You may see phrases like “Medicare penalty” or “late-enrollment penalty” while researching Medicare. If you don’t sign up for certain parts of Medicare in the proper time, these penalties may apply to you.
As you know, most people age into Medicare eligibility when they turn 65. Your Initial Enrollment Period (IEP) starts three months before the month of your 65th birthday, continues through your birth month, and lasts for three months after it, unless your birthday is on the first of a month. In this case, your IEP starts one month earlier and ends one month earlier.
So, if you don’t enroll in Medicare when you’re first eligible, what’s the damage? The penalties differ depending on which part of Medicare you are enrolling in.
If you’re collecting Social Security or Railroad Retirement Board (RRB) benefits, you’ll be automatically enrolled in Medicare Part A and don’t need to fear any enrollment penalties. If you delay receiving Social Security benefits past age 65, you’ll need to sign up for Original Medicare yourself or find a local licensed sales agent to help.
You’re eligible for premium-free Part A if you or a spouse paid Medicare taxes for at least 40 quarters (10 years) before enrollment.
If you’re not eligible for premium-free Medicare Part A and you didn’t enroll during your IEP, your monthly premium may grow by 10 percent for twice the number of years you could have been enrolled in Part A. For example, if you could have signed up when you were 65, but waited until you were 69 (four years), the penalty will last for eight years.
Just like Part A, if you’re collecting Social Security or RRB benefits when you turn 65, you’ll be automatically enrolled in Medicare Part B. You can turn down Part B benefits at this time by returning the Medicare card you receive; however, you should only do so if you’re still on qualified group health plan coverage from your or your spouse’s employer. You or your spouse must be actively employed for your plan to qualify as a suitable alternative to Medicare Part B.
If you fail to enroll in Part B during your IEP and don’t have qualified group health plan coverage, your monthly premium may rise 10 percent for each 12-month cycle that you were not enrolled. That means if you waited 24 months (two years) to enroll in Part B after you were able, you may receive a 20-percent penalty on top of your monthly premium for as long as you have the plan. If you drop your Part B plan, only to sign up again later, you may still have the penalty.
If you don’t sign up when you’re first eligible and you’re not eligible for a Special Enrollment Period (covered below), you may also have to wait until the General Enrollment Period to enroll in Part B. This period runs from January 1 to March 31. If this happens, your coverage will start the month after you sign up.
To avoid a penalty for Part B, you should apply for Medicare online or visit your local Social Security office during your IEP if you don’t already receive Social Security or RRB benefits or have qualified group health plan coverage from an employer.
If you go without creditable prescription drug coverage for any continuous period of 63 days or more, you may be subject to a premium penalty when you eventually buy a prescription drug plan.
Acceptable forms of coverage could include drug coverage from a current or former employer or union, TRICARE or VA benefits.
The size of your Part D penalty grows by one percent each month you go without creditable coverage. If you are without coverage for 25 months, your penalty will be 25 percent.
Twenty-five percent of what? Your penalty is based on the “national base beneficiary premium” ($32.74 in 2023). In this case, your penalty will be $8.19 (32.74x.25=8.185, rounded to the nearest $.10). The national base beneficiary premium may change each year (it was $33.37 in 2022), and the penalty will change with it.
To avoid a penalty for Part D, you should join a Medicare drug plan during your IEP to prevent going 63 days or more in a row without creditable drug coverage.
Special Enrollment Periods
The common theme in avoiding a Medicare penalty is to get coverage during your IEP. However, as we noted, there are some special exceptions that allow you to delay enrollment past your IEP without a penalty.
If you’re still covered under a qualified group health plan from your employer, you have a Special Election Period (SEP) to enroll in Original Medicare at any time as long as you or your spouse is working and your health plan is based on that employment.
Additionally, you have an eight-month SEP to enroll in Original Medicare that begins the month after your employment, or the health plan attached to that employment ends (whichever comes first).
In most circumstances, you will not incur a late enrollment penalty if you sign up during an SEP.
Extra Help and Appeals
If you have a limited income or resources, your state may help you afford Original Medicare. You can also apply for Extra Help for Part D coverage.
If you disagree with a Part D penalty, you can ask for a reconsideration. Your drug plan will detail the reconsideration process. You must start the process within 60 days of learning about your penalty. You should also send any supporting evidence that you had creditable coverage along with a completed reconsideration form.
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Nobody wants the first time they hear about Medicare penalties to be when they’re receiving them. Knowing what causes these penalties is an important step in avoiding them.
If you’re turning 65 and aging into Medicare, we recommend speaking to a licensed sales agent who can guide you through all your options. You can search available plans in your area and find a local agent by visiting Medicareful.com.