Worried About Medicare Penalties? Here Is How to Avoid Them

March 17, 2021
4:59 pm

Medicare is divided into different “parts,” such as Medicare Part A for hospital coverage, Part B for medical coverage, and Part D for prescription drug coverage. Each of these parts may attract late enrollment penalties if you fail to sign up when you are first eligible to do so and don’t have any other coverage.

The penalties usually serve as incentives for individuals to sign up as soon as they are eligible instead of waiting until they have health issues.

So, what are some of the financial consequences of delaying your Medicare enrollment, and what can you do to avoid the late enrollment penalties? Read this post to find out everything you need to know.

Medicare Part A Late Enrolment Penalty

If you fail to sign up for Medicare Part A before the end of your Initial Enrollment Period (IEP), you may be forced to pay the Part A late enrollment penalty if you choose to sign up in the future.

Fortunately, most individuals are automatically enrolled in Medicare Part A and aren’t required to pay a monthly premium for it. This is because most beneficiaries or their spouse worked and paid Medicare taxes for at least 40 quarters or ten years.

However, if you are not entitled to premium-free Part A, you must sign up for Part A during your stipulated Initial Enrollment Period. Your IEP usually starts three months before you turn 65, includes your 65^th birthday month, and continues three months after your birthday giving you seven months to enroll.

The late enrollment penalty for Part A is an additional 10% to your Part A premium that you currently owe, and you must pay the higher monthly premium for double the number of years you were eligible to enroll for Medicare Part A but failed to do so.

For instance, if you were eligible to enroll for Part A but failed to do so for two years, you would have to pay the Part A premium plus an extra 10% for four years. After four years, your monthly premium would return to the standard amount at that time.

If you fail to enroll during your IEP, you will be forced to wait until the General Enrolment Period (GEP) to sign up. The GEP starts January 1 and ends March 31 each year, but the BENES Act may soon change that.

Part B Late Enrollment Penalty

Some individuals are automatically enrolled in Medicare Part B, while others have to sign up. If you fail to sign up for Medicare Part B when you are first eligible to do so, you will be forced to pay a penalty for as long as you have Part B.

Whether you stick to Original Medicare or choose to buy your Part B coverage from a private insurance company, you will be expected to pay a higher monthly premium than others.

Since the government sets Medicare Part B premiums, it is relatively easy to calculate how much you will pay in fine for late enrollment.

Typically, if you fail to enroll for Part B when you are first eligible to do so, your monthly premium will go up by 10% for each full year you could have had Part B coverage but didn’t. It means that you can be hit with the penalty more than once. You can always visit medicare.gov to see what your Part B premium is.

Medicare Part D Late Enrollment Penalty

Medicare Part D covers prescription drugs and is offered to everyone with Medicare. However, to get Part D coverage, you must join a plan run and managed by an approved private insurance company or enroll for Medicare Advantage Plan.

Just like the other parts, you may face a late enrollment fine if you don’t sign up for Part D when you are first eligible to do so and go without creditable drug coverage for more than 63 days in a row.

In this case, the term “creditable drug coverage” is used to describe an alternative coverage plan that can pay, on average, as much as a standard Medicare Part D plan.

Your Part D late enrollment penalty depends on how long you did not have creditable prescription drug coverage. To establish how much you are supposed to pay in penalties, multiply 1% of the national base premium by the number of months you were eligible for Part D coverage but didn’t have it.

The amount is then rounded off to the nearest $0.10 and added to your Part D premium. Keep in mind that the national base is usually calculated by the Centers for Medicare & Medicaid Services. The figure may rise from year to year, meaning that your penalty may also rise if you wait for too long.

How Can You Avoid Late Enrollment Penalties?

The easiest way to avoid these penalties is to sign up when you are first eligible. If you do what is needed at the right time, nobody will come knocking at your door.

However, if you miss your Medicare Part A or B enrollment because you have another health insurance coverage, you can avoid the late enrollment penalties for both if you qualify for a Special Enrollment Period (SEP) and sign up during that time.

Some people will delay enrolling in Medicare Part B if they have coverage through their union or employer-sponsored plan since Medicare Part B always comes with a monthly premium. Individuals who pay a premium for Part A may also choose to delay their enrollment for similar reasons.

If you fail to enroll for Medicare Part D because you already have another drug coverage plan, such as through your veterans’ benefits or employer-sponsored plan, your current plan should let you know every year if your coverage is still creditable.

Ensure you review your plan documents thoroughly and keep all records just in case you are required to prove that you had creditable coverage later.

If your prescription drug coverage is no longer creditable, your plan provider should inform you immediately so that you apply for the Special Enrollment Period that allows you to sign up for Medicare Advantage Plan or Part D Plan.

If you don’t qualify for a Special Enrollment Period or let it expire, you must keep in mind that the longer you wait to sign up for a Part D plan, the higher your penalty will be if you decide to enroll in the future.

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