Medicare Penalty Definition

What are Medicare Penalties?

Medicare penalties occur due to late enrollment in Medicare Part B, Part D, and in some circumstances, Part A. Penalties can be avoided by enrolling on time (during the Initial Enrollment PeriodThe Initial Enrollment Period is a seven-month period when new beneficiaries can enroll in Medicare without a penalty. Most people enroll in Medicare at age 65....) or when creditable coverageCreditable coverage refers to health insurance or prescription drug benefits that meet Medicare's minimum qualifications necessary to avoid a penalty.... from an employer is no longer available.¹

Key Takeaways

Medicare penalties increase monthly premiumsA premium is an amount that an insurance policyholder must pay for coverage. Premiums are typically paid on a monthly basis. In the federal Medicare program, there are four different types of premiums. ....
Medicare penalties occur if not enrolled in Medicare Part B and Part D when first eligible and not enrolled in creditable coverage through an employer or COBRA.
A Medicare Part A penalty may apply if not enrolled on time and the required 40 quarters were not worked.
The duration of a penalty depends on the type of coverage.
Medicare penalties are in place to encourage on-time enrollment.
In most cases, the Centers for Medicare & MedicaidMedicaid is a public health insurance program that provides health care coverage to low-income families and individuals in the United States.... Services will not waive a penalty without proof of

If a beneficiaryA person who has health care insurance through the Medicare or Medicaid programs.... misses their Medicare Initial Enrollment Period (IEP) when they turned age 65, they will likely face increased costs for their monthly premium. There are three different penalties for late enrollment. They concern Medicare Part A (hospital insurance), Medicare Part B (medical insurance), and Medicare Part DMedicare Part D plans are an option Medicare beneficiaries can use to get prescription drug coverage. Part D plans provide cost-sharing on covered medications in four different phases: deductible, initial coverage, coverage gap, and catastrophic. Each... (prescription drug coverage).²

What is the Late Penalty for Medicare Part A?

Medicare Part A is hospital insurance that provides coverage for inpatient careInpatient care refers to care provided in a hospital or other inpatient facility. Inpatients are admitted and stay at least one night depending on their condition.... services like post-surgical care and hospiceHospice is a special way of caring for people who are terminally ill. Hospice care involves a team-oriented approach that addresses the medical, physical, social, emotional, and spiritual needs of the patient.... care³. A penalty only applies to Part A when a beneficiary does not enroll on time and they have not worked the required 40 quarters to qualify for premium-free Medicare Part A. When the penalty applies, they will be required to pay a 10% penalty on top of the monthly premium for twice the number of years they were not enrolled⁴.

If a beneficiary or their spouse worked the required 40 quarters (10 years), they will have premium-free Part A when they enroll. So unless a beneficiary has worked for less than 10 years and not paid their Medicare taxes, they will likely not have to pay a premium for Part A hospital insurance. If they have paid their Medicare taxes for 30-39 quarters (7.5-9.75 years) they would get a reduced premium.⁵

If their employer’s health insurance is creditable, beneficiaries can delay enrollment until their first General Enrollment PeriodThe General Enrollment Period (GEP) allows beneficiaries to enroll in Medicare Part A and Part B from January 1 to March 31 if they missed their Initial Enrollment Period. Beneficiaries can also enroll in a... should they decide to not retire before 65. However, beneficiaries should discuss their employer coverage with a Medicare professional before they delay enrollment to make sure it is creditable to Medicare. Otherwise, they may be unfortunately surprised by an increased premium.⁴

What is the Late Penalty for Medicare Part B?

Medicare Part B is medical insurance that covers outpatient services such as acquiring medical equipment like wheelchairs and casts, as well as preventative health services like vaccinations⁶. If beneficiaries do not enroll in Part B during their IEP, their Part B premium will begin increasing by 10% for each full 12-month period they did not enroll⁷.

For example, beneficiaries that wait 24 months before enrolling in Part B, will have an extra 20% cost on top of their monthly premium. Unlike Part A’s penalty, Part B’s penalty will not go away over time. Beneficiaries will have to pay the Part B penalty for as long as they have their Part B plan⁷.

Beneficiaries that delay enrolling in Part B due to having creditable employer coverage have an eight-month Special Enrollment PeriodSpecial Enrollment Periods (SEPs) allow beneficiaries to change their Medicare Advantage and Part D plans due to a special circumstance. Common reasons for a SEP include moving, losing employer coverage, and Medicaid eligibility, to name... to enroll in Part B without penalty⁸. Additionally, Medicare taxes beneficiaries have paid while working only go towards a premium-free Part A plan⁵. Beneficiaries will still have to pay Part B’s monthly premium even if they have premium-free Part A⁹.

