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How To Calculate & Avoid Medicare Late Enrollment Penalties

How To Calculate & Avoid Medicare Late Enrollment Penalties

For many people it comes as a surprise that there are late enrollment penalties associated with Medicare.  Some may delay enrolling in Medicare because they are still working or perhaps thought enrollment happens automatically when one turns 65.  Regardless of the reasoning, it leaves most people wondering why they must pay a penalty.

Medicare penalties vary depending on the part of Medicare (Part A, Part B, or Part D) and how long you delay enrolling.  Here we explore the additional costs associated with late enrollment and how you can avoid these fees to make your Medicare experience as seamless and pain-free as possible.

MEDICARE PART A PENALTY

For most people, Medicare Part A is premium-free as long as you or your spouse have made payroll contributions to Medicare taxes for at least 10 years.  Otherwise, you can still get Part A but you will have to pay a monthly premium.  If you do not enroll in Medicare Part A when you are eligible either during your Initial Enrollment Period (IEP) or a Special Enrollment Period (SEP), then you are considered a late enrollee.

Note: this penalty may not apply to you if you qualify for a special enrollment period such as if you are still working for an employer who provides health coverage when you become eligible for Medicare.

Part A Penalty = 10% of the current Part A premium amount for twice the number of years you could have had Part A but did not enroll.

Example:
Mr. Jones waited to sign up for Part A two full years after he was eligible.  He’ll have to pay a 10% penalty of the Part A premium for four years.

2018 Part A premium

10% of $422.00

Mr. Jones’s Part A monthly premium for 4 years

$422.00

$42.20

$464.20

Avoiding the Part A Penalty:
Make sure to understand when your enrollment period is for Part A in order to avoid being penalized.  You can enroll in Original Medicare (Part A and Part B) as early as 3 months before your 65th birthday and as late as 3 months after your birthday, without being penalized.  You can also enroll in Medicare while you are covered under an employer’s plan.

MEDICARE PART B PENALTY

Everyone pays a monthly premium for Medicare Part B, which is determined by income.  If you do not enroll in Medicare Part B when you are eligible either during your Initial Enrollment Period (IEP) or a Special Enrollment Period (SEP), then you are considered a late enrollee and will have to pay a late penalty.  The penalty is added onto your regular Part B premium and you are required to pay this penalty for as long as you have Part B.

 Note: this penalty may not apply to you if you qualify for a special enrollment period such as if you are still working for an employer who provides health coverage when you become eligible for Medicare.

Part B Penalty = additional 10% for each full 12-month period you could have had Part B but did not enroll.  You are required to pay this penalty for as long as you have Part B.

Example:
Mrs. Smith waited to sign up for Part B three full years after she was eligible.  She’ll pay a 10% penalty for each full 12-month period she waited.  This penalty is added to her Part B monthly premium.

2018 standard Part B premium

3 years x 10% = 30% of $134.00

Mrs. Smith’s Part B monthly premium for 2018

$134.00*

$40.20

$174.20

* or higher depending on your income

Avoiding the Part B Penalty:
Make sure to understand when your enrollment period is for Part B in order to avoid being penalized.  You can enroll in Original Medicare (Part A and Part B) as early as 3 months before your 65th birthday and as late as 3 months after your birthday, without being penalized.  You can also enroll in Medicare while you are covered under an employer’s plan.

MEDICARE PART D PENALTY

Similar to Medicare Part A and Part B, if you do not enroll in a Medicare Part D (prescription drug coverage) plan when you are first eligible you will be required to pay a late penalty when you join.  Typically, you are considered late if you go a continuous period of 63 days or more after your initial enrollment period without creditable prescription drug coverage.

Note: this penalty may not apply to you if you have proof of creditable drug coverage, which is defined as coverage that is at least as good as what Medicare Part D plans are required to provide.

Part D Penalty = additional 1% of the national base Part D premium amount x the number of months you were late (rounded to the nearest 10 cents).  The penalty is added onto your regular premium that you pay to your Medicare drug plan and you are required to pay this penalty for as long as you have Part D. The national base premium may increase each year, so your penalty amount may also increase each year.

Example:
Mr. Brook waited to sign up for Part D one year after he was eligible.  He’ll pay a 1% penalty for each full month he waited.  This penalty is added to his Part D plan’s monthly premium.

2018 national base Part D premium

12 months x 1% = 12% of national base

Mr. Brook’s Part D monthly premium for 2018

$35.02

$4.20

$4.20 + Part D plan premium

Avoiding the Part D Penalty:
Make sure to understand when your enrollment period is for Part D in order to avoid being penalized.  You may be able to avoid the Part D penalty if you qualify for a special enrollment period because you had creditable drug coverage when you turned 65 or if you are eligible for the Extra Help program with Medicare costs.

It is important to know when you can and should enroll in the different parts of Medicare to avoid any additional costs and penalties.  You can learn more about when you should enroll on our enrollment period page or by contacting us.

Questions about Medicare?

Get advice from a licensed broker. You can access their help for free. Seeking professional advice can make a huge different in your health and finances for years to come.

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