There are several mistakes people new to Medicare can make that can seriously impact how much money they will have to pay for Medicare. Two of the most common and potentially most expensive involve not signing up for things on time. If you don’t sign up for Medicare Part B (medical benefits) or Medicare Part D (prescription drug) when you first become eligible you could be hit with significant penalties.
Medicare Part B Penalty
If you did not enroll in Medicare Part B when you first became eligible, you will most likely get hit with a financial penalty. Your Part B monthly premium monthly may increase 10% for each 12-month period you were eligible for Medicare Part B but didn’t enroll. Most people will then have to pay this penalty every month for as long as you have Medicare Part B. The longer you go without enrolling in Medicare Part B, the larger the penalty gets until you finally enroll. This is why it is so important to enroll when you first become eligible.
You won’t have to pay the late enrollment penalty if you don’t sign up when you are first eligible if you meet specific criteria that allow you to sign up later without a penalty. The most common reason is you are still working and are covered under your employer’s health insurance plan when you turn 65 and become eligible for Medicare. In this case, when you do retire, you will be eligible for a Special Enrollment Period and will not be penalized.
Medicare Part D penalty
The penalty for Medicare Part D works similarly to the Part B penalty. If you don’t sign up when you first become eligible, you will be assessed with a financial penalty. The Part D late enrollment penalty is permanently added to your Medicare Part D premium once you enroll. After your Initial Enrollment Period is over, you will be penalized for any period of 63 days or more in a row when you don’t have a Part D drug plan or other creditable prescription drug coverage (like coverage from an employer group health plan). In most cases, you will have to pay the Part D penalty for as long as you have Medicare drug coverage once you finally enroll.
The Part D penalty is calculated by multiplying 1% of the “national base beneficiary premium” ($32.74 in 2020, $33.06 in 2021) times the number of full, uncovered months you didn’t have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium. Every year the national base beneficiary premium changes, so the amount of your penalty may go up each year.
Avoiding Penalties
It’s important to understand your needs and choices when it comes to enrolling in Medicare. If you are unsure about when or how to enroll for Medicare, consult with a licensed Medicare specialist in your area. They can help you navigate all of your options and help ensure you have the right coverage at the right time to avoid penalties while staying covered.