Medicare Penalties – One of the things that we hate to see our clients have is Medicare penalties. They are completely avoidable, but only if you are informed about how you can get a penalty and take steps to create an enrollment timeline that will ensure you don’t get one.
Today, we’re going to review the two most common Medicare penalties. We’ll discuss how the penalties are calculated, how long you’ll pay them, and the best ways to avoid them.
Medicare Part B Penalty
You will incur a penalty for Part B if you postpone enrollment past the age of 65 without creditable coverage. What does that mean?
“Creditable” coverage is any health insurance that offers at least as much coverage as Medicare Parts A and B. Most of the time, this comes in the form of an employer-sponsored health plan. An easy rule of thumb is to remember that if your employer (or your spouse’s employer) has at least 20 employees, that coverage is creditable.
It’s not uncommon for people to continue working past the age of 65. If they have insurance through their employer, they may want to keep that plan, especially if the employer pays part or all of the premium. You can postpone Medicare enrollment and keep your employer’s plan if that plan is creditable. You will not incur any Medicare penalties if this applies to you.
On the other hand, if you delay enrollment past the age of 65 without creditable insurance, you’ll be penalized. While you can get a penalty for delaying Part A, it’s not common since most beneficiaries receive premium-free Part A. Let’s start by looking at the penalties for Part B.
You’ll start incurring the Part B penalty after you’ve delayed enrollment for 12 months. The initial penalty is 10% of the standard premium. It goes up 10% for each 12-month period you aren’t enrolled. This year (2022), the standard premium is $170.10.
So, if you delayed coverage for a full 36 months, your monthly penalty is as follows:
10% x $170.10 x 3 = $51.03
You’ll pay this penalty for as long as you’re enrolled in Medicare Part B. If that wasn’t bad enough, the standard premium typically increases each year, which means your penalty will also increase. If you pay IRMAA (Income-Related Monthly Adjustment Amount), the standard premium is still used to calculate the penalty.
Medicare Part D Penalty
The Part D penalty is probably the most common one we see. The reason is that many beneficiaries mistakenly think that if they don’t take prescriptions, they don’t need to enroll in Part D. It’s easy to see why someone would assume that, but unfortunately, you’ll still be penalized for not enrolling on time.
The same enrollment rules apply to Part D as they did for Part B. You can delay enrollment past the age of 65 as long as you have creditable coverage. However, it’s important to make sure your medical insurance and your prescription drug coverage are both creditable. There have been instances when someone had creditable coverage for Part B but not for Part D.
Creditable coverage for Part D meets the following guidelines:
- It pays at least 60% of prescription costs;
- It covers name-brand and generic drugs;
- It offers coverage at a variety of pharmacies; and
- It does not have an annual limit, or it has a low deductible
The Part D penalty is determined by how many months you went without coverage. It begins after you’ve gone 63 days without a prescription drug plan. The penalty is calculated by taking 1% of the national base beneficiary premium ($33.37 in 2022) and then multiplying it by the number of months you weren’t enrolled in Part D.
Let’s use the same example as we did earlier. If you went 36 months without coverage, your penalty would be as follows:
1% x $33.37 x 36 = $12.00 (rounded to the nearest tenth)
You’ll pay an additional $12 per month for your Part D plan. This amount is paid to Social Security, not your Part D carrier. Like the Part B penalty, you’ll pay this as long as you have drug coverage. In addition, the penalty applies even if your drug coverage is included in your Medicare Advantage (Part C) plan.
If you are someone who is fortunate enough not to be taking any prescriptions, it might seem unfair that you need to enroll (and pay for) Part D. The good news is that there are very low-cost Part D plans you can choose to avoid the penalty. Plus, you never know when your doctor may advise you to start taking medication.
If you become eligible for Extra Help, a program that offers assistance for drug costs, your Part D penalty will be waived.
How to Avoid Medicare Penalties
The best way to avoid Medicare penalties is to start planning for Medicare early. If you’re six months away from turning 65, it’s a great time to begin learning about Medicare and making big decisions. Even if you know you’ll continue working after your birthday, you should still seek advice from a Medicare advisor to make sure you won’t be penalized for delaying enrollment.
In addition, you can inquire about your current healthcare plan. Your insurance carrier will send you a notice that tells you if your coverage is creditable or not. If you haven’t seen that document, call your carrier or talk to your HR manager to get the answer.
If you are turning 65 soon, call The Medicare Help Desk and let us create a custom enrollment timeline for you. We’ll make sure you have the resources you need to make informed choices about your Medicare plans. When you’re ready to enroll, we’ll help you find the plans that meet your needs and submit your applications. Call today to speak with one of our Medicare advisors.