- Most people will never be subject to a Medicare Part A (hospital insurance) penalty because they are eligible for premium free Part A. This happens when Part A is fully paid for by payroll taxes.
- If Part A was not fully paid for, the late enrollment penalty is 10% of the premium due, paid every month for twice the number of years you missed enrollment.
- The premium penalties for not enrolling in and paying the Part B premium during the proper enrollment period is 10% of the Part B premium due for every full year you missed, paid each month for the rest of your life.
- The Medicare Penalty for an unauthorized delayed enrollment in Part D prescription drug coverage is a bit more complex. It is 1% of the National Base Part D Premium times the number of months you went without Part D coverage, rounded to the nearest $0.10. This amount is added to your monthly premium for Part D. The Medicare drug plan national base premium is calculated annually.
Medicare is a federal health insurance program dedicated to people aged 65 and over, as well as those under 65 on Social Security disability Income for at least 24-months.
While Medicare has been in existence for over 50-years, there continues to be some confusion in regard to when you should enroll in Medicare. Unfortunately, if you don’t enroll in Medicare during your Initial Enrollment Period, it can result in a late enrollment penalty.
When we are referring to Medicare, we are referring to Medicare Part A (inpatient services) and Medicare Part B (outpatient services). This is also referred to as Original or Traditional Medicare. For more details on Original Medicare please see our post and video titled Medicare Explained.
So, when do you need to sign up for Medicare? And what are the late enrollment penalties you may face if you don’t enroll in Medicare on time? These are questions that will be answered in this article. If you wish to see what else Medicare covers, the article linked here is a comprehensive guide to Medicare coverage.
To fully understand your enrollment periods or when you can or cannot delay enrollment, we must first examine the differences in Medicare late enrollment penalties for Medicare Part A and Medicare Part B.
Medicare Part A
Medicare Part A is the inpatient hospital coverage portion of Medicare. For most people, there will be no Medicare late enrollment penalties for Part A. The reason for this is that Medicare Part A is that portion of Medicare paid for by payroll tax deductions during your working years. Your Medicare taxes pay for Part A.
As long as either you or your spouse have paid Medicare taxes for at least 40-quarters during your lifetime, your Medicare Part A is fully paid for. Medicare refers to this a “Medicare Part A eligible”
With your Medicare Part A fully paid for, there are never late enrollment penalties. You can enroll in Part A anytime during or after your Initial Enrollment Period (see below) and never pay a late enrollment penalty.
If you apply for Medicare Part A during your Initial Enrollment Period, your Part A will start the first day of the month you turn 65.
If you apply for Part A after your Initial enrollment Period, your Part A will start retroactively. It will start either of the first day of the month your turn 65 or six-months retroactive to your enrollment, whichever comes first.
You can enroll in Part A without enrolling in Part B.
Medicare Part B
Medicare Part B is that portion of Medicare that covers outpatient and physician services.
There is a monthly premium for required for Medicare Part B. The amount of the Part B premium will depend on your income. For details, please see our article and video titled “What is IRMAA” (Income Related Monthly Adjustment Amount)
Because Part B requires a monthly premium, it is that portion of Medicare that carries a premium penalty for not enrolling when you are supposed to. If you miss the proper enrollment period, you must pay the penalty assigned each month for the rest of your life.
When Should You Sign Up for Medicare?
There are multiple enrollment periods that may be available to you. The first will be an Initial Enrollment Period (IEP) based on your birthday or disability income. Then there are Special Enrollment Periods (SEP), based on special circumstances. Lastly, there is a General Enrollment Period (GEP) for those who missed the first two mentioned above. We also have a video and article detailing how and when to sign-up for Medicare.
Medicare Initial Enrollment Period
Generally speaking, you should enroll in Medicare Part B during your Initial Enrollment Period (IEP) if you are not actively working AND have creditable insurance coverage through your employer.
Your Initial enrollment Period lasts seven months. It includes three months before your 65th birthday month, your birthday month, plus the three months following your birthday month. Of course, there is one exception.
The exception is when your birthday falls on the first day of the month. When your birthday falls on the first day of a month, your entire Initial enrollment period moves forward by one calendar month.
Please see our Initial Enrollment Calculator to help you determine your Medicare Initial Enrollment Period.
Medicare Special Enrollment Periods
Unless you expect to be eligible for a Special Enrollment Period later on, you should enroll in Medicare during your IEP.
