How to Avoid Penalties for Late Enrollment in Medicare

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Most seniors understand that Medicare provides various kinds of health insurance. Seniors who are eligible for Social Security benefits paid for Medicare coverage through their payroll taxes during their working years. For that reason, some Medicare benefits are free. Other benefits are available at a lower cost than private insurance companies would charge. 

Seniors who enroll in Medicare can take advantage of hospital insurance (Part A), medical insurance (Part B), and drug coverage (Part D). However, insurance coverage is not automatic. Seniors need to enroll in each coverage before they are insured by Medicare.

Seniors might have a variety of reasons to delay enrolling in Medicare. However, failing to enroll when the senior becomes eligible can have financial consequences. Seniors and their families should understand enrollment deadlines and the penalties seniors might face for late enrollment.

Initial Enrollment Period

Most people become eligible for Medicare when they turn 65. People with certain health conditions may be eligible before that date.

Seniors usually sign up for Medicare Parts A and B at the same time. They might instead opt for Medicare Part C, a private insurance alternative that combines the coverages of Parts A and B (and sometimes Part D).

Seniors have an initial six-month window to sign up for Parts A and B. The Initial Enrollment Period begins three months before the senior turns 65, but coverage will not begin until the first of the month in which the senior has his or her 65th birthday.

The Initial Enrollment period ends on the last day of the third month following the month in which the senior turns 65. If a senior enrolls during the month in which the senior turned 65, coverage begins the next month. If a senior enrolls in the following month, coverage begins two months after enrollment. If a senior enrolls two or three months after turning 65, coverage begins three months after enrollment. Coverage always begins on the first of the month.

Subject to certain exceptions, penalties apply to enrollment after the Initial Enrollment Period expires. Those penalties and their exceptions depend on the coverage that the senior elects.

Medicare Part A

A senior whose work history entitles them to Social Security benefits will usually be qualified to receive Part A coverage at no cost. Seniors covered by Part A must pay a deductible each year before Medicare begins to cover hospital bills. Seniors are also subject to copayments for lengthy inpatient hospitalization.

Seniors who qualify for free Part A coverage can enroll at any time without facing a late enrollment penalty. Since seniors pay no monthly premium, there is no advantage in delaying enrollment.

Seniors whose work history does not make them eligible for free Part A coverage must pay a premium if they want to be covered. Late enrollment increases that premium by 10%. The increase remains in effect for twice as many years as the senior delayed enrollment. For example, if the senior did not enroll for the first three years after becoming eligible, the senior pays a 10% higher premium for six years after enrolling.

Medicare Part B

Seniors who enroll in Part B coverage must pay a monthly premium. That premium increases when seniors fail to enroll during the Initial Enrollment Period.

The late enrollment penalty increases premiums by 10% during each 12-month period during which an eligible senior did not enroll. For example, a senior who enrolls during the fourth 12-month period after the Initial Enrollment Period expires would pay 40% more than the premium that would be charged if the senior had not delayed enrollment. The senior will continue paying the increased premium for the rest of her life or until she discontinues Medicare Part B coverage.

An exception to the late enrollment penalty applies to seniors who do not need Part B coverage because they are covered by private health insurance. Keep in mind, however, that some employer-provided insurance plans require seniors to sign up for Medicare Parts A and B coverage during the Initial Enrollment Period. The insurance plan might not cover medical expenses that could have been covered by Medicare.

Health insurance plans offered by employers of 20 or more employees cannot usually require employees to sign up for Medicare. Employees who are covered by one of those plans have 8 months to sign up for Medicare without a penalty after they stop working. The increased premium penalty applies if the senior does not enroll within that 8-month period.

Medicare Part D

Seniors who have reached the age of 65 can obtain prescription drug coverage through a private insurance plan, a Medicare Advantage plan with drug coverage, or Medicare Part D. Seniors have 63 days after their Initial Enrollment Period expires to enroll in Part D or a Medicare Advantage plan without a penalty. However, if seniors have private insurance with drug coverage that is equivalent to Part D, they have 63 days after that insurance coverage ends to enroll without a penalty.

The penalty for late enrollment in Part D is 1% of the average premium cost of a Part D plan for each month the senior did not have prescription drug coverage. A senior who waits 20 months after the 63-day enrollment period ends to sign up for Part D will pay 20% of the average cost of drug coverage on top of the Part D premium. 

Seniors Living Abroad

Medicare does not usually provide coverage to seniors who are living in another country. Seniors must generally reside in the US to sign up for Medicare. For that reason, the Initial Enrollment Period does not apply if the senior was living in another country on the senior’s 65th birthday. 

Seniors living abroad who return to the US after turning 65 can sign up for Medicare without a penalty during a Special Enrollment Period that begins on the day the senior returns to the US and ends three months later. A senior who does not sign up for Medicare during the Special Enrollment Period is subject to the same penalties that apply to seniors in the US who do not sign up during the Initial Enrollment Period.

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