Medicare Penalties

What are the Medicare Penalties?

Medicare penalties occur due to late enrollment in Medicare Part B, Part D, and in some circumstances, Part A.  Penalties can be avoided by enrolling on time (during the Initial Enrollment Period) or when creditable coverage from an employer is no longer available.[mfn referencenumber=1]Medicare.gov, “When does Medicare coverage start?“, Accessed September 6, 2021[/mfn]

[keytakeaways]

• Medicare penalties increase monthly premiums.
• Medicare penalties occur if not enrolled in Medicare Part B and Part D when first eligible and not enrolled in creditable coverage through an employer or COBRA.
• A Medicare Part A penalty may apply if not enrolled on time and the required 40 quarters were not worked.
• The duration of a penalty depends on the type of coverage.
• Medicare penalties are in place to encourage on-time enrollment.
• In most cases, the Centers for Medicare & Medicaid Services will not waive a penalty without proof of

[/keytakeaways]

If a beneficiary misses their Medicare Initial Enrollment Period (IEP) when they turned age 65, they will likely face increased costs for their monthly premium. There are three different penalties for late enrollment. They concern Medicare Part A (hospital insurance), Medicare Part B (medical insurance), and Medicare Part D (prescription drug coverage).[mfn referencenumber=2]Medicare.gov, “What does Medicare cost?“, Accessed September 6, 2021[/mfn]

What is the Late Penalty for Medicare Part A?

Medicare Part A is hospital insurance that provides coverage for inpatient care services like post-surgical care and hospice care[mfn referencenumber=3]Medicare.gov, “What Part A covers“, Accessed September 24, 2021[/mfn]. A penalty only applies to Part A when a beneficiary does not enroll on time and they have not worked the required 40 quarters to qualify for premium-free Medicare Part A. When the penalty applies, they will be required to pay a 10% penalty on top of the monthly premium for twice the number of years they were not enrolled[mfn referencenumber=4]Medicare.gov, “Part A late enrollment penalty“, Accessed September 24, 2021[/mfn].

If a beneficiary or their spouse worked the required 40 quarters (10 years), they will have premium-free Part A when they enroll. So unless a beneficiary has worked for less than 10 years and not paid their Medicare taxes, they will likely not have to pay a premium for Part A hospital insurance. If they have paid their Medicare taxes for 30-39 quarters (7.5-9.75 years) they would get a reduced premium.[mfn referencenumber=5]Medicare.gov, “Part A costs“, Accessed September 24, 2021[/mfn]

If their employer’s health insurance is creditable, beneficiaries can delay enrollment until their first General Enrollment Period should they decide to not retire before 65. However, beneficiaries should discuss their employer coverage with a Medicare professional before they delay enrollment to make sure it is creditable to Medicare. Otherwise, they may be unfortunately surprised by an increased premium.[mfn referencenumber=4]Medicare.gov, “Part A late enrollment penalty“, Accessed September 24, 2021[/mfn]

What is the Late Penalty for Medicare Part B?

Medicare Part B is medical insurance that covers outpatient services such as acquiring medical equipment like wheelchairs and casts, as well as preventative health services like vaccinations[mfn referencenumber=6]Medicare.gov, “What Part B covers“, Accessed September 24, 2021[/mfn]. If beneficiaries do not enroll in Part B during their IEP, their Part B premium will begin increasing by 10% for each full 12-month period they did not enroll[mfn referencenumber=7]Medicare.gov, “Part B late enrollment penalty“, Accessed September 24, 2021[/mfn].

For example, beneficiaries that wait 24 months before enrolling in Part B, will have an extra 20% cost on top of their monthly premium. Unlike Part A’s penalty, Part B’s penalty will not go away over time. Beneficiaries will have to pay the Part B penalty for as long as they have their Part B plan[mfn referencenumber=7]Medicare.gov, “Part B late enrollment penalty“, Accessed September 24, 2021[/mfn].

