- If you do not want to use Medicare, you can opt out, but you may lose other benefits.
- People who decline Medicare coverage initially may have to pay a penalty if they decide to enroll in Medicare later.
Medicare is a public health insurance program designed for individuals 65 and over and people with disabilities that covers hospitalization and other medical costs at free or reduced rates.
The hospitalization portion of Medicare, Part A, begins automatically at age 65. Other Medicare benefits require you to enroll.
If you keep working beyond age 65 and have your own health insurance or have purchased your own health plan outside of Medicare, you may choose to refuse the federal health program; however, delaying enrollment adds extra costs or penalties down the road.
Medicare is a federal benefit that you pay for through taxes during your working years. At age 65, or if you have certain disabilities, you become eligible for health coverage through various parts of the Medicare program.
While Medicare isn’t necessarily mandatory, it is automatically offered in some situations, and may take some effort to opt out of.
The rules for signing up for Medicare can be confusing. There are a number of parts to the program, and each has different rules when it comes to enrollment.
Everyone is eligible to participate in Medicare at age 65 or if they develop certain diseases or disabilities. How to sign up and when you can opt out varies depending on the Medicare program.
Your medicare costs will vary and will depend on several factors such as the number of months you worked, your current income, when you were first eligible, and where you live. Here is an overview of Medicare costs in 2020.
Medicare Part A
Medicare Part A is the basic hospitalization portion of Medicare. Most people qualify for premium-free Medicare Part A because they paid for the program through taxes during their working years. If you don’t qualify for “free” Medicare Part A, you will have to pay an income-based monthly premium for as long as you are enrolled.
For 2020, the cost of Medicare Part A includes both:
- a deductible of $1,408 for each benefit period
- premiums ranging from free to $458 per month based on the number of quarters in your lifetime that you worked and paid Medicare taxes
People who have to pay a premium for Part A coverage may decide that they would like to purchase their own plans outside of Medicare.
There are several different ways you may begin receiving Medicare Part A.
- If you are already receiving Social Security or Railroad Retirement Board (RRB) benefits when you turn 65 or become disabled, you are automatically enrolled in Medicare Part A.
- If you are turning 65 and have not already been receiving Social Security or RRB benefits, you can sign up for Medicare within three months of your birthday.
- You can enroll later, but there are penalties for late enrollment, depending on your situation.
Medicare Part B
Medicare Part B is the portion of Medicare that pays for outpatient medical care, home care, and skilled nursing care. You will have to pay a portion of your Medicare Part B coverage, primarily through a monthly premium based on your income.
For 2020, the cost of Medicare Part B includes:
- an annual out-of-pocket deductible of $198
- monthly premiums starting at $144.60 for 2020
Like Medicare Part A, there are a few ways that you may begin receiving Medicare Part B.
- If you are already receiving Social Security or Railroad Retirement Board (RRB) benefits when you turn 65 or become disabled, you are automatically enrolled in Medicare Part B.
- If you are turning 65 and have not already been receiving Social Security or RRB benefits, you should sign up for Medicare Part B within three months of your birthday.
- You can sign up later or decline coverage, but there may be penalties based on your circumstances.
Medicare Part C
Medicare Part C, also known as Medicare Advantage, is a private insurance product that combines multiple elements of Medicare: the hospitalization coverage of Part A, the medical services of Part B, and sometimes the prescription coverage of Part D. These plans vary widely in cost and coverage based on the company offering the coverage and where you live.
It is not mandatory to sign up for Medicare Part C plans. It’s an option to sign up for one of these programs after you have already enrolled in Medicare parts A and B. You can only enroll in Medicare Advantage during certain enrollment periods.
Medicare Part D
Medicare Part D is the part of Medicare that pays for prescription medications. This is an optional program, and it is not mandatory, and you are not automatically enrolled. The cost for these plans, which are offered through private insurance companies, depends on the plan you choose. You can sign up for Medicare Part D as its own plan or through a Medicare Advantage plan.
While Medicare Part D is not mandatory, if you miss your enrollment deadline you may incur a permanent late enrollment penalty.
Medicare Supplement plans
Medicare Supplement plans, or Medigap plans, are private insurance plans that can be used to pay for your share of Medicare costs. These plans vary by cost and coverage, but generally cover deductibles, copayments, and coinsurances you may have to pay for your Medicare coverage.
You can sign up for Medigap plans during certain enrollment periods. These plans are optional, you are never automatically enrolled, and there are no late enrollment penalties. However, if you enroll after your initial enrollment opportunity, your heath conditions can be used to refuse you coverage.
