Medicare Penalties – Yep, that’s right. You can actually be penalized by Medicare for not enrolling in the program! These penalties can add up quickly, so even if you aren’t eligible to enroll in Medicare quite yet, you should learn how Medicare penalties work and make a plan to avoid them.
How do Medicare penalties work?
If you do not enroll in Medicare when you first become eligible (around your 65th birthday), you will incur late-enrollment penalties. (There is one way to delay coverage, which we’ll discuss later.) You can get penalties for not enrolling in Parts A, B, and D. Each one works a little differently, so let’s explore each one in more detail.
Medicare Part A Penalty
This is the least common Medicare penalty. If you are eligible for premium-free Part A, you will never pay this penalty, even if you delay enrollment. Anyone who has worked and paid taxes for ten years does not pay a premium for Part A.
However, if you are not eligible for premium-free Part A, this penalty could apply to you. If you do not enroll when you first become eligible, you’ll have a 10% penalty. Ten percent of your premium will be added on top of your base premium – whether you went without coverage for one year or ten years. The penalty applies for twice the number of years you went without coverage. Let’s look at an example.
Tim is not eligible for premium-free Part A. He only paid taxes for 31 quarters, so his Part A premium (as of 2022) is $274. He is 67 now and is just now enrolling in Part A. His penalty is:
10% x $274 = $27.40
That makes his total premium for Part A $301.40, and he must pay this for four years.
Medicare Part B Penalty
The Part B late enrollment penalty begins after you have gone 12 months without Part B coverage. The penalty is an additional 10% of your Part B premium for each 12-month period. You must continue to pay this penalty for as long as you have Part B, which would presumably be for the rest of your life. Let’s look at another example.
In addition to delaying Part A coverage, Tim also delayed Part B coverage. He went a full 24 months without coverage, so his penalty is 20%. The current Part B premium is $170.10. Tim’s penalty is:
20% x $170.10 = $34.02
That makes his Part B monthly premium $204.12. Keep in mind that the Part B premium typically increases each year, so his penalty will also go up.
Medicare Part D Penalty
This is the penalty we see most often in Medicare, and it’s easy to see why so many people end up paying the Part D late enrollment penalty. Part D provides your drug coverage. If you aren’t taking any medications, why have Part D? Simply put, to avoid the penalty.
The Part D penalty is based on the number of months you went without drug coverage. You take 1% of the “national base beneficiary premium” and then multiply it by the number of months you went without coverage. (This number changes each year and is currently $33.37.) Let’s stick with our unlucky guy Tim. He went 24 months without drug coverage.
1% x $33.37 x 24 = $8.00
That $8 will be added to Tim’s Part D premium, which will depend on which Part D plan he chooses. Like the Part B penalty, he’ll pay the Part D premium for as long as he is enrolled in Part D. And since the national base beneficiary premium increases each year, so will his penalty.
If you have a Part C plan that includes drug coverage, you do not need a stand-alone Part D plan and will not incur any late enrollment penalties. In addition, if you are eligible for the Extra Help program, your Part D penalty is waived.
Tips to Avoid Medicare Late Enrollment Penalties
The best way to avoid Medicare penalties is to plan ahead! If you know you’ll be turning 65 soon, begin your Medicare enrollment as soon as possible. Your Initial Enrollment Period begins three full months before your birthday, so apply as soon as you are able. Start searching for an insurance agent who can help you with your applications and choose your plans early. That way, when it’s time to enroll, you can simply submit the application and be on your way!
Now, there is one caveat to all of this. If you want to delay enrollment, you can do so as long as you have other credible coverage in place. Credible coverage typically comes in the form of an employer-sponsored group plan. However, not all employer plans are created equal.
For Medicare Part A and B, if your company employs at least 20 people, your group plan is credible. If you have under 20 employees, you should work with your HR director or benefits manager to find out if the plan is credible or not. Generally, if the plan offers at least as much coverage as Parts A and B, it is credible.
Medicare Part D has different standards. Just because your group plan is credible for Part B does not mean it is credible for Part D. Again, work with your HR department to make this determination.
If you find out that you can delay enrollment without a penalty, it’s a good idea to download a copy of CMS-L564. You’ll need this form when you do decide to enroll in Medicare, and it will be easier to fill out while you’re still employed. This is the form used to determine if you had credible coverage and if your late enrollment penalty will be waived.
We can help you avoid Medicare penalties. It’s never too early to start preparing for your transition into the Medicare program, so give our office a call today. We will help you come up with a timeline for enrollment and then follow up with you when it’s time to submit your applications.
