Avoiding Medicare Penalties for Late Enrollment
Late enrollment penalties can drive your premiums higher. But you can avoid all of that by planning ahead.
Every year, millions of Americans enjoy comprehensive health coverage through Medicare. But some pay more for it than others. The reason? They waited too long to enroll. Now they’re paying penalties on top of their premiums.
With a little foresight and planning, you don’t have to make that mistake. You can get affordable coverage without penalties if you figure out what you need ahead of time. The secret is to start planning before you turn 65. That way, you’ll know what you need when the time comes.
Understanding the penalties
Medicare is divided into five separate programs – or parts – listed below. Each part provides a different kind of coverage and comes with penalties for late enrollment. You can decide not to join when you’re first eligible. But this means you’ll pay more if you change your mind later.
Medicare Part A
Part A provides coverage for hospitalization, including stays in skilled nursing and hospice care facilities. For many people, enrollment is free and happens automatically.
If you or your spouse (or former spouse if you were married at least 10 years before you divorced) haven’t paid social security taxes for at least 40 quarters, you’ll be billed a monthly premium for Part A. People in this boat often delay enrollment to save money. But this can lead to higher premiums later on. Generally, it’s a 10 percent increase that can last several years. There is one exception, though. You won’t be penalized if you still had insurance through your employer or your spouse’s.
Part B provides basic health insurance for retirees. Premiums run just under $100 a month, though, which is why many people put it off. That’s okay, as long as you have other coverage. Once that coverage runs out, you need to switch over to Part B as soon as you can.
That’s because there’s an 8-month grace period, after which penalties begin to accrue. In this case, it’s a 10-percent increase for each 12-month period you passed up Part B. Unlike Part A, though, the penalty is permanent. You’ll have to pay it as long as you have Medicare.
Part C and Medigap plans
There aren’t any late fees for either Medigap or Part C (Medicare Advantage) plans. But you still need to be careful. These plans provide supplemental benefits not covered by Parts A or B. If you sign up when you first turn 65, you can’t be turned away for health reasons. But put it off and you could have difficulty finding coverage later on, especially if you have a pre-existing condition or a history of health problems.
Part D is Medicare’s prescription drug plan. You sign up for it during your initial enrollment period, a few months before you turn 65. You can delay as long as you like, but it’s only a good idea if you have another form of prescription coverage. Otherwise, you’ll have to pay one percent more for each month you delayed. Putting it off a year could mean a twelve-percent premium hike. And like the penalties for Part B, this one is permanent.
Which parts of Medicare you keep or decline is entirely up to you. There are, after all, other ways to pay for health care in retirement. Depending on your state of health and your financial situation, you may only want to keep Part A. But do your research and speak with an advisor at 1-800-MEDICARE if you’re not sure.
With just a little planning you can have the most affordable coverage possible without penalties. That’s what Medicare was meant to give you in the first place.