Your Guide to Medicare: 5 Key Questions Answered

AT AGE 65, YOU'RE FINALLY ELIGIBLE to enroll in Medicare and reap some benefits from a program you've contributed to all these years. Yet getting the most out of Medicare can be daunting. According to the National Council on Aging, more than half of baby boomers ages 60 and older find the program and its alphabet soup of Parts A, B, C and D confusing.

Missing your enrollment date may mean penalties or even higher premiums for the rest of your life. At the same time, you don't want to pay for additional coverage you don't need, especially if you're still working. Whether you're approaching enrollment age yourself or helping your parents understand the process, start by considering these five questions.

Q: How do I sign up?

A: If you are already receiving Social Security, you are automatically enrolled in Medicare Parts A and B (known as Original Medicare) at 65. You'll receive a Medicare card two or three months before your birthday, and coverage starts the first day of the month when your birthday falls. Part A covers hospitalization and comes with no premiums, assuming you or your spouse paid into Medicare while working. Part B, which covers medical services, does require premiums, but you have the option of withdrawing if you wish.

If you aren't yet receiving Social Security, you will need to apply for Medicare during one of the designated annual enrollment periods. Your initial enrollment period lasts for seven months, beginning three months before the month in which you turn 65. To help avoid a potential gap in coverage, consider enrolling during the three months prior to your 65th birthday.

Missing your enrollment date may mean penalties or even higher premiums for the rest of your life.

Q: Should I enroll at 65 if I'm still working and covered?

A: Consider enrolling in Part A anyway, as it is premium-free and may cover some expenses not included in your employer's health plan. Premiums for Part B may be higher as a result of your income, so it could be wise to delay enrollment in Part B until after you retire. You may enroll without penalty for eight months after you stop working or your employee health coverage ends. If you miss that window, you may be subject to penalties that, in the case of Part B, could last as long as you remain covered.

Q: Where do Parts C and D come in?

A: Part C, known as Medicare Advantage, includes plans administered by private companies such as health maintenance organizations and preferred provider organizations. They offer the benefits of Parts A and B, and often include such additional benefits as vision, hearing and dental coverage. Costs for Part C plans vary according to the insurer. Some plans may require referrals or restrict you to doctors in a network, and you must already have Parts A and B in order to enroll. Another consideration: Some plans may limit their coverage to a certain geographic area, so if you anticipate traveling a great deal or relocating, Medicare Advantage might not be for you.

Part D offers prescription drug coverage for both brand-name and generic prescription drugs. You must be enrolled in Medicare to enroll in a Part D plan, which you purchase from a private insurer. Although premiums, deductibles and co-payments vary by plan, the Affordable Care Act of 2010 limits the amount you can be charged for prescription drugs. Before enrolling in Part D, check whether you're already covered for prescription drugs under a Part C Medicare Advantage plan. You may not need it.

Q: Which services aren't covered by Medicare?

A: Original Medicare (Parts A and B) won't cover co-payments, co-insurance or deductibles, nor will it cover medical care when you travel outside the U.S. Some services, such as long-term care, acupuncture and cosmetic surgery, also aren't covered. Some of these services are likely to be covered if you enroll in a Part C plan. However, long-term care is not among them.

As an alternative to Part C, you may supplement Original Medicare with Medicare Supplement Insurance, also known as Medigap. Plans providing such coverage follow strict federal and state standards, and costs vary by policy and insurer. To buy a Medigap policy, you must be enrolled in both Parts A and B. To guarantee availability, you must sign up within six months of enrolling in Part B.

Q: Where can I learn more?

A: The official Medicare site, medicare.gov, offers detailed information on signing up; Parts A, B, C and D; costs associated with Medicare; penalties for missing enrollment; and other important issues. Use the site's Medicare Plan Finder to sort through and compare the plans available in your region.

Your financial advisor can help you gain a deeper understanding of how health-care costs can affect your current retirement strategy. Together you can explore Merrill Lynch's "Healthcare Discovery" iPad app and discuss ways you can factor future health care costs into your planning.