Beware the Cost of Medicare Enrollment Penalties

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Medicare late enrollment penalties are amounts added to your monthly premiums as a result of not enrolling in Medicare during your Initial Enrollment Period. Unless you qualify for a Special Enrollment Period, you may be subject to Medicare enrollment penalties if you wait to sign up for Medicare after you are already eligible for enrollment.
Medicare enrollment penalties are a thing to be aware of and to be taken seriously. Medicare late enrollment penalties are not one-time penalty fees; they are extra amounts you must pay in addition to your monthly Medicare premiums. For some Medicare Parts, you must pay these additional amounts for the rest of the time you have that insurance (as opposed to only having to pay for a certain period).

Each type of Medicare (Parts A, B, and D) have a different late enrollment penalty that is calculated differently. These penalties vary from person to person depending on how many months you go without enrolling in a certain type of Medicare after becoming eligible. The Medicare late enrollment penalty costs can add up and become quite expensive, which is why it is important to be aware of these penalties and remember to enroll in Medicare during your Initial Enrollment Period.

Medicare Part A Penalty

Medicare Part A is usually premium-free for most people. As long as you or your spouse paid Medicare taxes while working for at least 10 years, you are not required to pay a monthly premium for Medicare Part A. If you are not eligible for premium-free Medicare Part A, you may purchase Part A for a monthly premium, which could be as high as $411 per month according to the Official U.S. Government Site for Medicare.

You must sign up for Medicare Part A (and Part B) during your Initial Enrollment Period, which is the 7-month period that includes the three months before the month that you turn 65, the month you turn 65, and the three months after the month you turn 65. If you do not enroll in Part A during your eligibility period, you may be subject to Part A late enrollment penalties.

The Part A late enrollment penalty is typically a 10% increase in your monthly premium, which you must pay for twice the amount of time you were eligible to enroll in Medicare Part A, but did not enroll. For example, if you enroll in Part A after being eligible for one year, your Part A premium increase will apply for two years. If you have a $200 monthly premium after signing up for Medicare Part A after one year of being eligible for enrollment, your monthly premium will be $220 ($200 + ($200 x .10)) for the next two years.

Medicare Part B Penalty

As with Medicare Part A, if you do not sign up for Medicare Part B during your Initial Eligibility Period, you may be subject to Part B late enrollment penalties. Typically, a 10% increase will apply to your monthly premium for each 12-month period you are eligible for Part B, but have not yet enrolled.

For example, if the last month of your Initial Enrollment Period to sign up for Medicare Part B was January 2014, and you enrolled in March 2016, there was a 26-month period in which you were eligible to enroll, which is two full 12-month periods. Since each 12-month period you go without enrolling amounts to a 10% increase in your monthly premium, in this scenario, you would be subject to a 20% increase. Medicare Part B late enrollment penalties apply for the duration that you have Part B insurance.

Medicare Part D Penalty

Medicare Part D late enrollment penalties may apply if you do not have credible prescription drug coverage (Medicare Part D, Medicare Advantage plan, or other Medicare health plan that covers prescription medications) for any continuous period of 63 days or more following your Initial Enrollment Period.

The Medicare Part D late enrollment penalty is calculated by multiplying the national base beneficiary premium (which is $34.10 for 2016) times 1% of the number of months you did not have Medicare Part D or other credible prescription drug coverage. This number is then rounded to the nearest .10, which is the penalty amount added to your monthly premium.

For example, if your Initial Enrollment Period ends June 30, 2014, and you did not sign up for Medicare Part D until the Open Enrollment Period ending December 7, 2015, this means that your prescription drug coverage did not begin until January 1, 2016, and that you went without prescription drug coverage for a total of 18 months (July 2014 through December 2015). In this scenario, your penalty would be 18% (1% x 18 months). The monthly Part D late enrollment penalty would be calculated as follows:

.18 (18% penalty) x $34.10 (national base beneficiary premium for 2016) = 6.138

Rounded to the nearest .10, your monthly penalty comes to $6.10, meaning you must pay an extra $6.10 in addition to your monthly premium for Medicare Part D.

Since the national base beneficiary increases each year, this means that your monthly Medicare Part D late enrollment penalty will also increase with each year.

In conclusion, avoiding Medicare late enrollment penalties is simple as long as you make sure to enroll in Medicare once you become eligible. Going without any type of Medicare for a certain period of time after becoming eligible is not only a risk to your health, but also a potentially expensive decision.

Discover more about Medicare Enrollment.