If saving money is important to you, avoiding a Medicare late enrollment penalty can help.
Delaying enrollment in Medicare can subject you to long-lasting financial penalties added to your premiums each month.
A late enrollment penalty can significantly increase the amount of money you’re required to pay for each part of Medicare for years.
A Medicare penalty is a fee that you’re charged if you don’t sign up for Medicare when you’re eligible. For most people, this is around the time they turn 65 years old.
Even if you’re healthy and don’t feel the need to have Medicare, it’s important that you sign up on time.
The parts of Medicare that charge a late enrollment fee are:
- Part A (inpatient hospital insurance
- Part B (outpatient medical insurance)
- Part D (prescription drug coverage)
Medicare Part C (Medicare Advantage) doesn’t have a late enrollment penalty. You can switch over to this type of plan during certain enrollment periods.
Medicare supplement insurance (Medigap) also does not have a set penalty. However, rates may go up drastically if you don’t sign up when you’re first eligible. We’ll discuss those details a bit later.
As with any health insurer, Medicare relies on people who aren’t sick to support the system, so that the costs for those who are very sick can be balanced out.
Charging late fees helps to reduce these costs overall and encourage people to enroll on time.
Many people are automatically eligible for Medicare Part A at no cost.
If you didn’t work enough hours during your lifetime to be eligible for this service, you can still purchase Medicare Part A. However, you have to pay a monthly premium.
If you’re not automatically enrolled and don’t sign up for Medicare Part A during your initial enrollment period, you’ll incur a late enrollment penalty when you do sign up.
The late enrollment penalty amount is 10 percent of the cost of the monthly premium.
You’ll have to pay this additional cost each month for twice the number of years you were eligible for Medicare Part A but didn’t sign up.
For example, if you waited 1 year post-eligibility to sign up, you’ll pay the penalty amount each month for 2 years.
You’re eligible for Medicare Part B starting 3 months before your 65th birthday until 3 months after it occurs. This period of time is known as the initial enrollment period.
If you’re already receiving Social Security benefits, your monthly premium will be deducted from your monthly check.
If you don’t currently get Social Security benefits and don’t sign up for Medicare Part B during this time, you’ll be required to pay a late enrollment penalty along with each Medicare Part B monthly payment.
You’ll have to pay this additional fee for the rest of your life.
Your monthly premium will increase by 10 percent for each 12-month period in which you could have had Medicare Part B but didn’t.
If you’re eligible for the Medicare Part B special enrollment period, you won’t incur a late enrollment penalty, provided you sign up during that time.
Special enrollment periods are provided for people who don’t sign up for Medicare Part B during initial enrollment because they have health insurance through their employer, union, or spouse.
You’re able to enroll in a Medicare Part D drug plan at the same time you become eligible to enroll in Original Medicare.
You can enroll in Medicare Part D without incurring a late enrollment penalty during the 3-month period that begins when your Medicare parts A and B become active.
If you wait past this window to enroll, a late enrollment penalty for Medicare Part D will be added to your monthly premium.
This fee is 1 percent of the average monthly prescription premium cost, multiplied by the number of months you were late enrolling.
This extra cost is permanent and will be added to each monthly premium you pay for as long as you have Medicare Part D.
If you’re eligible for a special enrollment period and sign up for Medicare Part D during this time, you will not incur a penalty. You will also not incur a penalty if you enroll late but are eligible for the Extra Help program.
Late enrollment for Medigap (Medicare supplement plans) doesn’t cause you to incur a penalty. However, in order to get the best rates for your Medigap plan, you’ll need to enroll during your open enrollment period.
This period starts on the first day of the month you turn 65 and lasts for 6 months from that date.
If you miss open enrollment, you may pay a much higher premium for Medigap. You may also be refused a Medigap plan after open enrollment ends if you have health problems.
If you wish to defer Medicare enrollment, you don’t need to inform Medicare. Simply don’t sign up when you become eligible.
To avoid penalties when you do decide to enroll, you should:
- have alternative creditable coverage during the time you’re eligible for Medicare
- make sure to enroll during the 8-month period when your current coverage ends, known as a special enrollment period
If you decline Medicare coverage and never enroll, you won’t receive Social Security benefits or Railroad Retirement Board benefits. You’ll also need to return any payments you’ve already received through these programs.
If you wait to apply for Medicare, you may incur penalties that are high in cost and long-lasting. You can avoid this scenario by signing up for Medicare on time.