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How to Avoid Medicare Late-Enrollment Penalties

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Medicare is serious about making sure all qualifying Americans have Medicare coverage as soon as they are eligible. To this end, Medicare Part A, Medicare Part B, and Medicare Part D all have late-enrollment penalties. Any Medicare late-enrollment penalty could make your Medicare costs higher for as long as you have Medicare.  In this article, we explain each late-enrollment penalty so you understand the possible consequences of delaying enrollment.

Do you face a Medicare late-enrollment penalty if you’re automatically enrolled?

Many of those eligible for Medicare are automatically enrolled in Medicare Part A and Part B, and get their Medicare cards in the mail three months before their month of eligibility. Your month of eligibility will usually be the month you turn 65, but will be different if you qualify for Medicare through disability before you turn 65.

In most cases you’re automatically enrolled if you’re already receiving Social Security Administration (SSA) or Railroad Retirement Board (RRB) benefits when you reach your month of eligibility.

If you’re automatically enrolled in Medicare, you typically don’t face a late-enrollment penalty for Medicare Part A or Part B. However, you might pay a late-enrollment penalty for Medicare Part D if you delay that type of coverage. Read more about this later in this article.

If you’re eligible for Medicare, but not for automatic enrollment, you’ll generally need to enroll during your Initial Enrollment Period (IEP) to avoid a late-enrollment penalty.

Medicare Part A late-enrollment penalty

First of all, most Medicare beneficiaries don’t pay a premium for Medicare Part A; if you’ve worked at least 10 years (40 quarters) while paying Medicare taxes, Part A will be premium-free. If that’s the case for you, you generally won’t have to worry about a Part A late-enrollment penalty. However, if you qualify for premium-free Part A, it may be a good idea to enroll when you’re first eligible (if you’re not automatically enrolled).

If you don’t qualify for premium-free Medicare Part A, and you don’t enroll during your IEP, usually you must wait until the next General Enrollment Period (January 1 through March 31) to enroll and may then have to pay the late-enrollment penalty for Part A in the form of a higher premium. When the late-enrollment penalty is added to your monthly Medicare Part A premium, it will equal 10% of the monthly premium amount you are already paying.

The length of your delay will not change the amount of the Part A late-enrollment penalty – it’ll typically be 10% added to your monthly premium. The length of your delay will, however, determine how long the late-enrollment penalty will be added to your monthly premium bill. Every year that you delay enrollment equals two years of paying the late-enrollment penalty. For example, if you enroll two years after your IEP is over, you will have the late-enrollment penalty included in your premium for four years.

In some cases, you may qualify for a Special Enrollment Period (SEP); if so, you can delay enrollment in Medicare Part A without having to pay a late-enrollment penalty. You may qualify for a SEP if you lose coverage from a group health plan through an employer or union. The SEP in this case is an eight-month period during which you can enroll in Part A, beginning the month after employment ends or the group health coverage ends, whichever happens first. However, you may still be subject to the Part A late-enrollment penalty if you fail to pick up Medicare Part A coverage during this time and enroll during a later General Enrollment Period.

Medicare Part B late-enrollment penalty

The Initial Enrollment Period (IEP) for Medicare Part B is typically the same as for Medicare Part A. The General Enrollment Period is also the same for Part B as for Part A. The late-enrollment penalty for Part B, however, is different.

Once again, the penalty is tied to the monthly premium. With Medicare Part B, though, every year you delay signing up means another 10 percent of the premium added to your monthly payment. For example, if you delayed enrolling in Part B for three years, and then signed up for Part B, you’d have to pay the Part B premium plus an extra 30% of that monthly amount.

Unlike the Medicare Part A late-enrollment penalty, there is no end to the Medicare Part B late-enrollment penalty. You will carry this penalty with your Medicare costs for as long as you have Part B.

However, as with Medicare Part A, you may be able to delay enrollment in Medicare Part B without being subject to a late-enrollment penalty if you have group health coverage through your or your spouse’s employer or union. You may qualify for a Special Enrollment Period (SEP) for Medicare Part B with the same circumstances that would qualify you for a SEP for Medicare Part A, described above, and in that case you would avoid the Medicare Part B late-enrollment penalty.

Medicare Part D late-enrollment penalty

The late-enrollment penalty for Medicare Part D (prescription drug coverage) works differently than for Medicare Part A and Part B. You could incur the late-enrollment penalty for Part D if you go 63 days or more in a row without any of these after your Initial Enrollment Period (IEP) ends:

  • A Medicare Part D Prescription Drug Plan
  • A Medicare Advantage Prescription Drug plan
  • Creditable coverage (prescription drug coverage from an employer, union, or other source that pay at least as much as Medicare’s standard prescription drug coverage).

Medicare calculates the late-enrollment penalty using 1% of the national base beneficiary premium ($33.19 in 2019) and the number of full months you were eligible for Medicare Part D but didn’t enroll. Multiply 1% of the base premium by the number of months you didn’t have Part D or have creditable coverage (don’t count the first 63 days you didn’t have this coverage).

Once calculated, this amount is rounded to the nearest $.10 and added to your Medicare Part D monthly premium. Like the Medicare Part B late-enrollment penalty, you may have this additional cost on your premium for as long as you have a Medicare Prescription Drug Plan (or Medicare Advantage Prescription Drug plan). It is also important to note that the national base beneficiary premium may increase each year, which means your Part D late-enrollment penalty may also increase. However, you won’t have to pay this penalty if you qualify for Part D Extra Help.

Part D late-enrollment penalty: an example

Suppose you were first eligible for Medicare in August 2017. You decided to go without prescription drug coverage until February 2019. That’s 17 full months without prescription drug coverage (September 2017 through January 2019).

17 months times 1% of the national base beneficiary premium=17%. Since this base premium is $33.19 in 2019, take 17% of $33.19: $5.64. Round to the nearest $.10, and you get $5.60. So $5.60 will be added to your Medicare Part D prescription drug plan premium if you sign up under the conditions in this scenario.

The national beneficiary base premium may change every year, and this would affect your penalty payment.

The cost of paying the late-enrollment penalties could add up fast. If you want to keep your costs down, it’s important to enroll in Medicare Part A (if you don’t qualify for premium-free Part A), Medicare Part B, and Medicare Part D in a timely manner to avoid incurring a late-enrollment penalty. Medicare Part D is optional, but the penalty is something to consider if you need, or think you ever will need, prescription drug coverage.

If you want to get Medicare Part A, Part B, and Part D coverage all in the same plan, you may want to look into Medicare Advantage (Medicare Part C). Medicare Advantage plans are offered by private insurance companies approved by Medicare and provide Medicare Part A and Part B coverage except for hospice care, which Part A covers. Medicare Advantage Prescription Drug plans also include prescription drug coverage, as the name implies. You still need to pay your Medicare Part B monthly premium, along with any premium the Medicare Advantage plan may charge.

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