Medicare Penalties

No one likes penalties.  What’s worse is penalties and fees that don’t go away.  Read on to learn how to avoid being penalized with Medicare. 

Part A Penalty

The Part-A penalty is the least common Medicare penalty, but you still need to know how to avoid it.  

Most people qualify for premium-free Medicare part-A.  If you have paid FICA taxes for at least 40 quarters or ten years (or your spouse has), then you will not pay a premium for your Part-A.

In 2024, the premium for Part-A is $505 per month.

If you do not qualify for a premium-free Part-A and choose to postpone Medicare enrollment after you are first eligible, you will pay a Part-A late enrollment penalty as soon as you do enroll.  This penalty can be an additional 10% or your monthly premium.  If we use the 2024 premium, this means that your monthly payment of be $556.50 instead of the normal $505, an extra $607.20 per year.  This higher premium must be paid for twice the number of years you delayed enrollment.

For example,. if you delayed enrollment for 5 years, you would pay the penalty for ten years.

How to Avoid a Part-A Penalty

Again, the Part-A late enrollment penalty only applies if you do not qualify for premium-free Part-A Medicare AND you choose to postpone your enrollment beyond when you are first eligible to enroll in Medicare.

If you do not qualify for premium-free Part-A medicare, and you have creditable coverage (for more information on creditable coverage, look here), it may be a good idea to postpone your enrollment, especially if you are receiving creditable insurance from a job that you are also earning quarters that may allow you to earn premium-free Part-A.

There are some Medicare Savings Programs that pay your Part-A.  If you qualify for one of these programs or for Medicaid, you will not have to pay the Part-A penalty.

Part-B Penalty

The Part-B penalty is a bit more common that the Part-A penalty.  Similar to the Part-A penalty, is only applies to individuals who delay their Part-B enrollment without having creditable coverage for 12 months or more.

For those that do not choose to apply for Part-B when they are first eligible or when applying without at SEP (learn more about what an SEP is and other enrollment periods here), you will not be able to apply under the General Enrollment Period (GEP) from January 1 through March 31 each year.  If you do enroll during the GEP, your Part-B coverage will begin on either February 1, March 1, or April 1.

The Part-B penalty is an additional 10% of your monthly premium for each of the 12-month periods that you did not enroll in Part-B AND did not have creditable coverage.  In 2024, the standard Part-B premium is $174.70.  If you delayed your Part-B and did not have creditable coverage for 12 months, you would pay $192.17 per month (rounded down to the nearest $0.10).

Additionally, Part-B penalties stay with you for life.  If you are delaying your Part-B coverage because you have other insurance, make sure it is creditable.

Part-D Penalty

The Part-D penalty is the most common Medicare penalty, and it isn’t hard to understand why.  When a lot of people transition on the Medicare if they aren’t taking prescriptions, they wonder ‘why would I need to enroll in a Part-D plan?’  The answer is that you need to enroll so that you won’t be penalized.

Like the Part A & B penalty, you will incur this penalty if you do not sign up a soon as you are eligible unless you have other creditable coverage.  The creditable coverage for Part-D is slightly different than with Part-B, and you can read more about it here.  Penalties happen when you go without creditable coverage for more than 63 days past the end of your IEP.  

Like the Part-B penalty, the Part-D penalty last for as long as you have Medicare drug coverage.  The amount of penalty that you will pay is 1% of the national average premium amount for each month that you are late.  The average premium fluctuates from year to year, so your penalty will fluctuate as well.

For example, if your IEP ends in August 30 and your new Part D plan starts January 1, you would be 4 months late signing up for your Part D.  This would result in 4% of the national average premium amount being added onto your monthly Part-D premium ($1.39) per month for as long as you continue to have a Part-D plan.

The Part-D penalty does not just apply to stand alone Part-D plans.  It also applies to those enrolled Medicare Advantage plans that have prescription drug coverage (Part-C MAPD plans).  The Part-D late enrollment penalty is considered part of the plans monthly premium, and like the Part-A & Part-B penalty, not paying the penalty along with the premium may result in being disenrolled from your plan and losing coverage.

For those that qualify for Extra Help or have full Medicaid prescription drug coverage, the Part-D penalty is generally waived.

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