Not all people who qualify for Medicare are ready to enroll, as they may have other creditable insurance coverage, usually from an employer, union, or other organization.
Medicare sometimes charges late enrollment penalties, but a person may avoid these costs if they have creditable coverage.
Different rules exist for creditable coverage for both healthcare insurance and prescription drug plans.
We may use a few terms in this piece that can be helpful to understand when selecting the best insurance plan:
- Deductible: This is an annual amount that a person must spend out of pocket within a certain time period before an insurer starts to fund their treatments.
- Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
- Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
Medicare coverage includes Part A, which provides inpatient coverage, Part B, which covers outpatient care, and the optional Part D prescription drug plan.
When looking into creditable coverage, a person may find that this generally refers to Part D, but it can also apply to parts A and B.
Parts A and B
Some people may choose to delay enrolling in Medicare parts A and B due to creditable coverage through their employer or other organization.
In these instances, a person may be eligible for a special enrollment period that runs for 8 months after their creditable coverage ends.
Medicare does not consider all coverage creditable, and this may be due to the employer’s size. If a person’s employer has fewer than 20 employees, they should sign up for Medicare parts A and B when they first become eligible.
If an organization’s healthcare insurance provides prescription drug coverage equal to that of Medicare, the government requires that they notify individuals that their drug coverage is creditable.
A Notice of Creditable Coverage is usually mailed to a person every September, and they should keep this as proof should they later apply for Medicare coverage.
For many individuals, their prescription drug coverage is through participation in a Medicare Part D plan, or a Medicare Advantage plan known as Part C, which includes prescription drug coverage.
Private insurance companies administer both Part D and Medicare Advantage plans.
Examples of organizations that provide creditable drug coverage may include:
- churches who may provide healthcare coverage to their retirees or current employees
- Department of Veterans Affairs-sponsored group health plans
- employers that sponsor group health plans
- government-sponsored insurance, including local, state, and federal governments
- Medicaid programs
- military coverage that supports group health plans, including TRICARE
- unions that sponsor group health plans
There are some rules that an organization’s plans have to follow for Medicare to consider a plan’s coverage “creditable.”
- cover as much as the standard Medicare prescription drug plan
- cover both generic and prescription medications
- not have a plan maximum or offer a low deductible
- cover at least 60% of a prescription drug’s cost
- offer sufficient pharmacy choices or provide a mail-order option
Not all employer-based health coverage is creditable.
Medicare considers employee group plans that exceed 20 employees as large group plans and usually creditable.
However, smaller group plans that have fewer than 20 employees may not offer creditable coverage.
For this reason, a person should check with their health insurance provider to ensure they have creditable coverage.
If an individual has creditable coverage and chooses not to sign up for Medicare parts A, B, and D, they do not have to inform or provide information to Medicare. However, they need to ensure they keep comprehensive records showing they had coverage to avoid paying late penalties.
If a person receives Social Security benefits, the Social Security Administration (SSA) may automatically enroll them with Medicare. If a person chooses not to continue with their Medicare plan, they should contact the SSA and send back their Medicare card if they received one in the mail.
There are various penalties that Medicare may charge a person for late enrollment.
Initial Enrollment Period
If a person does not sign up for Medicare parts A, B, or D during their Initial Enrollment Period (IEP), they may have to pay a penalty charge.
The IEP begins 3 months before a person turns 65 years old, continues throughout their birth month, and ends 3 months after, running for a total of 7 months.
Drug coverage penalty after 63 days
Medicare may charge a penalty if an individual goes for more than 63 days without creditable prescription drug coverage. This could occur if a person loses their employer coverage but does not sign up for a new plan.
The penalty depends on how long someone goes without prescription drug coverage. This amount is 1% of the national base beneficiary premium, which is $33.06 in 2021, by the number of months they did not have coverage.
There are several instances when Medicare may waive the Part D penalty.
- Extra Help: With this Medicare program, a person qualifies if they have a limited income. Extra Help assists with prescription drug-related costs such as premiums and deductibles.
- Creditable prescription drug coverage: To avoid the penalty with non-Medicare creditable coverage, a person can keep a record of their notice of creditable coverage. If a person enrolls with Medicare later, they can then provide Medicare with their documentation confirming creditable drug coverage.
Creditable coverage may allow a person to defer signing up for their Medicare benefits.
By keeping careful records of alternative health insurance, individuals may avoid potential late penalties.
A person’s insurer or the SSA can confirm whether or not a plan is considered creditable.