Medicare Penalty - Avoiding Extra Costs Of Parts A & B
Late fees and penalties seem to be ingrained in our everyday life. Just look at your monthly expenses, like rent and credit card bills, if you don’t pay before the deadline you can expect your costs to jump up. However frustrating it is, penalties are a way for companies and programs to make sure they don’t eat up the costs for members not making their payments on time.
As you could probably guess from the title, Medicare is no exception to the rule. While not everyone will be subject to a Medicare penalty, late enrollment could end up costing you. To make sure you don’t get stuck paying a penalty for Medicare Parts A and B, here’s what you need to know.
What Are Medicare Penalties?
A Medicare penalty occurs when a person, at the time of eligibility, does not enroll within the required timeframe under Medicare regulations. Such failure will result in a Part A penalty only if you do not qualify for a premium-free Part A. Part B penalty will occur automatically since premiums are always charged on Part B.
Age 65 is the crucial deadline for eligibility in the Medicare program unless certain penalty exceptions exist. This is key to avoiding a Medicare penalty. There is a newer Medicare penalty waiver that Medicare initiated, due to confusion with the Affordable Care Act and marketplace insurance programs.
When Do You Have to Pay Extra?
At age 65, your Medicare eligibility commences. Ideally, one should initiate the sign-up process at least 3 months prior to age 65 to avoid a Medicare penalty. Failure to sign-up for Medicare Part B, during this one-time initial enrollment period, results in an extra surcharge on the Medicare Part B premium.
If you decide to enroll later on in time, you will pay extra for the Medicare Part B premium at that time of late enrollment. Usually, Medicare Part A is premium free, so a penalty may not exist later on.
Medicare Part A Penalty
If one never worked or did not reach the 10-year threshold for deduction of the Medicare payroll tax on earnings, then Medicare Part A is not premium-free. Failing to enroll during the initial enrollment period for age 65 would result in a penalty for the Part A premium when you do decide to enroll.
The Part A penalty consists of a 10% annual premium increase. For every 12-months or less time-frame one failed to enroll while eligible to do so, the penalty will last double the 12- month window time frame. For example, signing up 11 months late (11 months is considered the same as 12 months) after eligibility, would mean you will pay the penalty for double the time you were tardy to enroll. The penalty would last for 24 months or 2 years on your Part A premium.
Medicare Part B Penalty
Unfortunately, the Medicare Part B penalty will last a lifetime while you are enrolled. It is critical one joins the program when eligible or stiff penalties will exist. For most people without extra-high income, the penalty is 10% for up to a 12-month period you failed to sign up for Medicare Part B.
For example, if you signed up 3 years after your eligibility for the program, your annual premium penalty is 30% per person (calculated as 3 years x 10%). If married, this would mean both your spouse and you would each pay 30% extra above the normal Part B premium for the year.
Late Enrollment Exceptions
There exist penalty exceptions if you do not enroll for Medicare Part A and B at the eligibility age of 65 years old. This situation would occur if you or your spouse has current employment with an employer who supplies you with credible group health coverage and there are at least 20 employees working there.
Credible health coverage means the policy benefits are equal or greater than what Medicare supplies to Medicare enrollees. Marketplace health insurance policies, Cobra and Health Savings Accounts will not prevent you from incurring a penalty. The penalty exceptions are a very confusing issue due to the Affordable Care Act being created well after the Medicare program.
Is There a Grace Period?
Yes, Medicare does give you a time-frame to enroll around your 65th birthday month. This is called the initial enrollment period. There is a 7-month window which consists of 3 months prior and 3 months after your birthday month of 65 years old. It is recommended to enroll during the 3 months preceding your birthday month so you are guaranteed the earliest possible eligibility date on the first day of your birthday month.
If you had a penalty exception and you or your spouse have left employment that carried your group health coverage, then the “special enrollment period” kicks in that give you 8 months to enroll in Medicare. This 8-month window begins 30 days after termination of employment and the associated group health policy.
If the enrollment deadline has been missed, there is a general enrollment period every year from January 1st to March 31st. However, Medicare will not begin until July 1st of that year you enroll.
Medicare Penalty Waiver
In the year 2017, Medicare realized that a lot of confusion resulted from the Affordable Care Act and marketplace health insurance programs. People were finding better deals with the marketplace and kept these policies think they qualified for the penalty exception similar to group health coverage with current employment. This is not the case and many suffered stiff premium penalties on Part B premiums. Due to lack of proper education by the government, Medicare allowed people to apply for a Medicare penalty waiver by September 30th in 2017.