Being assessed a Medicare late enrollment penalty is no fun. You’ve probably heard that you should enroll in Medicare as soon as you are eligible for coverage. That’s good advice—because waiting could cost you a lot of money in the form of penalties, some of which you may pay as long as you have Medicare. (This post has been updated for 2019).
That can add up to thousands of wasted dollars over time. In this post we’ll go over how to avoid a Medicare late enrollment penalty for Parts A, B and D.
Most people first become eligible for Original Medicare on their 65th birthday, although some can enroll in Medicare earlier if they have a qualifying disability or suffer from amyotrophic lateral sclerosis (Lou Gehrig’s disease) or end-stage renal disease (ESRD).
The initial enrollment period (IEP) begins three months before the month you turn 65. It then includes your birthday month and extends three months after, for a total of seven months. This gives you plenty of time to choose the right plan.
There are a few situations in which you won’t pay a penalty for delaying your enrollment. However, most of the time, you’ll pay more if you don’t enroll when you’re first eligible.
Here’s a look at the Medicare late penalties and how to avoid them.
Medicare Late Enrollment Penalty for Part A
If you or your spouse have a qualifying work history of at least 10 years (40 quarters), then you likely paid Medicare taxes. You’re eligible for premium-free Part A if you did.
If you’re not eligible for premium-free Part A, however, then you need to sign up during your IEP and pay for Part A. If you don’t, you could face a 10% premium penalty for twice the number of years you could have had coverage but didn’t enroll.
For example, if you were first eligible for Part A in 2015, but you didn’t enroll until 2017, you would pay the 10% premium penalty for four years.
It can add up quickly. In 2017, the Part A premium for people with fewer than 30 quarters of qualifying work history was $413 a month, and $227 for people with 30 to 39 quarters of work history. If you had to pay the maximum penalty for just four years, you’d lose almost $2,000.
Medicare Part A Late Enrollment Penalty Exception
You don’t have to pay the penalty if you delayed Part A coverage because you had qualifying coverage through your employer or your spouse’s employer. If you qualify for a Special Enrollment Period (SEP), you can also avoid the Part A penalty.
Medicare Part B Late Enrollment Penalty
The Centers for Medicare and Medicaid Services (CMS) sets the standard Part B premium. Most people pay the base rate, which is $135.50 a month in 2019.
Some people with higher incomes are are subject to the Income Related Monthly Adjustment Amount (IRMAA). You can find a chart on our Medicare Costs page to determine what you will pay.
If you don’t sign up for Part B during your Initial Enrollment Period, you may be subject to a 10% Medicare Part B late enrollment penalty. This penalty is imposed for each 12-month period that you delay enrolling in Part B when you are eligible to enroll. It is also cumulative for every year that you could have had Part B but didn’t.
In other words, if you put off enrollment for three years, your penalty would mean that you pay a 30% higher Part B premium. You would have to pay that additional amount for as long as you have Medicare coverage.
The Penalties Add Up
It’s easy to see how quickly this could add up to thousands of dollars. The premium penalty is based on each year’s standard Part B premium. So, every year that there is a premium increase on Part B, your Medicare Part B late enrollment penalty will also increase, since it is tied to the standard premium.
Here’s how it looks in real life: If you’re just signing up this year after delaying enrollment for three years, your penalty would be at least $40 a month for as long as you’re covered by Medicare. Plus it will go up every time the standard Part B premium goes up.
Sometimes people ask us whether getting a late enrollment penalty will affect their eligibility to enroll in Medicare supplements. Fortunately, the answer is no. You will have 6 months from your Part B effective date to enroll in a Medicare supplement with no health questions asked, whether you have a Part B penalty or not.
Medicare Part B Late Enrollment Penalty Exception
You can delay enrollment into Part B if you have qualifying health insurance coverage from another source. Most of the time, this would be from a large employer group health plan. In this scenario, the employer plan is primary and Medicare is secondary. Many people delay Part B until they retire so that they don’t have to pay for Part B while they are still working.
Be aware that for small employers with less than 20 employees, the rules are different. Medicare is primary in that scenario, so you need to enroll in Part A and B during your IEP.
Medicare Late Enrollment Penalty for Part D
Although enrollment in Medicare Part D coverage for prescription drugs is considered voluntary, you will still incur a Medicare Part D late enrollment penalty if you don’t enroll in a Medicare prescription drug plan during your IEP.
As with Part B, the Part D late enrollment penalty is based on the amount of time you were without coverage. The penalty applies for as long as you are enrolled in a Part D plan.
The Medicare Part D penalty is 1% for each month you went without prescription drug coverage, rounded to the nearest $0.10. The national base Part D premium is around $35.63. If you were without creditable prescription drug coverage for 26 months, for example, your premium would be nearly $10 higher than the national base. This late enrollment penalty is added to the currently monthly premium that you pay for your chosen drug plan.
Since the premium penalty is pegged to the national base Part D premium set each year by the CMS, it will go up every time the Part D premium increases. For more details on how Medicare calculates your Part D late enrollment penalty, visit Medicare.gov.
This is why it’s a mistake to pass on prescription drug coverage as soon as you’re eligible. Even if you don’t take many prescription medications right now, enrolling in a drug plan eliminates a future penalty that would stick with you forever.
Medicare Part D Late Enrollment Penalty Exceptions
If you qualify for the Extra Help program, you will not have to pay a late penalty. The Extra Help subsidizes the cost of Part D prescription drug coverage for low-income individuals. It also eliminates any penalty, even if you’ve gone without creditable coverage for more than 63 days.
However, keep this in mind: YOU are responsible for later proving that you had creditable coverage from a former employer. That means saving the letter of creditable coverage that your employer group health insurance company sends you after you quit your job. This letter should arrive within two weeks of the last day of your coverage.
BE SURE THAT YOU SAVE THEM. This is not something that your Medicare insurance agent can help you produce later on, so you must be diligent about saving evidence of your coverage. When you finally retire and enroll in Part D, you will have to prove to your new Part D carrier and Medicare that you had creditable coverage for all of the months since you turned 65. That proof of coverage is the only way to get out of paying a Part D late penalty.
You can also avoid the late enrollment penalty for Part D with creditable prescription drug coverage through an employer, union, or other source, such as VA drug coverage.
Final thoughts on Medicare Late Enrollment Penalty
Many people end up paying Medicare late enrollment penalty because they just didn’t know the rules. You may be healthy at age 65 and feel you don’t need Parts A, B or D. The penalties for such a mistake can add up to a great deal of money over time. Consult with a Medicare insurance broker like Boomer Benefits to ensure that you enroll in coverage when you are supposed to and minimize risk of penalties. Our service is free and we are happy to help you.