Did you know Medicare imposes penalties for late enrollment in some cases? We’ll look at how you can avoid Medicare penalties.
Each Medicare penalty listed below is for late enrollment – that is, delaying enrollment in a particular “part” of Medicare.
Medicare penalty: what is late enrollment?
What does “late” mean? When it comes to late enrollment penalties, “late” often means “after your Medicare Initial Enrollment Period is over.”
Your Medicare Initial Enrollment Period (IEP) is usually a seven-month period. It starts three months before the month you turn 65, includes that month, and continues another three months. If you qualify for Medicare before age 65, your IEP may be different, depending on your illness or disability.
Please note: Many people are enrolled in Medicare Part A and Part B automatically, when they become eligible for Medicare. Of course, if you’re automatically enrolled, you typically won’t face a Medicare penalty for late enrollment in Part A or Part B. But some people decide to delay enrollment – especially in Medicare Part B and Part D (prescription drug coverage).
Medicare penalty: Medicare Part B
As with Medicare Part A, many people are signed up for Medicare Part B automatically. But unlike Part A, Part B generally comes with a monthly premium.
That Part B premium is one reason some people decide to delay enrollment in Part B. Let’s say you’re covered by your spouse’s group health plan from work. Since group health plans typically cover doctor visits and preventive care, just as Part B does, you might decide to save money by not enrolling in Part B. (If you were automatically enrolled in Original Medicare, you can “opt out” of Part B during your Medicare Initial Enrollment Period.)
Be aware, though, that you might have to pay a Medicare penalty if you don’t sign up for Part B when you’re first eligible.
The Medicare Part B penalty: an example
The Medicare penalty for late enrollment in Part B is 10% of the Part B premium for every 12-month period you were eligible for Part B, but didn’t have it. This Medicare penalty stays with you as long as you’re enrolled in Part B.
Keep in mind that when you do decide to enroll in Part B, you may need to wait for the General Enrollment Period (January 1 – March 31). Your coverage would be effective July 1.
Suppose your Initial Enrollment Period ended in November of 2017. You enroll in Part B in February 2020. This means you’ve gone two 12-month periods without Part B. Even though you’ve gone a few months over that, Medicare only counts the full 12-month periods.
Two 12-month periods means your penalty is 2 x 10% = 20% added onto your Part B premium.
Suppose your Part B premium is $144.60 per month. (This is the standard Part B premium in 2020, but some people might pay a different amount depending on income and other factors).
- $144.60 x 20% = $28.92 added to premium.
- $144.60 + $28.92 = $173.52 per month.
This Medicare penalty can change from year to year if the premium changes.
The Medicare Part B penalty: how can I avoid it?
You can avoid this Medicare Part B penalty for late enrollment if you:
- Sign up for Part B during your Initial Enrollment Period, described above.
- Qualify for a Special Enrollment Period (SEP). You might qualify for an SEP to enroll in Part B without a Medicare penalty. If you have employment-based coverage, for example, you have a Special Enrollment Period to enroll in Part B anytime while you’re still covered by the group health plan. If that coverage ends, you generally have eight months to sign up for Part B, starting the month after whichever of these happens first:
- Employment ends
- Employment-based coverage ends
Medicare penalty: Medicare Part D
Medicare Part D is optional prescription drug coverage. Even though it’s optional, there’s still a Medicare penalty for late enrollment in Part D. It might apply to you if you didn’t sign up for Part D coverage when you were first eligible (during your Initial Enrollment Period), and then you decide you want this coverage later. You might be able to avoid this Medicare penalty – we’ll get to that in a moment.
As with Medicare Part B, the Part D penalty is added to your monthly Medicare prescription drug plan premium if it applies to you.
Here’s how Medicare calculates the Part D penalty.
- Take 1% of the national base beneficiary premium ($35.02 in 2018; $33.19 in 2019).
- Multiply that by the number of full months that you were eligible for Medicare Part D coverage, but didn’t sign up for it.
- Round to the nearest $0.10.
The resulting amount will be added to the monthly premium for your Medicare prescription drug plan – for as long as you have one. That plan could be either a Medicare Advantage prescription drug plan or a stand-alone Medicare Part D prescription drug plan.
The Medicare Part D penalty: an example
- Say you go 25 months without Medicare Part D or other creditable prescription drug coverage.
- You sign up for a Medicare prescription drug plan in February 2020.
- Take 1% of $32.74. That’s $.33 (33 cents) when rounded off to two digits.
- Multiply by 25 (the number of months you went without Part D). That’s $8.25.
- Round to the nearest $.10. That’s $8.30.
In this example, $8.30 will be added to your monthly Medicare prescription drug plan premium. This Medicare penalty applies as long as you have coverage under Part D. The national base beneficiary premium can change every year, so your penalty can also change every year.
The Medicare Part D penalty: how can I avoid it?
You may be able to avoid this Medicare penalty by doing any of these:
- Signing up for a Medicare prescription drug plan as soon as you’re eligible (during your Initial Enrollment Period, or IEP)
- Having other creditable prescription drug coverage. That means coverage that pays, on average, at least as much as Medicare’s standard prescription drug coverage. If there’s a gap in your creditable coverage of 63 days or more after your IEP ends, the Part D penalty may apply.
- Qualifying for a Special Enrollment Period (SEP). This generally involves losing your coverage in some way. The length of the SEP depends on your situation and how you qualify for an SEP.
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