TWEEEET! Late enrollment, on the offense, 10% penalty!
You know how you HATE when your team gets penalized for an easily avoidable offense? We hate it too, especially when it’s our clients that are getting penalized! There are a few penalties in Medicare that we want to make sure you know about so they don’t happen to you.
This penalty is the least common Medicare penalty. BUT, you still need to know about it so you can avoid it!
Most people qualify for premium-free Medicare Part A. If you have either worked for ten years or 40 quarters and paid Medicare taxes during that time (or your spouse has), you will not pay a premium for Part A.
In 2023, the premium for Part A is $506 per month.
If you do not qualify for premium-free Part A and choose to postpone Medicare enrollment after you are first eligible, you will pay a Part A penalty as soon as you do enroll. This penalty can be an additional 10% of your monthly premium. If we use the 2023 premium, this means your monthly payment would be about $556.60 - an extra $607.20 per year! This higher premium must be paid for twice the number of years you delayed enrollment.
An example: If you delayed enrollment for three years, you’d pay that higher premium for six years. This can add up quickly.
You may delay enrollment in Part A if you or your spouse has other creditable insurance. (We’ll talk about what "creditable coverage" is in a moment.)
If you do not qualify for premium-free Part A and have creditable insurance, it may be a good idea to postpone enrollment, especially if you are receiving creditable insurance from a job that you are also earning quarters or years that may allow you to earn premium-free Part A.
There are some Medicare Savings Programs that pay your Part A premium. If you qualify for one of these programs or Medicaid, you will not have to pay the Part A penalty.
Your Part A and Part B enrollment can both be postponed if you have another qualifying, creditable coverage. Creditable coverage must offer comparable benefits when compared to Original Medicare.
Most of the time, creditable coverage comes in the form of insurance from a large employer. Any group health policy from an employer who has 20 or more employees is creditable coverage. As long as you or your spouse’s employer offers creditable coverage and you are enrolled, you may delay Part A and/or Part B enrollment without incurring a penalty.
Some smaller government agencies also have creditable coverage. You should speak to your HR director if you are unsure if you have creditable coverage or just to verify that you do!
The Part B penalty is seen more often than the Part A penalty. Like the Part A penalty, it applies to individuals who delay their Part B enrollment without having creditable coverage for 12 months or longer.
Typically, if an individual is applying for Part B during the General Enrollment Period (GEP), they will be paying a Part B late enrollment penalty. The GEP runs from January 1 to March 31 each year and is for those individuals who do not qualify for special enrollment. If you enroll during the GEP, coverage will begin on July 1.
The Part B penalty is an additional 10% of your monthly premium for each of the 12-month periods you did not enroll in Part B and did not have creditable coverage. In 2023, the Part B premium is $164.90. With the penalty, it is $181.39 per month if you just missed one 12-month period.
Part B penalties stay with you for life (or as long as you are enrolled in Part B), so if you are delaying coverage because you have other insurance, please make sure it’s creditable!
This is the most common Medicare penalty, and it’s easy to understand why. We help a lot of people transition to Medicare, and many of them ask us, “I don’t take any prescriptions, so why would I need to enroll in Part D coverage?” You need to enroll so you won’t be penalized.
The Part B penalty will apply for the same reasons as Part A and Part B. You’ll incur this penalty if you do not sign up as soon as you are eligible unless you have other creditable coverage.
However, the “creditable coverage” definition is slightly different for Part D.
Luckily, prescription drug plans are the most common type of creditable coverage. The plan must meet four requirements to be deemed creditable.
1. It must pay at least 60% of the prescription costs;
2. It must cover generic and brand-name prescriptions;
3. It must offer a variety of pharmacies; AND
4. It cannot have a benefit cap amount, OR it must have a low deductible.
The Part D penalty does not just apply to stand-alone Part D plans. It also applies to those who enroll in a Medicare Advantage plan with prescription drug coverage. In this case, the penalty will apply if the individual did not have creditable coverage for more than 63 days.
The late enrollment penalty is considered part of the monthly premium in either case. If you pay the premium without the penalty, you may be dis-enrolled from your plan.
If an individual qualifies for the Extra Help program, the Part D penalty will be waived.
There are no Medigap penalties.
However, enrolling during your open enrollment period will often give you the most options and get you the best rate. Delaying enrollment in a Medigap plan may also mean that you are refused a plan later or pay a much higher premium.
Just like other insurance plans, the Medicare program relies on healthy individuals to support the system. Beneficiaries who pay premiums but only utilize a small portion of the benefits help cover the costs for others who require more medical care. The two types of individuals balance the system.
Charging late enrollment penalties encourages people to enroll on time and helps reduce the overall costs of the Medicare program.
Don’t let these penalties happen to you. If you are turning 65 soon, give us a call, and we can answer any questions you have regarding your initial enrollment. There are many things to consider when making this decision, so be informed, be prepared, and make sure you get your Medicare journey started on the right track!