Make your Medicare experience risk free
No one likes to pay more for a product or service than necessary, especially if it can be avoided. The same principle applies to Medicare. If you don’t enroll when you become eligible, you may pay more. And Medicare late-enrollment penalties are not a one-time charge. They can raise your monthly premium(s) for years or possibly for life. Here are a few important rules to help you avoid these additional penalty charges.
Once you’re eligible for Medicare Parts A and B, it’s important that you sign up within your Initial Enrollment Period. Medicare allows you a total of 7 months to enroll, beginning 3 months before the month you turn 65, the month you turn 65 and 3 months after the month you turn 65. In most cases, if you don’t sign up when you are first eligible, you’ll pay a late enrollment penalty if you choose to enroll later. Even if you continue to work and have employer coverage, you should call Medicare or Social Security to make sure you don’t need to enroll. Before doing so, check with your employer’s benefits office to see if your health and prescription drug plans are considered “creditable coverage.” This means the employer’s coverage is considered, on average, as good as Medicare coverage. Once your employment and/or your employer coverage ends, whichever occurs first, you have 8 months to enroll during a Special Enrollment Period.
Here’s what you need to know to avoid paying any penalties.
For most of us, Medicare Part A is free since we’ve already paid a monthly Medicare FICA tax while working. However, if you never worked or didn’t work long enough to qualify, you can buy Part A and pay a monthly premium. Either way, if you don’t enroll when you are first eligible, you could pay a monthly penalty of 10% for twice the number of years you could have been enrolled but weren’t.
Example: You delayed enrollment for 3 years, and now you need coverage because your health status has changed. You will pay the current monthly premium plus an additional 10% for 6 years following your enrollment.
With Part B, you pay a monthly premium which, for many beneficiaries, can be withheld from their Social Security check. Currently, the premium is $104.90 (or higher depending on your income). If you don’t enroll when first eligible, you may pay a penalty in addition to your monthly premium for as long as you receive Part B coverage. The penalty is 10% for each full 12-month period you could have had coverage but didn’t enroll.
Example: If you chose not to enroll for 3 years, your monthly penalty would be 10% x 3 = 30%; 30% x $104.90, or an additional $31.47 per month for as long as you have Part B coverage.
If you don’t get Medicare prescription drug coverage (Part D) when you become eligible for Parts A and B or enroll in a Medicare Advantage Plan (Part C) with prescription drug coverage, you may be at risk for paying a higher premium later. If you go without Medicare Parts C or D or other creditable prescription drug coverage for a continuous period of 63 or more days after your Initial Enrollment Period ends, you may pay a late enrollment penalty if you enroll later.
The Part D penalty is a bit more complicated. It’s calculated by multiplying the number of months you were without coverage by 1% and then multiplying that percentage by the national average monthly prescription drug premium (which is currently $34.10), rounded to the nearest 10 cents.
Example: Let’s say you were eligible for Part D and your Initial Enrollment Period ended June 30, 2014. Suddenly you are in need of prescription coverage so you decide to join a plan during an Annual Enrollment Period that ends on December 7, 2015, for coverage beginning January 1, 2016. This means you were without Part D coverage for 18 months. To calculate the penalty, you would multiply 18% (number of months x 1%) by the national average monthly premium for 2016, which is $34.10. Your total would be $6.14 rounded to the nearest $0.10 or $6.10. This amount would be added to your monthly premium for Part D and changes each year when the national average premium amount changes. You will pay this penalty for as long as you have Part D coverage.
Delaying Medicare coverage can be costly. To avoid unnecessary penalties, it’s a good idea to become educated about eligibility, enrollment deadlines and penalties before you turn 65.