How Does the Medicare Penalty for Late Enrollment Work?

Most people get a notice about signing up for Medicare when they first qualify for that coverage at 65. But what you may not know is that the government levies a penalty for missing your initial sign-up window. We’ll explain how to avoid this Medicare penalty, how much it could cost you and more below.

How Much Can the Medicare Penalty Cost You?

Almost everyone signs up for Medicare Part A coverage in the months before or right around their 65^th birthday. Anyone who works at least 10 years while paying Medicare payroll taxes doesn’t pay a monthly premium for this coverage. However, some people do pay for Medicare Part A (hospital insurance), and almost everyone pays for Part B (medical insurance). Failing to enroll in Part A or Part B during your initial enrollment period (IEP) can trigger a Medicare penalty. Here’s how that late-enrollment Medicare penalty works:

• You’ll pay 10% higher premiums for each 12-month period you wait to sign up for Parts A, B, or D
• This Medicare penalty adds up year-over-year, so the longer you wait, the more it costs you
• Your Medicare penalty increase is permanent for as long as you have active Part A, B, or D insurance coverage

For example: Let’s say you signed up for Medicare Part A on time but didn’t enroll in Part B coverage. This is because you don’t have enough money to cover Part B premiums during your IEP. One year later, you inherit some money and can easily pay for monthly Part B coverage. For this reason, you’ll pay 10% higher Medicare Part B premiums each month for the rest of your life.

Special Enrollment Periods (SEP) Can Help You Avoid Medicare Penalties

Lots of people aren’t ready to stop working just because they turn 65 years old. If you have employer-provided health insurance at 65, will you have to pay a Medicare penalty? The federal government has special enrollment periods, or SEPs, that apply specifically to people in your situation. And these SEPs can also help people with existing healthcare coverage through a spouse or family member’s insurance. Here’s how to work these SEPs to your advantage and avoid paying any Medicare penalty fees:

• People with health insurance through employer-provided plans – Anytime you still have active coverage counts as your SEP. If you work until you retire at age 70, your SEP is anytime between your 65^th birthday and the day your employer-provided coverage ends.
• If you lose your employer–provided healthcare coverage without warning – Your SEP ends eight months after your termination date. In other words, you won’t pay a Medicare penalty for late enrollment until your ninth month without health insurance coverage.

Is There A Late-Enrollment Penalty for Medicare Part D?

This question’s trickier to answer since the government calculates this Medicare penalty in a totally different way. (Medicare Part D coverage is a separate plan that covers your retail prescription drug costs.) If you miss your Part D IEP, you’ll pay a Medicare penalty for every month you go without coverage. That penalty equals 1% of the “national base beneficiary premium” for every month you go without coverage before signing up. That amount for 2021 is $33.06 = $.33 per month in Medicare penalty fees until you enroll in Part D. However, if any of the following apply to you, then you won’t ever pay a Medicare late-enrollment penalty:

• You don’t enroll on time because you have “creditable prescription drug coverage” through an existing plan. This typically includes employer-provided insurance, TRICARE or VA healthcare for veterans, Indian Health Service plans and union-provided plans. You must tell Medicare about any “creditable coverage” that exempts you from paying this late-enrollment penalty.
• You qualify for Medicare Extra Help based on your financial status. Not everyone can afford to pay Medicare premiums, coinsurance, and deductible costs. Social Security disability recipients that qualify for Medicare 24 months after benefits begin are just one example.
• You never sign up for Medicare Part D coverage, so the late-enrollment penalty doesn’t affect you. We urge people not to assume this option will work as a permanent solution to avoid paying any penalties. Like the other Medicare late-enrollment penalties, this 1% cost adds up over time. If you go 10 years without Medicare Part D before signing up, you’ll pay $40 more each month for life.