It may be surprising to learn about the late enrollment penalty for Medicare. Whether you have experienced it or just read about it, it seems a little mind-boggling. Why would you be penalized for not taking advantage of a service?
It's true that if you’re not enrolled, the government isn’t taking on the cost of your coverage. You would think they would be happy and maybe even pay you. But sadly, that's not the case. If you don’t enroll when you’re supposed to, you will owe a penalty.
Learn more about Medicare late enrollment penalties.
When Can You Enroll?
If you’re already collecting Social Security, you will automatically be enrolled in Parts A and B. This is true whether you're taking retirement or disability benefits. The Part B premium will be deducted from your monthly social security check.
If you have to sign up, the first time you can enroll is called your initial enrollment period. This is the time when you should sign up for Parts A and B. The initial enrollment period most often begins three months before the month you turn 65. It ends three months after the month you turn 65. So you have seven months to enroll in total.
Parts A and B are also known as Original Medicare.
What if you’re still working and have coverage through your job? In that case, you can tell Medicare that you’re already covered. This will save you from having to pay a penalty; it also won't require you to pay the Part B monthly benefit. In general, it’s best to stay on your employer-sponsored plan if you can.
You don’t have to sign up for Medigap, also known as a Medicare supplement. But Original Medicare has some coverage gaps that could leave you with very large medical bills that you’re unable to pay. You should think about signing up for Part C coverage when Medicare becomes your primary insurer. If you’re still getting health insurance from another source, Part C coverage may not be necessary yet.
You are also required to have some sort of prescription drug coverage. But it doesn’t have to be through a Part D plan.
If you go without one of the following for 63 days or more after your initial enrollment period, you may be on the hook for a penalty:
- Part D prescription drug coverage
- A Medicare Advantage plan (Part C) with drug coverage
- Another Medicare plan that offers prescription drug coverage
- Creditable prescription drug coverage from another source
If you have prescription drug coverage through your current employer, you don’t need a plan from Medicare or other private insurers.
What Are the Late Enrollment Penalties?
Now that we know when and what you must have, what happens if you don’t comply and have to pay a late enrollment penalty? How much are the fees?
Part A: You might see a 10% increase if you are required to pay a premium for Part A and you did not enroll when you were first eligible. If you enroll late, you will pay the higher premium for twice the number of years you weren’t enrolled. For instance, let's say you should have been enrolled two years ago. In this case, you would have to pay the penalty fee for four years. Most people don’t pay for Part A. That means they are automatically enrolled. There’s usually nothing to worry about here.
Part B: Be careful with Part B. The penalty is 10% for each 12-month period you should have been enrolled. For instance, Let's say your initial enrollment period ended July 31, 2018. Then, you waited until August 2 of 2020 to enroll. In this case, your premium would go up 20%. And you have to pay the penalty fee plus your normal premium for as long as you have Part B.
Part C: There is no specific late penalty fee for Part C. But you must have Medicare Part A and Part B in order to join a Medicare Advantage Plan.
Part D: If you don’t meet one of the four requirements above for a period of 63 days or more in a row, you will face a penalty. And it requires some math to figure out. The penalty is calculated by starting with 1% of the "national base beneficiary premium." This is $33.06 for 2021. Then, multiply that by the number of full, uncovered months you didn't have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10; then, it's added to your monthly Part D premium.
What if you don’t agree with the fee? Medicare has a way for you to file an appeal with the appropriate forms.
Why the Fee?
It might seem kind of mean to charge a fee, but it makes sense. In order to keep costs as low as possible, Medicare relies on healthy people paying into the system to make up for the costs that are paid out for the unhealthy.
If Medicare allowed people to enroll later, when their health starts to degrade, the costs to everybody would be significantly higher.