The Medicare program is all about helping older Americans. But if you procrastinate about signing up, it could hit you in the pocketbook.
Medicare charges several late-enrollment penalties. They're meant to discourage you from passing up coverage, then getting hit with costly medical bills. To avoid higher Medicare premiums, you need to know about these penalties and take steps to avoid them.
What Are Medicare's Penalties?
Medicare makes you pay extra for signing up late for its Part A (inpatient hospital services), Part B (outpatient medical services), and Part D (prescription drug) plans. Here's what to know about those penalties:
Part A. You qualify for Part A with no premiums if you or your spouse paid Medicare taxes for at least 10 years while working. If you don’t qualify, you can buy Part A coverage. But if you don’t sign up during your first enrollment period (usually a 7-month period around your 65th birthday), Medicare increases your premium by 10%. You pay this extra rate for twice the number of years you failed to enroll. So if you waited for 2 years, for example, you face 4 years of higher Part A premiums. (If you qualify for no-premium Part A, you don't pay a penalty. )
Part B. The late-enrollment penalty for Part B also is a 10% hike on premiums. But you get hit with another 10% extra for each 12-month period that passes after you're eligible to enroll. Worse, you pay that penalty as long as you stay in Part B.
Say you didn’t enroll in Part B until 2 years and 3 months after your first eligibility period ended. Since two full 12-month periods passed, your penalty is an extra 20% for as long as you're in Part B.
Part D. If you choose to buy Part D prescription drug coverage, it also pays to sign up when you're first eligible. You pay a penalty if you go without "creditable" drug coverage, either from Medicare or through an employer, for at least 63 days after your initial enrollment period ends. "Creditable" means the coverage is at least as good as Medicare's.
How much you pay depends on how long you go without coverage. It's calculated with a formula that’s a bit complicated. As with Part B, you pay the penalty as long as you stay in Part D.
How Do I Avoid a Penalty?
The easiest way to avoid penalties is to sign up during your initial 7-month enrollment period. The exception is if you qualify for a special enrollment period -- and have the documentation to prove it.
Generally, you qualify for a special enrollment period if you have other creditable health insurance coverage. If you or your spouse still works, that might be through an employer. (As long as the employer has 20 or more employees.) Or it could be through a military health benefits program, if you or your spouse is an active-duty service member.
If you qualify for special enrollment, you can sign up while you're still covered by your other group plan. For Parts A and B, you can also do it up to 8 months after either your job or your other health coverage ends, whichever comes first. But for Part D, you only have 63 days to enroll without penalty.
If you think you might qualify for special enrollment:
- Contact an administrator for your existing health plan. Find out how your insurance works with Medicare, and check whether you have "creditable" coverage for Parts B and D. Some employer plans require you to enroll in Part A and Part B for the best coverage.
- Keep the annual notice of creditable coverage for drug costs that employer health plans must send you.
What Can I Do About a Medicare Penalty?
If you think Medicare was wrong to charge you a penalty, you can request a review. Generally, you have do this within 60 days of the date on the penalty letter Medicare sends you.
You fill out a Medicare reconsideration request form with evidence supporting your argument. This might include information about past creditable medical or drug coverage.
If you feel you need an experienced advocate to help with this process, contact an attorney, your State Health Insurance Assistance Program (SHIP), or a Medicare aid organization. You'll need to fill out Medicare’s “Appointment of Representative” form in this case.
“Be prepared to provide a lot of evidence,” says Tatiana Fassieux, a training specialist with California Health Advocates.
That doesn’t mean just your own description of the situation. “For example, you may need to contact your former employer for a statement of continuous coverage,” she says.
And what are your chances of getting a penalty waived or lowered?
“It depends on the situation,” says Casey Schwarz, senior counsel of education and federal policy with the Medicare Rights Center.
“Arguments like: this penalty shouldn’t apply to me because it’s unfair; because I didn’t know about the enrollment; because I had no drug expenses so I actually saved you money -- tend not to be successful," she says.
"But appeals where you’re arguing the government made a mistake -- they didn’t get the information from your employer that your coverage was creditable, or they counted months wrong -- often have a better chance.”