Table of Contents:
- Part A Late Enrollment Penalty
- Part B Late Enrollment Penalty
- Part C Late Enrollment Penalty
- Part D Late Enrollment Penalty
If you want to save money over the course of your time as a Medicare beneficiary, it is generally advisable to enroll during your Initial Enrollment Period (IEP). Your IEP only occurs once and it lasts a total of 7 months, beginning on the first day of the month 3 months prior to your 65th birthday and extending through the 3 months following your birthday month. For example, if your birthday is in May, your IEP window begins on February 1st and ends after August 31st.
If you are covered by a group health plan through your employer or your spouse’s medium or large (>20 employees) employer the time you become eligible, it may not be necessary to enroll in Medicare during your IEP. The IRS sets the requirements for a group health plan, so please talk to a benefits manager at work if you believe you are covered under one. In all cases, you should confirm that you are covered and make an informed decision before delaying your Medicare enrollment. Keep in mind that being covered by your retirement benefits package does not necessarily allow you to postpone enrollment without being subject to Medicare’s late enrollment penalties.
Late Enrollment Penalties
If you or your spouse worked for 10 or more years and paid Medicare taxes, you qualify for premium-free Part A coverage. This is the case for most Medicare beneficiaries. If you qualify for premium-free Part A, it is wise to simply enroll at 65 when you first become eligible, as it costs you nothing and usually will operate as a secondary payer after your employer group health plan, which may save you a considerable amount of money.
If you have to purchase your Part A insurance after your IEP has expired, you may have to pay a late penalty of 10% of the plan’s premium (Medicare Part A’s monthly premium is $252 in 2021) for twice the number of years you didn’t sign up. If you sign up at age 70 (5 years late), for example, you will pay a 10% of premium penalty each year until you are 80 (for a total of 10 years).
While high-income enrollees pay more, Most Medicare beneficiaries pay the standard premium for Part B coverage costs ($148.50/month in 2021). The late penalty for Part B is 10% for each 12-month period you waited to sign up beyond your IEP. Unlike the penalty for Part A, this increase lasts for life — even if you wait one year to enroll. If you signed up one year late, you will pay an additional $14.86/month for your coverage in 2021. Don’t forget that Part B premiums tend to increase incrementally each year.
Technically, there is no penalty for late enrollment in Part C (also referred to as Medicare Advantage, or MA) plans. If, however, you are required to pay a penalty for your Original Medicare package (Part A, Part B, or both), this same penalty will be applied to the portions of the premium for your MA plan attributable to Part A and/or Part B each year. This means you cannot avoid your late enrollment penalty by purchasing MA coverage.
The penalty for Part D (or Prescription Drug) plans is determined by multiplying the national base beneficiary premium ($33.06 in 2021) by 1%, then multiplying this number by the number of months you were qualified for Medicare but did not have a Part D plan. For example, the penalty for an individual who went 5 years (or 60 months) without a Part D plan and chooses to join one in 2021 is determined by multiplying $0.33 (1% of $33.06) by 60 (number of months without a Part D plan) for a total of $19.80. This penalty is applied monthly. As a result, the individual in this example would pay $52.86/month for a plan that would typically cost $33.06/month. Being that Part D plans are optional, it is wise to decide early on if you would like to receive prescription drug coverage, so as to avoid paying the penalty later in life.
What makes this decision tricky is the fact that you may need different prescriptions at 75 than you needed at 65, if you age into Medicare eligibility. In this scenario, enrolling in a Part D plan for the first time at 75 might more than double the cost of your plan. Therefore, if you age in at 65, your decisions that year regarding signing up for Medicare plans will affect your costs both in the short term (for the year) and long term (potentially for the rest of your life, due to penalties). Make sure to consider both outlooks during your IEP.
Additional data adapted from the U.S. Department of Health and Human Services
Who is Eligible for Medicare?, 2020. The Department of Health and Human Services