How Do You Avoid Paying Medicare Late Enrollment Penalties?

If you don’t sign up for certain parts of Medicare when you first become eligible for them, you might be on the hook for a late enrollment penalty if you choose to enroll later on. 

Medicare Part A, Part B and Part D each have late enrollment penalties associated with them. Read on for an explanation of what these penalties are, how you can avoid them and when the best times are for you to sign up for Medicare.

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What Is the Medicare Part A Late Enrollment Penalty?

If you do not sign up for Medicare Part A (hospital insurance) before the end of your Medicare your Initial Enrollment Period (IEP), you may have to pay the Part A late enrollment fee if you choose to sign up in the future. 

Most people are automatically enrolled in Part A and are not required to pay a premium for it. This is because most eligible beneficiaries (or their spouse) worked and paid Medicare taxes for 40 quarters (10 years), which makes them eligible for premium-free Part A.

If you are not entitled to premium-free Part A, however, you must sign up for Medicare Part A during your Initial Enrollment Period. Your IEP begins three months before you turn 65 years old, includes the month of your birthday and continues for three more months, for a total of seven months.

The late enrollment penalty adds a 10% charge to the Part A premium that you would currently owe, and you must pay the higher premium for twice the number of years that you were eligible for Part A but did not enroll.

For example, if you were eligible for Part A but did not have it for three years, you would have to pay the Part A premium plus 10% for six years. After six years, your premium would return to the standard amount at that time. 

As mentioned above, beneficiaries who worked and paid Medicare taxes for 40 quarters (10 years) qualify for premium-free Part A. Those who accumulated between 30 and 39 quarters have to pay a Part A premium of $252 per month in 2020, and anyone who did not pay Medicare taxes for at least 30 quarters owes $458 per month for Part A. 

If you fail to sign up for Medicare Part A during your IEP, you will have to wait until the Medicare General Enrollment Period to sign up. This enrollment period lasts from January 1 to March 31 each year. If you sign up during this period, your Part A coverage would go into effect on July 1. 

What Is the Medicare Part B Late Enrollment Penalty?

The Medicare Part B (medical insurance) late enrollment penalty is a 10% additional cost that is added to your monthly Part B premium for each 12-month period that you were eligible for Part B but did not enroll. You must continue to pay this penalty for as long as you remain enrolled in Part B. 

If you qualify for premium-free Part A and are automatically enrolled, you will also be automatically enrolled in Medicare Part B. Part B is optional, and you will be given an opportunity to decline the coverage if you choose to do so. 

If you aren’t automatically enrolled in Medicare Part B or do not manually sign up during your IEP, you may be required to pay the late enrollment penalty should you sign up for Part B at a later date. 

For example, in 2020, the standard Part B premium is $144.60 per month (higher income earners may pay more).

• If you didn’t sign up for Part B when you were first eligible but then decided to sign up a year later in 2020, your Part B premium in 2020 would most likely be $159.06 per month (the 2020 standard Part B premium plus the 10% additional fee).
  
  
• If you had been eligible for Part B for 24 months but didn’t sign up until 2020, you would typically owe $173.52 per month (the standard Part B premium plus a 20% additional fee).

As with Part A, if you fail to sign up for Medicare Part B during your IEP, you will have to wait until the Medicare General Enrollment Period that runs from January 1 to March 31. Your coverage then would not begin until July 1. 

How Much Is the Medicare Part D Late Enrollment Penalty?

Medicare Part D provides Medicare coverage for prescription drugs. If you experience a period of 63 or more consecutive days without creditable drug coverage and your IEP has already passed, you may be required to pay the Part D late enrollment penalty if you decide to sign up for a Part D plan later on. 

The late enrollment penalty for Part D is 1% of the “national base beneficiary premium” multiplied by the number of months that you did not have creditable drug coverage. The national base beneficiary premium is $32.74 in 2020 and $33.06 in 2021. That means the late enrollment penalty is 32 cents per month in 2020 and 33 cents per month in 2021. That penalty is added onto your monthly premium for the Part D plan that you eventually join. 

For example, if you went two years without creditable drug coverage and then signed up for a Part D plan in 2021, you would be responsible for paying a late enrollment penalty of $7.92 per month on top of your plan premium (24 months x $0.33). 

Creditable drug coverage is drug coverage provided by a non-Medicare source such as an employer that pays at least as much as standard Medicare drug coverage would pay for covered prescriptions. Learn more about creditable drug coverage.

Is There a Medigap Late Enrollment Fee?

Medigap, or Medicare Supplement Insurance, helps pay for out-of-pocket Medicare costs such as deductibles, coinsurance, copays and more.

While there is no late enrollment penalty associated with Medigap plans, you could potentially end up owing more money down the road if you decide to enroll in a Medigap plan but don’t do so when you’re first eligible. 

• Some Medicare Supplement plans use an “age-issued” pricing structure that ties the cost of your monthly premium to the age you were when you first enrolled in the plan. For example, someone who enrolls in a policy at age 68 may pay a higher premium for their Medigap plan than someone who enrolls in the same plan at age 65.
  
  
• If you apply for a Medigap plan during your Medigap Open Enrollment Period (the 6-month period that starts once you’re at least 65 years old and enrolled in Medicare Part B), you have guaranteed issue rights. This means that the insurance company selling you the plan cannot use medical underwriting to determine your premium.
  
  But if you do not sign up for a Medigap plan when you are first eligible, an insurance company could potentially charge you more for your policy or deny you a policy altogether based on your health. There are certain other situations outside of your open enrollment period that may qualify you for a Medigap guaranteed issue right. 

Learn more about your Medicare enrollment options by reviewing our comprehensive Medicare Enrollment Guide.