What are Medicare Penalties?
Another way your Neighborhood Medicare Advisors can be of assistance is their ability to help you avoid late enrollment penalties. Although CMS has implemented rules for when and how to sign up for the different parts of Medicare, there are numerous scenarios that can occur and so it’s good to have a local advisor to review your personal situation, or that of a spouse, friend, or parent, and provide ways to avoid penalties.
Delaying certain parts of your Medicare Enrollment could lead to lifelong penalties. The parts of Medicare that require timely decisions to be made about coverage in order to avoid penalty are B and D. Part B, known as Medical Insurance, covers things like doctor visits, ambulance, durable medical equipment, and outpatient surgery.
Let’s look at this one first…
IEP or Initial Election Period
When you first become eligible for Medicare, this is known as the IEP or Initial Election Period. If you (or your spouse) plan to continue working after Medicare entitlement, and have coverage through an employer, you may postpone enrollment into Part B. Part B premiums go up with inflation each year and, for higher income earners, pay a higher premium than the base rate. The opportunity to delay Part B enrollment can be beneficial as long as other medical coverage is available.
A couple nuances to these observations:
- If your employer (or spouse) coverage is received through an organization with less than 20 employees, you may still need to take out Part B, as Medicare is deemed primary with smaller businesses.
- If you plan to utilize a Retirement plan sponsored by the employer, they may also require Part B enrollment in order to utilize the retirement plan as it has been designed.
- Postponing Part B also preserves your one time Medigap Open Enrollment Period, should you decide to use a Medicare supplement upon the loss of your employer health coverage.
If you do not have medical coverage at the time of entitlement, it is best that you opt in to Part B during your IEP. Remember the IEP window is 3 months prior, month of, and 3 months after. However, in order to reap the benefits of Part B and because it is not retroactive, you will likely want to enroll at the time of your Medicare effective date.
Age-attained Medicare eligibility is granted on the 1st of the month of your 65th birth month, or if your birthday is on the 1st day of the month, Medicare gives you an early birthday present by starting your eligibility the month prior to your birth month! Some additional takeaways for enrolling in Part B:
- You can enroll at any time upon loss of employer coverage, whether it’s voluntary or involuntary, using a Special Election Period, or SEP. This SEP allows you to enroll up to 8 months from the first month your previous coverage or employment ends
- COBRA, Retiree Health Plans, and those with End Stage Renal Disease are not deemed eligibility triggers for SEP
- If you have an HSA with High Deductible Health plan, speak with your local Medicare Advisor as you may be eligible for SEP
MAPD or Medicare Supplement without Part B
Why is this so important? Well, for one, you cannot obtain an MAPD or Medicare Supplement without Parts A and B of Medicare. Further, if you miss this window, you cannot enroll into Part B until the following year, as follows:
- You must wait until the General Election Period, which runs January 1st through March 31st, but coverage will not begin until July 1st of that year.
- The penalty applied for missing these deadlines is 10% of the Part B premium times the number of years (12 month periods) you are late to enroll in Part B.
Your Initial Enrollment Period ended December 2016. You waited to sign up for Part B until March 2019 during the General Enrollment Period. Your coverage starts July 1, 2019. Your Part B premium penalty is 20% of the standard premium, and you’ll have to pay this penalty for as long as you have Part B (even though you weren’t covered a total of 27 months, this included only 2 full 12-month periods: $135.50 x 1.20 = $162.60 per month).
If your incur a penalty, and want to evaluate the trade offs between paying those penalties in order to participate in local plans, vs remain without, a local advisor can not only run these calculations, but also provide specific details around the plans which may still be worth paying additional premium to have access to.
Medicare Part D Penalties
Part D, which is your drug coverage component is purchased as a stand alone plan (PDP) or one that is integrated with a Medicare Advantage Plan (MAPD). You must have Part A OR Part B of Medicare in order to be eligible for a Part D plan. IEP rules apply much the same as described above. If you have creditable coverage for prescription drugs, you may postpone enrollment into a Part D plan without penalty. Creditable prescription drug coverage is defined as:
Drug coverage that’s expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage. Examples include current or former employer, union, Tricare, Indian Health Service, or the Department of Veterans Affairs.
If you do not have creditable Rx coverage and go more than 63 days without enrollment in a Part D or MAPD plan, a late enrollment penalty will be applied as follows; Medicare calculates this penalty by multiplying 1 percent per month of late enrollment times the “National Base Beneficiary Premium” ($33.19 for 2019).
Suppose you signed up for a Medicare Part D Prescription Drug Plan in 2019, eight months after your IEP ended. One percent of $33.19 is $0.33 x 8 months = about $2.64. So, about $2.64 would be added to your monthly Medicare Part D premium.
The “national base beneficiary premium” may go up each year, so the penalty amount may also go up every year. In addition to your premium each month, you may have to pay this penalty for as long as you have a Medicare Prescription Drug Plan.
There are times when those on Medicare forgo prescription coverage because they take no drugs! Then, fast forward several years and a particular medication is needed – sometimes an expensive one. Once again, your local Medicare Advisor can help to not only calculate the additional premium, but evaluate the opportunity cost of the specific plans in your county which may still be worth pursuing.
Part A, aka hospital insurance, is usually earned through 10 years of Medicare tax contribution during your working years (or your spouse) and is, subsequently, premium free. Some Medicare beneficiaries must purchase Part A in the event that they have not met the basic requirements, but this is not as common.