Medicare beneficiaries are constantly getting mail warning them of penalties related to Medicare. This mail often has frightening language, with an emphasis on calling a company immediately to solve the problem. The truth is most of these letters are used as a scare tactic to generate business for insurance companies. The chances of you accruing a Medicare penalty are slim, but it still helps to know how it could happen so you can avoid it in the future. In this article, we will walk through the different penalties related to Medicare and teach you how to avoid them.
Medicare Penalty Basics
Most Medicare penalties are a result of not signing up for Medicare when you first become eligible. You first become eligible for Medicare for 2 main reasons: You are either turning 65 or are receiving permanent disability for more than 24 months. When you first become Medicare eligible, you are given an “Initial Enrollment Period.” During this time, you can sign up for Medicare no questions asked. But if you avoid acting when you are first eligible for Medicare, there can be consequences in the form of premium penalties. And any penalty accrued will never go away, no matter how hard you try.
Please note: these penalties do not apply if you have and will keep credible work insurance upon becoming eligible for Medicare. Credible work insurance is typically insurance from an employer with over 20 employees, that will not become secondary after the employee becomes Medicare eligible.
Part 1: Medicare Part B Penalties
When you are turning 65 or receive Medicare due to disability, you become eligible for Medicare and are given the option of enrolling in both Medicare Part A and Part B. If you are already taking social security retirement benefits prior to this eligibility, you are automatically enrolled in both.
Part B Penalties take into effect when you do not enroll in Part B when you first become Medicare eligible, and do not have other credible employer insurance in its place. For every 12 consecutive months you could have had Part B, Medicare will add 10% to your Part B Premium every month for the rest of your life. It will only increase every 12 months, there is no fractional increase. This penalty will never go away.
How to Avoid Part B Penalties
You can avoid Part B penalties by making sure you have Part B benefits when you are first eligible for Medicare, or having credible employer insurance from your Medicare eligibility date until you join Medicare part B.
If prior to becoming eligible for Medicare you receive a Medicare card and it has both Parts A & B, and you do not have employer insurance you would like to keep, you do not have to do anything further. Simply pay your Part B premiums on time and you will be fine. If you do not receive a card with Part B prior to eligibility, and you do not have credible employer insurance, reach out to Social Security or go online to SSA.gov enroll into Medicare part B. You can do this in a variety of ways; read our article on Enrolling in Medicare (link) for more specifics.
I Kept My Work Insurance, What Do I Do When I Retire?
If you keep your work insurance after your Medicare eligibility date and do not take Part B because of it, you can still get Part B once you leave or lose said insurance without a penalty. This is considered a special enrollment for leaving or losing employer insurance.
To enroll in part B using this special election, the first step is to fill out a Part B Enrollment Application, form CMS-40B. The second step is to fill out the Social Security Request for Employer Information form, CMS-L564, with your employer. Once completed, fax them both to your local social security office. This will allow Social Security to enroll you in part B, while documenting you have had a legitimate reason for not having Part B, leading to no penalty upon enrollment. You have 8 months from the month your current employment health coverage ends to apply for Part B using this special enrollment period. We recommend you start this process prior to retirement if possible.
I Missed My Initial Enrollment Period for Part B, Now What?
If you don’t take Part B when you were first eligible for Medicare, and don’t qualify for a special enrollment, it can be a hassle to enroll. Outside of your Initial or Special Enrollment Period, you must apply for Part B during the General Enrollment Period. This takes place from January 1st to March 31st each year. If you apply during this time, your benefits will not start right away. You will have to wait until July 1st.
I’m A Healthy Person, Can’t I Wait Until I Need Medicare to Sign Up for It?
No. Medicare is based on the idea we all pay into the system until we need it. If you wait until something goes wrong to sign up for Medicare, you will not be able to get it as fast as you would like. And you will be stuck paying bills in the meantime.
