Medicare Penalties

“If you do not sign up for Medicare when you’re eligible, you may be subject to penalties.”

These words can be frightening if you’re not exactly sure what these penalties are or what they entail. 

Below is a breakdown of Medicare penalties and guidelines to ensure that you do not fall into them.

Part B penalty:

Part B covers doctor and outpatient services.  For most individuals, Part B has a monthly premium that’s based on income ($104.90 in 2014 for individuals making less than $85,000 single or $170,000 joint).  Source: medicare.gov

You become eligible for Part B when you turn 65 or when you have been disabled for 24 months.  If you do not sign up for Part B and do not have coverage through another health insurance plan, then you could be subject to penalties of 10% of your monthly premium for each year not enrolled. 

Let’s say you didn’t sign up for Part B and went without coverage for 2 years.  When you do decide to sign up for Part B, you’ll be penalized an additional 20% of your monthly premium each month permanently.

However, if you did have credible coverage under an employer plan, you will not be penalized if you are able to prove via a “letter of credible coverage” from your employer plan that you were covered during the time you were eligible for Part B and did not enroll.

Part D penalty:

Part D covers prescription drugs and can be bundled with Medicare Advantage (Part C) plans or be purchased as a standalone plan when choosing a Supplemental Plan.  The Part D penalty works similarly to the Part B penalty.

If you do not have prescription coverage and you do not sign up for Part D, you may be penalized 1% of the national average cost of a Part D plan ($32.42 in 2014) for every month you were not covered.  This is added onto your premium each month permanently when you do enroll (Source: medicare.gov)

However, if you’re able to show via a “letter of credible coverage” that you had adequate prescription coverage when not enrolled through Part D, then you will be exempt from the penalty.

There is no Penalty for not enrolling in Part A when you are first eligible.

Key Takeaway:

Enroll in Part B and Part D (Part D through either a standalone plan or an Advantage plan) when you’re first eligible for Medicare to avoid penalties unless you are covered by an employer plan that provides credible coverage. 

To check whether your current plan is credible coverage, please refer to your human resources department or health plan administrator.