The penalties for choosing not to enroll in Medicare, or enrolling late, can be just as confusing as figuring out which parts of the program are mandatory. The penalty levels for not enrolling when you are first eligible for Medicare, again, depend on the program.
If you choose not to sign up for Medicare Part A when you become eligible, a penalty may be assessed. This penalty depends on why you chose not to sign up. If you simply chose not to sign up when you were first eligible, your monthly premium — if you have to pay one — will increase by 10 percent for twice the number of years that you went without signing up. For example, if you waited two years to sign up, you will pay the late enrollment penalty for four years after signing up.
The penalty for Medicare Part B is a little different than Part A. If you choose not to sign up for Medicare Part B when you first become eligible, you could face a penalty that will last much longer than the penalty for Part A.
The Part B penalty is 10 percent of the standard premium for each 12-month period you were not signed up, and you will have to pay this penalty for as long as you are enrolled in Medicare. For example, if you waited one year past your initial enrollment period to sign up for Part B, your premium price will increase by 10 percent for the rest of the time you are enrolled. If you waited two years to sign up past your initial enrollment period, your premium will increase by 20 percent for the rest of the time you are enrolled.
Medicare Part C (Medicare Advantage) is optional and does not have penalties on its own, but penalties may be included for late enrollment in the parts of Medicare included within your Medicare Advantage plan.
Medicare Part D is not a mandatory program, but there are still penalties for signing up late. If you don’t sign up for Medicare Part D during your initial enrollment period, you will pay a penalty amount of 1 percent of the national base beneficiary premium multiplied by the number of months that you went without Part D coverage.
In 2020, the national base beneficiary premium is $32.74 and changes every year. If you have to pay the penalty, the penalty amount will be rounded to the nearest $.10, and this amount will be added to your monthly Part D premium for the rest of the time you are enrolled. If you disagree with the penalty you are assessed, you can ask for reconsideration, but must continue to pay the penalty along with your premium. Your prescription drug plan can drop your coverage if you fail to pay the premium or penalty.
Can I avoid penalties?
There are some special circumstances in which you can sign up late for Medicare without paying penalties. After the initial enrollment period, you can sign up for optional programs during special enrollment periods.
If you or your spouse continued working past your 65th birthday and had health insurance through your employer, you won’t have to pay a penalty for late enrollment in any of the Medicare programs.
Beginning the month after you end your employment, or when your group health plan insurance from that employment ends, you have an 8-month window to sign up for Medicare parts A and B without penalty.
COBRA and retiree health plans are not considered as coverage under current employment, and do not qualify you for a special enrollment period or save you from late enrollment penalties.
You can also qualify for a special enrollment period for Medicare parts A and B and avoid late enrollment penalties if you were volunteering in a foreign country during your initial enrollment period.
Medicare isn’t exactly mandatory, but it can be complicated to decline. Late enrollment comes with penalties, and some parts of the program are optional to add, like Medicare parts C and D. Medicare parts A and B are the foundation of Medicare, though, and to decline these comes with consequences.
The Social Security Administration oversees the Medicare program, and recommends signing up for Medicare when you are initially eligible, even if you don’t plan to retire or use your benefits right away. The exception is when you are still participating in an employer-based health plan, in which case you can sign up for Medicare late, usually without penalty.
While you can decline Medicare altogether, Part A at the very least is premium-free for most people, and won’t cost you anything if you elect not to use it. Declining your Medicare Part A and Part B benefits completely is possible, but you are required to withdraw from all of your monthly benefits to do so. This means you can no longer receive Social Security or RRB benefits, and must repay anything you have already received when you withdraw from the program.
Having other insurance coverage may allow you to delay enrolling in Medicare in some cases. In others, it may benefit you to enroll in Medicare as well because your costs may be lower.
If you have some form of retiree insurance program from a former employer, it may benefit you to enroll in Medicare as well. Medicare will then serve as the first, or primary payer, for you medical bills, and the group or retiree plan will pay costs that aren’t covered by Medicare. This could reduce the share you would normally pay for Medicare services.
However, it’s important to understand the specifics of your retiree insurance coverage. Some retiree plans don’t cover costs incurred if you were eligible for Medicare and did not enroll, and some retiree insurance plans may only pay after you’ve reached your out-of-pocket maximum for Medicare.
- Medicare is made up of several different programs, each with different rules for signing up, costs, and penalties for late enrollment.
- If you continue to work after age 65 and have health insurance from you employer, you can usually sign up for Medicare after your employer coverage ends without paying a penalty.
- If you choose to buy your own health insurance plan outside of an employer plan when you are eligible for Medicare, it may be in your best interest to enroll anyway. Declining Medicare completely is possible, but you will have to withdraw from your Social Security benefits and pay back any Social Security payments you have already received.