This article is part of an ongoing series of informative Medicare guest posts written by MedicareFAQ. I'd suggest reading this article closely before you decide to put off signing up for some parts of Medicare coverage so you don't end up with an unexpected - and costly - penalty. - Carol
Medicare coverage choices can be confusing and there’s a ton of information, as well as misinformation, out there that add to the confusion.
What many new beneficiaries do not realize is that there are penalties that can lighten your wallet if you elect not to take certain coverages. Not to mention, if you do not pick up certain parts right away, you’ll have to pay a late enrollment penalty the rest of your life.
Additional Medicare Premium Costs
There are times when a beneficiary could find themselves paying more money in premiums for their Medicare coverage. This can come in the form of an IRMMA increase based on the amount of money the beneficiary makes, as well as penalties for not taking coverage when a beneficiary was first able to do so.
Medicare Part A Penalty
Most beneficiaries get Medicare Part A at no cost. This is because either the beneficiary or their spouse worked the required quarters to receive it at no cost. If you are in a situation in which you did not work the quarters and must pay for it, make sure you pick it up as soon as you are eligible in order to avoid the penalty
The late enrollment penalty is 10% for twice as many years as you have delayed it. If a beneficiary did not pick it up for 4 years after they were eligible, then upon enrolling they would have a 10% penalty for 8 years. The Part A costs for someone who does not work the proper amount of time is quite expensive for most people.
Medicare Part B Penalty
In most cases when a beneficiary turns 65 they become eligible for Medicare Parts A and B. If you elect not to take your Part B when you’re first eligible, you could be subject to a penalty of up to 10% for every 12 months you were eligible but did not enroll. If a beneficiary is still working, they may be able to avoid the Part B penalty.
If the beneficiary is planning to continue working they should consult their benefits coordinator at their employer to verify if they need to take Part B to remain on their current coverage. When it comes to employer-sponsored plans, it works one of two ways.
Some employers will require the beneficiary to elect their Medicare Part B to remain on the group coverage. However, some coverages are considered creditable and will allow the beneficiary to delay their Part B without being penalized.
Medicare Part D Penalty
When it comes to Medicare Part D drug coverage, not only is it the most confusing but for most beneficiaries, it can be the plan that ends up generating the largest penalty.
Medicare describes the Part D plans as optional and many beneficiaries, especially the ones taking little or no medications, tend to not take a Part D plan. Unfortunately, when they do need the coverage, they will have amassed large penalties that will never go away.
Enrollment into Part A After Delaying Coverage
If you delay Part A due to having creditable coverage, which is coverage at least as good as the minimum standards of Medicare, you can enroll whenever you leave or lose that creditable coverage. If you delayed it due to missing your Initial Enrollment Period, then you must wait until the General Enrollment Period.
The General Enrollment Period begins on January 1st of every year and continues until the 31st of March. Enrolling during this period would give you a start date of July 1st for your coverage.
Enrollment into Part B After Delaying Coverage
Like Part A, when you delay coverage due to having creditable coverage in place, once you leave or lose that coverage you can enroll immediately. You can also enroll up to 8 months after that coverage ends before accruing a penalty.
If you miss this window, you would have to wait until the General Enrollment Period to pick up your Part B coverage.
How Can a Beneficiary Avoid the Part D Penalty?
Avoiding the Part D penalty is simple; enroll into a Part D prescription drug plan as soon as you’re eligible or are losing creditable coverage. Like Part A and Part B, if a beneficiary misses their Initial Election Period and does not have creditable coverage for prescriptions, they will not be able to simply enroll into a Part D plan.
You can only pick up a Part D plan during the Annual Enrollment Period. The AEP runs from October 15th to December 7th each year. Plans enrolled into during the AEP will not start until January 1st of the following year.
Outside of this window, unless a beneficiary is leaving or losing creditable coverage, you cannot pick up a plan. You do have a 2-month window after losing or leaving creditable coverage to pick up a Part D plan without accruing a penalty.
Many beneficiaries look at the Part D plans and elect not to take them because they don’t fully understand the penalty. It seems like it would not be a big deal, but after several years they can be paying 1.5 to double the amount for Part D coverage.
When a beneficiary is getting ready to start Medicare, you should start 6 months or more out to educate yourself and sit with an agent that represents many plans and carriers in your area. Once you know your Part B effective date, you can start the process of enrolling into a Medicare Supplement Plan.
A Medicare Supplement Plan will cover the 20% that Part B doesn’t cover. Depending on your plan of choice, you could also get coverage for your Part B deductible, excess charges and emergency medical care while traveling outside the U.S.