What is the Late Penalty for Medicare Part D?

Medicare Part D is a prescription drug coverage plan that helps beneficiaries pay for their prescription drugs¹⁰. If a beneficiary does not enroll in a Part D plan during their IEP, then Part D’s monthly premium will start increasing by 1% for each month after their IEP ends until they enroll².

Just like Part B’s penalty, the Part D penalty will not go away over time and beneficiaries will pay the penalty for as long as they have a Part D plan². If beneficiaries qualify for Social Security’s low-income subsidySocial Security's Low-Income Subsidy (LIS) program helps Medicare beneficiaries pay for their Medicare Part D prescription drugs by paying some of the costs. Also known as "Extra Help", beneficiaries who qualify for LIS receive premium... program (aka Extra Help), then they will not suffer a Part D penalty¹¹.

Beneficiaries that delay enrolling in Part D because they have creditable employer coverage can still enroll in Part D without penalty during a Special Enrollment Period. This Special Enrollment Period lasts for two months after the day their employer coverage ends.¹²

How do I Avoid the Medicare Penalties?

Apply for Medicare during the Initial Enrollment Period. This takes place for seven months during a beneficiary’s 65th year, as early as three months before their 65th birthday month and up to three months after they turn 65¹. Once beneficiaries miss this enrollment period it is gone forever barring Special Enrollment PeriodsEnrollment periods are designated time periods to enroll or disenroll from the various parts of Medicare. There are six Medicare enrollment periods.... for group health and employer coverage.

If a person wants to enroll in Medicare in the future, they will be subject to higher premium penalties and maybe even affect their Medicare eligibility for certain health insurance plans². These penalties exist to encourage everyone to sign up on time because the cost of Medicare’s monthly premiums would go up if only sick people signed up for a health plan.

Are There Penalties for Dropping Medicare?

There is no penalty per se for dropping Medicare after a beneficiary has gone through enrollment. However, the process can be difficult and may require them to see a Medicare or Social Security professional and go through some paperwork processing before their coverage ends¹³.

If they decide to re-enroll in Medicare, they will also be subjected to late enrollment penalties based on how long the beneficiary had dropped Medicare. Beneficiaries that want to re-enroll in Medicare will have to wait for the General Enrollment Period for Medicare Part A and Medicare Part B, or the Open Enrollment PeriodDuring the Medicare Open Enrollment Period, Medicare Advantage and Part D plan members can change, switch, or drop a plan they chose during the Annual Election Period. OEP starts on January 1 and ends on... for Medicare Part CMedicare Part C is Medicare's private health plan option. Also known as Medicare Advantage, Medicare Part C plans are a type of Medicare health plan offered by companies that contract with Medicare to provide all... and Medicare Part D¹⁴.

Citations

1
Medicare.gov, “When does Medicare coverage start?“, Accessed September 6, 2021
2
Medicare.gov, “What does Medicare cost?“, Accessed September 6, 2021
3
Medicare.gov, “What Part A covers“, Accessed September 24, 2021
4
Medicare.gov, “Part A late enrollment penalty“, Accessed September 24, 2021
5
Medicare.gov, “Part A costs“, Accessed September 24, 2021
6
Medicare.gov, “What Part B covers“, Accessed September 24, 2021
7
Medicare.gov, “Part B late enrollment penalty“, Accessed September 24, 2021
8
SSA.gov, “How to Apply for Medicare Part B During Your Special Enrollment Period“, Accessed September 24, 2021
9
Medicare.gov, “Part B costs“, Accessed September 24, 2021
10
Medicare.gov, “What Medicare Part D drug plans cover“, Accessed September 24, 2021
11
Medicare.gov, “Part D late enrollment penalty“, Accessed September 24, 2021
12
Medicare.gov, “Special circumstances (Special Enrollment Periods)“, Accessed September 24, 2021
13
Faq.ssa.gov, “How do I terminate my Medicare Part B (medical insurance)?“, Accessed September 6, 2021
14
Medicare.gov, “How to drop your Medicare drug plan“, Accessed September 6, 2021

Medicare Penalties

What are Medicare Penalties?

Key Takeaways

What is the Late Penalty for Medicare Part A?

What is the Late Penalty for Medicare Part B?

What is the Late Penalty for Medicare Part D?

How do I Avoid the Medicare Penalties?

Are There Penalties for Dropping Medicare?

Citations

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