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Since 1965, one of the few forms of health insurance just about everyone in the United States can get is taxpayer-funded Medicare. But failing to sign up in a timely fashion can result in financial penalties for the rest of your life.

Medicare is the one form of health insurance to which most Americans feel entitled. After all, Americans with their employers pay a 2.9% tax on every dollar they earn for their entire working lives to pay into the system.

In 2013, Americans will also pay a 3.8% tax on their "unearned" income, such as dividends, interest, rents, and capital gains, and high-income Americans will pay another 0.9% on their wages. No matter what your income level, you have to pay something for Medicare. Medicare is supposed to be there for them when they turn 65.

But the reality of the American Medicare system is that Medicare rules are complex, they are punitive, and making a mistake can result in lifetime penalties - a reality that is not made clear in the government-published guide Medicare and You.

Don't Wait 'Til Age 65 to Sign Up for Medicare

The Medicare guide you can get online or from your local Social Security office makes it very clear that Americans need to sign up for Medicare in the three months before their 65th birthdays. Unfortunately, the guide also says, "If you're 65 or older, you can also apply for premium-free Part A and Part B (for which  you pay a monthly premium) at" and then the on-line guide lists a link to the Social Security Administration.

If you aren't reading carefully, however, you might assume that Medicare is something you only get after the age of 65, and it's free. Basic Medicare coverage is provided without any additional monthly payment, funded from your contributions into the system and the contributions of people who are continuing work (and you, too, if you continue to work after 65). Complete Medicare coverage cost an additional monthly premium. And there are very good reasons you may want at least Medicare Part A (at no monthly cost) and Medicare Part B (at a variable monthly cost).

Basic and Not-So-Basic Medicare Coverage

The level of coverage that everyone gets with Medicare is called Part A. This plan covers hospitalizations of 3 days or more, "rehabilitation" services for up to 20 days after a hospital stay, some home healthcare services, and hospice care at the end of life. It's a lot better than nothing, but most medical expenses simply aren't covered. Moreover, there are lifetime limits on hospitalization coverage that kick in whenever you have to spend more than 90 days in the hospital in a single year.

If you want to get coverage for more than the basics, you have to enroll in Medicare Part B. This Medicare coverage takes care of doctor visits, laboratory services, lengthy hospital stays, chemotherapy, and healthcare supplies. (Americans can also enroll in Medicare Part C and Medicare Part D for other medical expenses, such as medication.) The thing most Americans don't know is that how you pay for Medicare Part B for the rest of your life is determine by when you enroll in it.

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