best to get Part B sooner rather than later even if you continue your current coverage.

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