Avoid Medicare Penalties

Delaying coverage can be costly. Learn how to avoid unnecessary fees down the road.

Updated on: August 30, 2019

Originally posted on: August 9, 2016
The Roadmap for Medicare staff specialize in all topics related to Medicare Part D, choosing a Medicare plan, and making smart health decisions in retirement.

If you don’t enroll in Medicare when you become eligible, you may end up paying more down the road. Because Medicare’s late-enrollment penalties are not a one-time charge, they can raise your monthly premium(s) for years or possibly for life.

Important rules to avoid 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 when 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 when you do enroll. 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 in Medicare Part A and/or Part B during a Special Enrollment Period.

Here’s what you need to know to avoid paying any penalties

Part A
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.

Part B
With Part B, you pay a monthly premium which, for many beneficiaries, can be withheld from their Social Security check. For 2019, the premium is $144.30 (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 $144.30, or an additional $43.29 per month for as long as you have Part B coverage.

Part D
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 when you enroll later.

Medicare calculates the Part D penalty by multiplying 1% of the “national base beneficiary premium” ($33.19 in 2019) times the number of full, uncovered months you didn’t have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.

The national base beneficiary premium may increase each year, so your penalty amount may also increase each year.

Example: Your Initial Enrollment Period ended June 30, 2017. You joined a Part D plan during the Annual Enrollment Period that ended on December 7, 2018, for coverage that started January 1, 2019. 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 2019, which is $33.19. Your total would be $5.97 rounded to the nearest $0.10 or $6.00. 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.