Let us use an example. Say you have not taken Medicare Part B yet because you are healthy. Then in August of a certain year, you suddenly get extremely sick. The medical bills start piling up, much higher than you could have anticipated. You decide it is time to go onto Medicare.
In this example, unfortunately, you will not be able to get your Part B benefits for a full year. You will not be able to apply for Part B until January 1st of the following year. And then your Part B benefits will not start until July 1st of the following year. All the while, you are incurring large medical bills. Talk to your broker and make sure you are prepared for Medicare well before you become eligible.
Part 2: Part D Penalties
Part D penalties work in a similar fashion to Part B penalties. If you do not sign up for a Part D plan when you are first eligible, and do not have credible employer insurance, you will accrue a penalty. And like Part B, these penalties will never go away.
Part D is, unlike Part B, private insurance. While it was created by the government, the plans are themselves private. You will not deal with Medicare for your Part D benefits; you will deal with an insurance company. If you do not sign up for a Part D plan at the right time, your insurance company can add extra money to your premium.
What Is the Part D Penalty?
The Part D penalty starts when you do not have creditable coverage for more than 63 days. If you lose your work insurance for instance, you have 63 days to find a new Medicare-approved Prescription Plan. Any time after that you will be penalized.
The penalty is calculated by adding 1% of the national base beneficiary premium to your Prescription Drug Plans’ premium. This is a fancy way of saying for every month you don’t have coverage; your insurance will add 1% of the national premium average to your bill. In 2022, this is about 35 cents a month. And like Part B, this penalty will never go away.
Avoiding Part D Penalties
The easiest way to avoid a Part D penalty is to sign up for a Medicare-approved Prescription Drug Plan through your broker when you first sign up for Medicare. This will give you the coverage you need for your prescriptions and let you avoid a penalty. You can do this 3 months before the month you are eligible for Medicare, the month you become eligible for Medicare, and 3 months after.
I Missed My Initial Enrollment Period, Now What?
Just like Part B enrollment, if you miss your Part D enrollment you must wait until a specific time of year to re-enroll. Every year from October 15th to December 7th Medicare has their Annual Enrollment Period. This is where you can enroll in a Part D Prescription Plan for the following calendar year no questions asked.
I Am Not Taking Currently Any Prescriptions, Why Should I Get a Prescription Plan?
If you are not currently taking prescriptions, you should keep a Medicare-approved Prescription Drug Plan just in case. It will allow you to avoid a lifetime penalty and give you coverage in the event you are prescribed a costly medication. Certain prescriptions are incredibly expensive and having one or multiple without insurance will quickly make not having prescription insurance a costly endeavor. Luckily, there are several low-cost plans available for people who are on zero or several generics to help them avoid the penalty. These plans range from $7 to $15 a month.
Part 3: Part A Penalties
Paying For Part A
Most people will get their Part A for free. The chances of you having to pay for Part A are slim to none, so chances are you can skip this section. No need to be scared.
There is a small percentage of the population that will have to pay for Part A. These people did not pay Medicare taxes for 40 quarters, or 10 years. This only tends to happen to people who worked off the books or immigrated to the US late in life.
Part A Penalty
If you don’t take Part A when you are first eligible, you will have to pay a penalty. Medicare will add 10% to your monthly Part A premium. Unlike the penalties associated with Parts B & D, this penalty will not last forever. You will pay this penalty for double the number of years you could have had Part A but chose not to take it.
What’s The Best Way to Avoid All These Medicare Penalties?
The best way to avoid any Medicare penalties is to have a trusted broker at your side. Any time three to six months before you are eligible for Medicare, reach out to the brokers at NJ Life & Health. We will guide you through the entire Medicare enrollment process and make sure you will avoid any costly penalties. We will also explain your Medicare Supplemental, Medicare Advantage, and Medicare Prescription options. Visit our website at https://www.njlifeandhealth.com/request-an-appointment or call our office at 848-226-6897 to schedule an appointment.