Beneficiaries that delay enrolling in Part B due to having creditable employer coverage have an eight-month Special Enrollment Period to enroll in Part B without penalty[mfn referencenumber=8]SSA.gov, “How to Apply for Medicare Part B During Your Special Enrollment Period“, Accessed September 24, 2021[/mfn]. Additionally, Medicare taxes beneficiaries have paid while working only go towards a premium-free Part A plan[mfn referencenumber=5]Medicare.gov, “Part A costs“, Accessed September 24, 2021[/mfn]. Beneficiaries will still have to pay Part B’s monthly premium even if they have premium-free Part A[mfn referencenumber=9]Medicare.gov, “Part B costs“, Accessed September 24, 2021[/mfn].

What is the Late Penalty for Medicare Part D?

Medicare Part D is a prescription drug coverage plan that helps beneficiaries pay for their prescription drugs[mfn referencenumber=10]Medicare.gov, “What Medicare Part D drug plans cover“, Accessed September 24, 2021[/mfn]. If a beneficiary does not enroll in a Part D plan during their IEP, then Part D’s monthly premium will start increasing by 1% for each month after their IEP ends until they enroll[mfn referencenumber=2]Medicare.gov, “What does Medicare cost?“, Accessed September 6, 2021[/mfn].

Just like Part B’s penalty, the Part D penalty will not go away over time and beneficiaries will pay the penalty for as long as they have a Part D plan[mfn referencenumber=2]Medicare.gov, “What does Medicare cost?“, Accessed September 6, 2021[/mfn]. If beneficiaries qualify for Social Security’s low-income subsidy program (aka Extra Help), then they will not suffer a Part D penalty[mfn referencenumber=11]Medicare.gov, “Part D late enrollment penalty“, Accessed September 24, 2021[/mfn].

Beneficiaries that delay enrolling in Part D because they have creditable employer coverage can still enroll in Part D without penalty during a Special Enrollment Period. This Special Enrollment Period lasts for two months after the day their employer coverage ends.[mfn referencenumber=12]Medicare.gov, “Special circumstances (Special Enrollment Periods)“, Accessed September 24, 2021[/mfn]

How do I Avoid the Medicare Penalties?

Apply for Medicare during the Initial Enrollment Period. This takes place for seven months during a beneficiary’s 65th year, as early as three months before their 65th birthday month and up to three months after they turn 65[mfn referencenumber=1]Medicare.gov, “When does Medicare coverage start?“, Accessed September 6, 2021[/mfn]. Once beneficiaries miss this enrollment period it is gone forever barring Special Enrollment Periods for group health and employer coverage.

If a person wants to enroll in Medicare in the future, they will be subject to higher premium penalties and maybe even affect their Medicare eligibility for certain health insurance plans[mfn referencenumber=2]Medicare.gov, “What does Medicare cost?“, Accessed September 6, 2021[/mfn]. These penalties exist to encourage everyone to sign up on time because the cost of Medicare’s monthly premiums would go up if only sick people signed up for a health plan.

Are There Penalties for Dropping Medicare?

There is no penalty per se for dropping Medicare after a beneficiary has gone through enrollment. However, the process can be difficult and may require them to see a Medicare or Social Security professional and go through some paperwork processing before their coverage ends[mfn referencenumber=13]Faq.ssa.gov, “How do I terminate my Medicare Part B (medical insurance)?“, Accessed September 6, 2021[/mfn].

If they decide to re-enroll in Medicare, they will also be subjected to late enrollment penalties based on how long the beneficiary had dropped Medicare. Beneficiaries that want to re-enroll in Medicare will have to wait for the General Enrollment Period for Medicare Part A and Medicare Part B, or the Open Enrollment Period for Medicare Part C and Medicare Part D[mfn referencenumber=14]Medicare.gov, “How to drop your Medicare drug plan“, Accessed September 6, 2021[/mfn].