How Much will a Late Enrollment Penalty Cost Me?
How Can I Avoid the Penalty?
Late enrollment penalties can increase your premium by 10% or more
Nobody wants to spend more than they have to on their health care coverage (or anything else, for that matter). So if you’re eligible for Medicare, make sure you’re enrolled in Part B (Medical Insurance) and Part D (prescription drug coverage). If you wait too long, you’ll end up paying more than you should.
Why There’s a Penalty
It takes a lot of money and resources to run Medicare. But making sure that Medicare is available to everyone who needs it-today, and in the future-is something from which we’ll all benefit. That’s why enrolling in Parts B & D as soon as we’re eligible is so important.
The reason is simple. If everyone waited until they were sick to enroll in Part B or Part D, Medicare would never be able to sustain itself. The cost of paying for care for individuals who are ill and/or require expensive medications would far outstrip the amount of money taken in by Medicare in the form of premiums. So Medicare needs everyone to begin paying their premiums for Parts B and D as soon as they’re eligible so there’s enough money to care for everyone when they need it.
Understanding Enrollment in Medicare Parts A and B
For many people, enrollment in Medicare Parts A and B is automatic. If you are receiving Social Security or Railroad Retirement Board benefits when you turn 65, you’re automatically enrolled in Medicare Parts A and B. However, if you are not already receiving Social Security when you turn 65 (likely with recent changes to Social Security), you will not be automatically enrolled in Part A or Part B.
You may also choose to enroll in Part A but delay Part B enrollment due to having health insurance through an employer (yours or your spouse’s). Or, you may choose to delay enrolling in both parts if you have coverage through an employer.
If you are eligible for Medicare Parts A and B, and do not have other health insurance, you must enroll if you wish to avoid paying a penalty.
If you have limited income and resources, your state may help you pay for Medicare Part A and/or Medicare Part B. You may also qualify for Extra Help to pay for your Medicare Prescription Drug Coverage.
Understanding Enrollment in Medicare Part D
Even if you’re receiving Social Security upon turning 65, you are not automatically enrolled in Medicare Part D, also known as Medicare Prescription Drug Coverage. This is because you must choose your Part D plan, which is offered by private insurance carriers. You may also get Part D through a Medicare Advantage Plan.
If you are eligible for Medicare Part A, you’re eligible for Part D. And, as with Original Medicare, you pay a late penalty for failing to enroll in Part D if you do not have creditable drug coverage from an employer or other source. In this instance, creditable means at least as good as a Medicare Prescription Drug Plan.
Premiums for Medicare Prescription Drug Plans vary according to your income as well as the plan and carrier you choose. One insurance company may offer several different drug plans, all with different premiums and coverage levels. Furthermore, premiums for the same plan may vary between two individuals if their income levels are different.
How Much Is the Late Enrollment Penalty for Medicare Part A?
Since most people receive Medicare Part A for free, they do not have to pay a late enrollment penalty. However, those who have a premium for Part A pay a 10 percent penalty for every year they were eligible but failed to enroll, for double the number of years they delayed enrollment.
For example, if you became eligible for Medicare Part A in February 2018 but did not enroll until June 2019, that represents one full, 12-month period you could have enrolled but didn’t. Therefore, you pay a 10 percent penalty for two years. If your premium is $458 per month, your penalty is $45.80 per month for 24 months.
For every full year you fail to enroll, you pay the penalty for two years.
If you meet certain conditions that allow you to sign up for Medicare Part A during a Special Enrollment Period, you usually do not have to pay a late enrollment penalty.
How Much Is the Late Enrollment Penalty for Medicare Part B?
In most cases, if you don’t sign up for Medicare Part B when you’re first eligible and don’t qualify for a Special Enrollment Period, you’ll pay a late enrollment penalty for as long as you have Part B. The late penalty is 10 percent for every year you could have signed up for Medicare Part B but failed to do so. That means that you pay a 10 percent penalty for year one, 20 percent for two years, 30 percent for three, etc.
For example, if you were eligible for Medicare Part B in February 2018 but delayed enrollment until June 2020, that represent two full-year periods. Therefore, your penalty is 20 percent per month for the entire time you have Medicare Part B. If your monthly premium is $144.60, that means you pay an extra $28.92 every month.
If you qualify for a Special Enrollment Period, you usually avoid this penalty. The Medicare Late Enrollment Penalty Calculator helps you estimate your potential penalty.
How Much Is the Late Enrollment Penalty for Medicare Part D?
As with Parts A and B, the cost of your penalty depends on how long you delayed enrollment in Part D or failed to have creditable coverage. Unlike A and B, your penalty accumulates monthly. You pay a 1 percent penalty for every month you go without prescription drug coverage. So, 1 percent for one month, 2 percent for two months, etc.
The penalty is calculated using the national base beneficiary premium, which may change every year. In 2020, this is $32.74. The percentage is multiplied by the base beneficiary premium and rounded to the nearest $0.10 to arrive at the penalty.
For example, if you became eligible for Part D in February 2017 but did not enroll until June 2018, and did not have creditable coverage through another source, that represents a 17 percent penalty (17 months without Part D). The calculation:
$32.74 (2018 base beneficiary premium) x 0.17 (17 percent penalty) = $5.565
Rounded to the nearest $0.10, a penalty of $5.60 will be added to your 2020 monthly premium. If the base beneficiary premium changes in 2021, your penalty also changes.
When you join a Medicare drug plan, it will inform you whether you owe a penalty and what your premium will be. If you disagree with the penalty, you may request a reconsideration. If you do, the drug plan will send the required form and instructions.
If you are eligible for Medicare but haven’t yet enrolled, getting started is simple. You can enroll online via the Social Security website. You may also call 1-800-MEDICARE (TTY 877-486-2048). Or, talk to one of Medicare Solutions’ licensed sales agents at 855-350-8101, TTY 711.