You can delay your enrollment in Medicare indefinitely, and avoid late enrollment penalties, as long as you have creditable insurance coverage through either your employer or your spouses employer.
What is Creditable Coverage for Medicare?
Creditable health insurance coverage is insurance that Medicare has deemed to be roughly equal to the benefits of Original Medicare.
If you will continue to be actively working, your employer insurance coverage would usually be considered creditable if your employer has at least 20-employees. If you are not actively working or your company has fewer than 20-employees, then you must enroll in Original Medicare or you may be subject to late enrollment penalties.
If your employer coverage is creditable, they must send you a confirmation of creditability of coverage once per year.
Medicare General Enrollment Period
If you do miss your IEP, you have another opportunity to enroll in Medicare during the General Enrollment Period, which starts on January 1st and ends on March 31st every year. During this time, you can sign up for Medicare Part A and Part B insurance. Your insurance coverage will start the first day of the month following your application.
Medicare Late Enrollment Penalties
Medicare late enrollment penalties are not a one-time fee. You will pay the penalty as it is added to your monthly premiums. In many cases, the penalties can be charged for as long as you have Medicare coverage.
Medicare Part A Late Enrollment Penalty
As mentioned earlier, the vast majority of Medicare enrollees paid for their Part A via their or their spouses payroll taxes and will never pay a penalty for late enrollment.
For those who are not eligible for premium free Part A they may pay a penalty for not enrolling when they are supposed to.
For missing the Part A enrollment window the premium penalties are 10% of the monthly premium paid for twice the number of years you didn’t enroll when you were supposed to.
For example, if you did not have creditable coverage and you delay enrollment for two years, you will pay a late enrollment penalty of 10% of your premium for four years, twice the number of years you missed.
Medicare Part B Late Enrollment Penalty
Contrary to Part A coverage, Part B (medical insurance) has a premium requirement. Everyone must pay a monthly fee for Part B. If you qualify for financial aid via your state government, then the state might cover this cost for you.
The premium penalties for not enrolling in and paying the Part B premium during the proper enrollment period is 10% of the Part B premium due for every full year you missed, paid each month for the rest of your life.
Just like with Medicare Part A, if you qualify for a Special Enrollment Period, then chances are the Part B penalty will be waived.
If you have creditable coverage over age 65, you can choose when to enroll in Part B, creating your own personal Special Enrollment Period.
If you qualify for a Special Enrollment Period, there will be no Part B Penalty. Simply choose the month you wish your Part B to start, and that will be your Special Enrollment Period.
Medicare Part D Late Enrollment Penalty
You will have to pay late enrollment penalties for not enrolling in Part D prescription drug coverage if you:
- don’t join the Medicare Part D drug plan after getting Medicare
- you go 63- days or more without Part D coverage or creditable prescription drug coverage after being Medicare eligible.
There are two situations in which you won’t be required to pay a late enrollment penalty even if you don’t sign up for Medicare Part D. That is when:
- you have creditable prescription drug coverage through an employer or union plan.
- you qualify for Extra Help, which is a special program meant to help people with low income and resources pay for Medicare Part D premiums, deductibles, coinsurance, and other costs associated with this drug plan.
The premium penalty for an unauthorized delayed enrollment in Medicare Part D prescription drug coverage is 1% of the National Base Beneficiary Premium for Medicare Part D (determined annually) times the number of months you went without Part D coverage, rounded to the nearest $0.10. You pay the penalty added to your monthly premium for Part D and any IRMAA surcharge that may be due.
Medicare calculates your penalty amount. Simply call 1-800-MEDICARE and they will determine your premium penalty for you.
The Bottom Line
If you do not want to face late enrollment penalties, it’s usually in your best interest to not delay enrollment in Medicare. You can delay your Medicare coverage and avoid late enrollment penalties if you have other coverage like creditable employer coverage that allows you to choose a special enrollment period at any time. A Special Enrollment Period helps you avoid Medicare late enrollment penalties.
Free Guidance from Licensed Medicare Advisors
Contact Medigap Seminars for free guidance from a licensed Medicare Advisor. Our licensed Medicare experts are the best in the business. As a true Independent Medicare Insurance broker, we offer guidance in your best interest. It’s our goal to help you make an informed decision about your Medicare.