Medicare has several time windows during which a person can enroll in or change their insurance plan. When a person signs up outside of these timeframes, Medicare may apply a late enrollment penalty.
The Centers for Medicare & Medicaid Services aim to prevent people from enrolling late and not having health coverage when they need it.
Medicare often applies its late enrollment fees in the form of an increased monthly premium.
This article details some late enrollment penalties for Medicare and gives examples of how they work.
Medicare introduced late enrollment penalties to deter people from signing up late. It adds the penalty to a person’s monthly premium. However, it calculates the penalty in a different way for each part of Medicare.
If a person experiences a catastrophic health event or a change in a known medical condition but does not have Medicare, they will not have health insurance to help pay for these costs.
For this reason, Medicare requires a person to sign up at specific times, which usually span a 3-month period either side of their 65th birthday.
There are also Special Enrollment Periods (SEPs) for people who move to a different area or lose their employer-based insurance coverage.
Penalties vary based on the length of time for which a person did not have coverage and the part for which they did not sign up in time.
Medicare divides its coverage into parts. Each part is responsible for a different aspect of healthcare coverage:
- Part A covers hospital treatment.
- Part B accounts for outpatient medical care.
- Part D pays for prescription medications.
Medicare Part C is also available, through which a private insurer offers bundled coverage that includes parts A and B.
Medicare levies late enrollment penalties for Part C based on the rules for parts A and B.
If a person or their spouse worked for 40 quarters, or 10 years, paying Medicare taxes, they will receive Part A without paying a monthly premium.
However, some may not qualify for a $0 Part A premium and need to pay a reduced or complete portion of the monthly premium costs. If a person enrolls after their Initial Enrollment Period, they are subject to a late enrollment penalty.
For the Part A late enrollment penalty, Medicare increases the premium by 10% for a period twice the number of years for which a person did not have Medicare Part A while they were eligible.
- For example, if a person did not sign up for Medicare Part A for 3 years, and paid the higher premium, they will pay 10% more.
- With the increase of 10%, or $47.10, this would come to a total of $518.10. A person would be responsible for paying the extra 10% for a total of 6 years.
- Their premium would return to the standard Medicare Part A pricing for the 7th year.
If a person has other creditable insurance coverage for doctor’s visits and medical costs, such as employer insurance, they do not need to have Part B.
However, if a person does not notify Medicare or sign up in time, they will pay a late enrollment penalty when they do. The monthly premium will increase by 10% for each 12-month time period.
There is a SEP of 3 months after a person retires if their employer or spouse’s employer has more than 20 employees. In this case, they may not have to pay a penalty for late enrollment. A person should contact their benefits administrator for more information.
- For example, if a person reached 65 years of age in January 2015 but enrolled with Medicare in January 2020, they are 5 years late.
- Adding 10% for each late year would make the premium 50% higher. The penalty Medicare adds to the premium would therefore come to $72.30.
- The 2021 Medicare Part B premium is $148.50. A person would have to pay $220.80 for their monthly premium, which is $148.50 plus $72.30.
- The monthly late enrollment fee will apply on a lifelong basis or until a person leaves their Part B plan.
The United States government requires all people aged 65 years and over to have some form of creditable prescription drug coverage.
This can be through a private insurance plan, a Medicare Advantage plan with drug coverage, or Medicare Part D.
A person may have to pay a late enrollment penalty if they go longer than 63 days without having prescription drug coverage of any kind.
Medicare calculates this late enrollment penalty by counting the number of months for which a person did not have prescription drug coverage. It multiplies the number of months by 1%.
Next, it multiplies this percentage with the average premium cost of a Part D plan.
Although other parts of Medicare have a standard premium, private companies administer Part D, so premiums may vary. For this reason, Medicare uses the “average base beneficiary premium” to calculate its penalty fee.
- For example, if a person goes 6 months without prescription drug coverage, Medicare charges six times the 1% penalty fee.
- Therefore, when they enroll, they must pay an extra 6% of the average base beneficiary premium, which is $33.06 in 2021.
- Six percent of $33.06 equals $1.984. Rounded up to the nearest $0.10, Medicare would add a total of $2 to their monthly premium.
Medicare recalculates this penalty every year based on the average Part D premium. This means that the premium could increase or go down, depending on the next year’s number.
When a person joins a Medicare drug plan, the plan should inform them of the penalty. A person will have to pay this penalty for as long as they have Medicare drug coverage.
Medicare has several deadlines and enrollment periods. Enrolling in each part in a timely fashion can help a person cut down on late enrollment penalties and keep the overall cost of a plan down.
Some examples of when late enrollment penalties apply include:
- Not enrolling during the Initial Enrollment Period: A person can enroll during a 7-month period that starts 3 months before their 65th birthday, continues through the month of their birthday, and ends 3 months afterward.
- Not enrolling within 8 months of the elapsed employment insurance plan: Medicare provides an 8-month SEP to those who lose their employer-based insurance. After this time, a person may have to pay a late enrollment penalty.
- Going 63 days without prescription drug coverage: A person should not be without prescription drug coverage for longer than 63 days. If they do, a penalty may apply.
There are several exceptions to the late enrollment penalty. If a person does not see a potential circumstance listed below, they should call Medicare on 800-MEDICARE to find out more.
A person may sign up late for Medicare Part A but have limited resources and need help paying penalties or the monthly premium. If this is the case, they can contact their nearest State Health Insurance Assistance Program (SHIP) center.
They can visit this website to locate their state’s information.
Many people can sign up for Medicare Part B outside of the typical enrollment periods if they qualify for a SEP.
For example, this applies if a person loses their employer-based coverage, or if they are acting as a volunteer serving in a foreign country.
If a person needs assistance with appealing a late enrollment penalty for Part B or finding out if they qualify for a SEP, they can call their SHIP center.
A person can find their state’s contact information by visiting this website.
A person does not have to pay a Part D late enrollment penalty if they qualify for Extra Help. This is a Medicare program that helps those with a limited income or limited resources.
If a person feels that they are being charged a late enrollment penalty in error, they can appeal for reconsideration from their prescription drug plan.
A person must complete this appeal within 60 days of receiving notification of their late enrollment penalty.
The private insurer administering the person’s Medicare prescription drug plan will usually decide within 90 days whether or not they qualify for reconsideration.
Until the insurer makes a decision, the enrollee must keep paying their late enrollment penalty and premium to keep their prescription drug coverage.
Paying careful attention to Medicare’s enrollment periods can prevent penalties that increase a policy’s cost on a lifelong basis.
Maintaining adequate healthcare coverage is essential in case a person needs emergency treatment or long-term care. Both can lead to mounting costs.
Applying for a Medicare plan within its enrollment windows can support coverage while keeping monthly expenses to a minimum.
If a person has questions about a late enrollment penalty or wishes to appeal a decision, they can contact their health plan administrator, Medicare, or their nearest SHIP center.