Medicare is a vital resource for seniors. It’s a federal health insurance program primarily for people aged 65 and older. However, there are Medicare penalties that you will want to try and avoid.

Medicare Penalties and How to Avoid Them

Medicare Penalties to Avoid

It’s divided into several parts:

Part D (Prescription Drug Coverage) adds prescription drug coverage.

You can only sign up for Medicare at certain times, and if you miss the deadlines there are certain Medicare penalties you will have to pay. These penalties are not a one time late fee – some of them last for the duration of your coverage!

If you want to make the most of your retirement years and keep your healthcare costs as low as possible, it is crucial that you understand Medicare penalties and learn how to avoid them.

Opportunities to Enroll

If you are already receiving Social Security benefits as you approach 65, you are automatically enrolled in Medicare Part A and B.

But if you are still working and haven’t claimed Social Security yet, you will need to actively enroll as soon as you are eligible.

There are three opportunities to apply that you don’t want to miss! 

  1. Initial Enrollment Period (IEP): This is the first time you can sign up that starts three months before you turn 65, includes the month you turn 65, and ends three months after the month you turn 65.
  2. Special Enrollment Period (SEP): There are a few life events that may make you eligible for an SEP, such as losing other health coverage or moving back to the US from another country. The timing will depend on your life event, so contact a Medicare specialist if you have questions.
  3. General Enrollment Period (GEP): If you miss your IEP and don’t qualify for a SEP, you can sign up during the GEP between January 1 and March 31 each year, with coverage starting July 1 of the same year.

Part A Late Enrollment Medicare Penalty

The Medicare penalty for not enrolling on time is 10% of your monthly Part A premiums, and you’ll have to pay the additional penalty for twice the number of years you didn’t sign up!

So if your Part A premium is $500 per month, and you waited 2 years past your IEP to sign up, the 10% penalty would add an additional $50 per month for the next four years. At the end of that time the premium would revert back to the initial cost.

How To Avoid This Medicare Penalty:

  • Mark your calendar and enroll during your Initial Enrollment Period!
  • Continue to work and pay Medicare taxes so that you qualify for premium-free Part A.
  • Maintain health insurance through an employer. As long as the employer’s health plan is considered creditable coverage, you’ll have a Special Enrollment Period to sign up for Part A without penalty after the coverage ends.
  • If you have limited income and resources, see if you qualify for assistance programs like Medicaid, which might help pay for your Part A premiums and other Medicare costs.

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Part B Late Enrollment Medicare Penalty

The penalty is a 10% increase in your monthly Part B premium for each 12-month period you were eligible but didn’t enroll in Part B, and a higher premium for the duration of your plan.

The longer you wait, the more you’ll pay!

To illustrate, imagine you waited over 2 years to enroll in Part B. If the monthly premium is $170, the enrollment penalty would be 20% (10% for each full year you didn’t sign up), so the penalty is 20% of $170, which is $34. This permanently increases the monthly premium to $204.

How To Avoid This Medicare Penalty:

  • Enroll immediately as soon as you are eligible – there’s no reason to wait!
  • If you or your spouse are still working when you turn 65 and you have health insurance through an employer, make sure your insurance is considered “creditable coverage” before you delay enrollment.
  • Enroll in Medicare Part B during the last month of your employer coverage to make sure there are no gaps.
  • Keep in mind that COBRA and retiree health plans are not considered creditable coverage for delaying Medicare Part B, so plan to sign up for Part B during your IEP.
  • Stay informed about any changes in Medicare rules so you don’t accidentally miss a deadline.

Part D Late Enrollment Medicare Penalty

The Part D penalty is 1% of the current premium cost times the number of months you went without creditable prescription drug coverage. This penalty is rounded to the nearest $.10 and added to your monthly Part D premium for the remainder of your coverage.

Therefore, if you were eligible for Part D in June 2020, but you didn’t enroll until December 2022, and you didn’t have any other creditable drug coverage during this time, the lapse would be 30 months.

The national base beneficiary premium in 2023 was $32.74. If you went without coverage for 30 months, the penalty would be 30 x 1%, so 30% of $32.74, which is about $9.82. This would be added to your monthly Part D premium, permanently increasing your monthly costs to $42.86.

How to Avoid This Medicare Penalty:

  • Begin researching your Medicare Part D plan options ahead of time so there are no delays when it’s time for you to enroll.
  • If you have prescription drug coverage from another source, like an employer or union, make sure it’s considered “creditable” before declining Part D.
  • Make sure to enroll in Part D within 63 days after your creditable coverage ends.
  • See if you qualify for Extra Help.
  • Consider enrolling in a Medicare Advantage Plan that includes prescription drug coverage as this can also satisfy your Part D requirement.

Part C and Medicare Alternatives

Medicare Part C is optional, so there are no penalties if you decide not to enroll.

But Medicare alone isn’t always enough to cover your healthcare needs as you age, so you may want to get:

  • Medicare Advantage (Part C) are comprehensive plans that combine Medicare Parts A and B benefits and often include prescription drug coverage, vision, dental, and hearing. They often have lower premiums and set co-payments, and many people like the stability of these plans. But they usually operate within a network, so there is less flexibility in choosing healthcare providers.
  • Medi-Share 65+ is a health sharing plan that covers Medicare deductibles, co-pays, and coinsurance. It’s an alternative to traditional Medicare, often with lower monthly premiums. You can sign up at any time, and members are able to choose their own doctors. However, some medical needs cannot be shared, so it’s important to understand the limitations before joining.
  • Medicare Supplement (Medigap) Insurance are policies from private insurance companies that can help cover gaps in Medicare. They offer more predictable costs, and don’t have any network restrictions. The disadvantage is that they have higher monthly premiums, and don’t usually cover dental, vision, or prescription drugs. Plans vary in coverage and cost, but popular options include:
    • Plan G, which covers almost all Medicare costs except the Part B deductible
    • Plan N, similar to Plan G but excludes excess charges and requires copays for doctor visits

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What if I Have an Issue With an Enrollment Medicare Penalty?

It is possible to request a reconsideration.

You will need to submit the appropriate form within 60 days from the date on the letter telling you that you owe a late enrollment penalty. Include any proof that supports your case. A decision should be made within 90 days, and you will receive a letter letting you know if your penalty will be removed or not.

By law, the late enrollment penalty is part of the premium, so you need to pay it even if you don’t agree with it. You must also pay the penalty even if you’ve asked for a reconsideration while it is being reviewed.

Don’t Go It Alone!

The complexities of Medicare enrollment can be daunting, and the last thing you want is to be blindsided by penalties!

A Personal Benefits Manager can help you understand your options, deadlines, and guide you through the enrollment process so that you can get the best coverage at the most affordable price.

For Further Reading: The Less Expensive Medicare Supplement Alternative: Medi-Share 65+ | What’s New in Medicare for 2024? | Can I Change or Switch My Medigap Plan?

Lou Spatafore works for MediGap Advisors. As a PBM, his focus is to help people find the best Medicare plan for his clients. Read my full Bio.