Medicare Penalties for Late Enrollment: What They Are and How to Avoid Them

Medicare late enrollment penalties are no joke. They can increase your monthly premium substantially for the rest of your life.

That’s right: If you miss the window, the government can penalize you each month for as long as you have Medicare coverage.

It’s essential to understand your Medicare options and how these late enrollment penalties work so you can avoid costly premiums in retirement.

When Are You Supposed to Sign Up for Medicare?

You can enroll in Medicare only at certain times.

Your initial enrollment period is a seven-month window around your 65th birthday.

It begins three months before you turn 65 and extends three months after your birth month.

If you’re already receiving Social Security retirement benefits, you’re automatically enrolled in Medicare when you turn 65.

Some people choose to delay Medicare if they’re still working.

However, the best way to avoid Medicare late enrollment penalties is to sign up for coverage when you’re first eligible.

Medicare Part B Late Enrollment Penalty

Medicare Part B helps cover your doctor’s visits, preventative services, outpatient care, medical equipment and more.

If you don’t enroll in Medicare Part B during your initial open enrollment period, you’ll face a 10% penalty for each 12-month period you delayed enrollment.

Once you get hit with a Part B penalty, you’re usually stuck with it for as long as you have Medicare Part B. For most people, that’s the rest of their life.

Here’s an example.

In 2022, the Part B premium is $170.10. If you waited four years to sign up, you’d owe $68.04 (40% of $170.10) on top of the standard Part B premium.

And remember, the standard Part B premium increases slightly each year. So you’ll pay at least $238.14 per month for as long as you have Part B coverage.

How to Avoid the Medicare Part B Late Enrollment Penalty

You can delay enrollment in Part B (and avoid the penalty) if you’re enrolled in creditable coverage.

Creditable coverage for Part B is limited to enrollment in:

If you have health insurance from a small company with fewer than 20 employees, you’ll likely need to enroll in Medicare Part A and Part B when you turn 65. Small workplaces aren’t required to continue your health care coverage once you’re eligible for Medicare.

Being covered by an Affordable Care Act plan from the HealthCare Marketplace doesn’t count as creditable coverage for Part B. Neither do Department of Veterans Affairs health care benefits.

After your employment-based coverage ends, you’ll qualify for a special eight-month enrollment period.

A special enrollment period is for people who didn’t sign up for Medicare Part B during initial enrollment because they had health insurance through their employer, union or spouse.

The special enrollment period begins the month after your employment ends or the group coverage plan ends (whichever comes first). During this time, you can sign up for Medicare without facing a premium penalty.

Medicare Part D Late Enrollment Penalty

Technically, enrolling in Medicare Part D prescription drug coverage is voluntary.

However, if you delay enrollment in Medicare Part D — or a Medicare Advantage plan that includes drug coverage — you could be hit with a penalty if you enroll later.

And you’ll pay the penalty for as long as you have Medicare Part D.

You’ll also owe a late enrollment penalty if — at any time after signing up for Part D — there’s a coverage gap of 63 or more days in a row when you didn’t have a Medicare drug plan or other creditable prescription drug coverage. This can happen if you drop your current Part D plan and fail to sign up for a different one.

Even if you don’t take any medication now, you should join a Medicare prescription drug plan when you turn 65. Many Medicare plans offer little to no monthly premiums.

How Much Is the Part D Late Enrollment Penalty?

The Part D late enrollment penalty depends on how long you went without a Medicare prescription drug plan or other creditable drug coverage.

Medicare calculates the Part D penalty by multiplying 1% of the “national base beneficiary premium” ($33.37 in 2022) times the number of full months you went without Part D or creditable coverage.

That number is rounded to the nearest $0.10 and then added to your monthly Part D premium.

The national base beneficiary rate usually increases slightly each year, so your penalty amount may also change each year.

Here’s an example.

How to Avoid the Medicare Part D Late Enrollment Penalty

You can avoid the Part D penalty if you’re covered under an employer’s prescription drug plan that’s expected to pay, on average, at least as much as Medicare’s standard drug coverage.

You can also avoid it if you maintain creditable prescription drug coverage from any of the following:

If you’re not sure whether your current drug plan counts as creditable coverage, check with your plan provider.

Once you’re no longer enrolled in creditable prescription drug coverage, you have 63 days to sign up for a stand-alone Part D plan or a Medicare Advantage plan with prescription drug coverage.

When you enroll in Medicare drug coverage, tell the provider about your previous creditable coverage. Otherwise, you may still get slapped with a late enrollment penalty.

Finally, people who qualify for the Extra Help program won’t pay a penalty when they sign up for a Medicare drug plan.

Extra Help is Medicare’s prescription subsidy program for people with low incomes. If you qualify for Medicaid services, you generally qualify for the Extra Help program.

Part A Late Enrollment Penalty

Ninety percent of people don’t pay a premium for Medicare Part A, which covers hospital stays and skilled nursing facilities.

If you paid Medicare payroll taxes for at least 10 years, you qualify for premium-free Medicare Part A. There’s no late enrollment penalty in that situation.

But if you’re in the 10% of people who are required to buy Part A and you don’t sign up when you’re first eligible, your monthly premium can go up 10%.

You’ll have to pay the higher premium for twice the number of years you didn’t sign up.

So if you didn’t sign up for Part A for two years after you were first eligible, your Part A premium will be 10% higher for the next four years after you enroll.

Here’s an example:

If your state pays your Part A premiums through a Medicare Savings Program, you’re not liable for late penalties.

Why Does Medicare Charge Late Enrollment Penalties?

Medicare relies on healthy people to pay into the program to help offset the higher health care expenses of unhealthy people.

If everyone waited to sign up for Medicare until they needed it (aka their health declined), Medicare would be unable to keep up with costs.

That in turn would increase the price of premiums for everyone enrolled in Medicare.

This article was originally published by The Penny Hoarder.

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