If you delay enrollment in Medicare Part B AND don't have creditable coverage elsewhere, you may owe late enrollment penalties for the entire time you have Medicare.
Medicare is America's health insurance program for citizens age 65 and older, as well as those who qualify for medical reasons before turning 65. The Medicare program levies late penalties against beneficiaries who delayed signing up when they turned 65 without qualifying for a Special Enrollment Period (SEP).
Some of these penalties, like the one for Part B, you'll owe for the entire time you have Medicare. But not everyone who delays Medicare enrollment has to pay a late fee. This article explains the Part B late penalty and how to avoid it.
What is Medicare Part B?
Original Medicare has two parts:
- Medicare Part A provides coverage for inpatient care that you receive in a hospital or skilled nursing facility (SNF).
- Medicare Part B covers outpatient services like doctor visits, lab work, mental health care, and durable medical equipment (DME). It may also cover some medications administered in a healthcare setting, such as injections during a hospital stay and the flu shot.
You'll notice neither Part A nor Part B include prescription drug coverage. This is available through Medicare Part D. You get Part D coverage by joining either a standalone prescription drug plan (PDP) or a Medicare Advantage Prescription Drug plan (MA-PD). Medicare Advantage plans are available through Medicare Part C and combine your Parts A and B benefits into a single health insurance policy.
Both Medicare Advantage and Part D plans are provided by private insurance companies, working under guidelines set by the Centers for Medicare & Medicaid Services (CMS).
When can you sign up for Medicare Part B?
In most cases, Medicare eligibility begins when you turn 65. Around 15 percent of Medicare beneficiaries qualified before turning 65 due to one of the following:
- Collect Social Security disability benefits for 24 months
- Have amyotrophic lateral sclerosis (ALS, also known as Lou Gehrig's disease)
- Have end-stage renal disease (ESRD)
For most people, the best time to sign up for Medicare is during their Initial Enrollment Period (IEP). This 7-month period begins 3 months before your 65th birthday and ends 3 months after your birth month. So, if you turn 65 on June 12, your IEP begins on March 1 and ends on September 30. The exception is if your birthday falls on the first of the month, which moves those enrollment dates ahead by one month. A June 1 birthday gives you an IEP that starts on February 1 and ends August 31.
You may delay Medicare enrollment without penalty if you qualify for a Special Enrollment Period. We cover examples related directly to avoiding the Part B penalty below. But it basically comes down to already having health insurance through an employer-sponsored group health plan when you turn 65.
There are many different types of SEPs. Medicare.gov provides a complete list of qualifying special circumstances here.
Who is automatically enrolled in Medicare?
Medicare enrollment no longer occurs automatically when you turn 65 UNLESS you began collecting Railroad Retirement Board (RRB) or Social Security retirement benefits at least 4 months before your 65th birthday. Everyone else must choose to sign up for Medicare. You do this through the Social Security Administration (SSA) here.
How much is the Medicare Part B late enrollment penalty?
The Medicare Part B late enrollment penalty is levied against Medicare beneficiaries who delayed Part B enrollment for at least 12 months AND who do not qualify for an SEP. It is calculated as a percentage of the Part B monthly premium.
You may owe the late fee if at least 12 months pass from when you could have had Medicare Part B to when you actually have coverage. The fee is 10 percent of your Medicare Part B premium for every 12-month period you went without coverage. So, 1 year equals 10 percent, 2 years equals 20 percent, and so on. You owe the penalty for the entire time you have Medicare.
The standard Part B premium is $164.90 in 2023. To calculate the penalty, multiply the standard premium by 10 percent. Then, multiply the product by the number of full 12-month periods you went without Part B coverage. (For example, if you go 23 months without Part B, it only counts as one full 12-month period.)
($164.90 X 10%) X (Number of Years) = Medicare Part B Late Penalty
This amount will change every year that the Part B premium changes.
Most Medicare beneficiaries – over 95 percent – pay the standard premium. However, if your modified adjusted gross income (MAGI) is over $97,000 per year (filing an individual tax return) or $194,000 (married filing jointly), you may owe the Income-Related Monthly Adjustment Amount (IRMAA).
A quick note about Medicare Part A
The vast majority of Medicare beneficiaries don't pay a monthly premium for Medicare Part A. That's because they or their spouse worked and paid Medicare taxes for the required 10 years/40 quarters to qualify for premium-free Part A.
If you or your spouse did not pay the required Medicare taxes, you will pay up to $506 per month for Part A in 2023. And if you're late enrolling, you may owe the Part A late fee, which is 10 percent for twice the number of years you could have had Part A but didn't. So, one year equals two years paying the penalty, two years equals four, and so on.
When is it okay to delay Medicare Part B enrollment?
First, if you have coverage through a group health plan, it is always a good idea to talk to the benefits administrator at your employer or union to see how your current coverage works with Medicare. The following guidelines are provided by CMS, but your employer plan may have unique requirements.
Please note that, although we use "your" when referring to group coverage through an employer, the following also applies if your spouse's job provides your health insurance.
You have coverage through a previous employer
SEPs generally apply to people who are currently employed. If you have healthcare coverage through a former employer, including COBRA or a retiree plan, you should sign up for Medicare Part B during your Initial Enrollment Period because you will not qualify for an SEP.
You have TRICARE or CHAMPVA coverage
If you are eligible for premium-free Part A, you must sign up for Parts A and B or you will lose your TRICARE or CHAMPVA coverage. If you don't get premium-free Part A, then you may delay signing up. However, you'll have to wait for the General Enrollment Period (GEP, more on this in a moment). Depending on your unique situation, this may cause a 12-month coverage gap that could still leave you owing the late fee.
You have health insurance through an employer with at least 20 employees
You may delay Part B enrollment without incurring a late fee until you (or your spouse) stop working or you lose your employer health insurance. You then have 8 months to sign up for Medicare Part B. We recommend signing up for Medicare at least one month before your current coverage ends to ensure you don't have a coverage gap.
This also applies to people who have Federal Employees Health Benefits (FEHB).
You have health insurance through an employer with fewer than 20 employees
To avoid late penalties, you must sign up for Medicare Part B during your IEP. With small employers, Medicare is always primary payer. If you decide to keep your group health plan, it will become the secondary payer.
Your current coverage is through the Health Insurance Marketplace or other private insurer
If you get healthcare coverage through the Health Insurance Marketplace (also known as the Affordable Care Act, ACA, or Obamacare), you should sign up for Medicare when you first become eligible. Beneficiaries who do not qualify for premium-free Part A may choose to delay Part A enrollment. However, you may face late fees since you'll have to wait for General Enrollment when you do decide to sign up for Part A.
You have VA coverage
If your only health insurance coverage is through Veterans Affairs (VA), you should sign up for Medicare when you turn 65. However, if you're covered by the VA as well as an employer with more than 20 employees, you may choose to delay without penalty.
You have no health insurance
You will not qualify for a Special Enrollment Period and should therefore sign up for Medicare as soon as you are able.
What happens if you don't qualify for a Special Enrollment Period?
If you don't sign up for Medicare during your Initial Enrollment Period AND do not qualify for a Special Enrollment Period, you have to wait until General Enrollment.
The GEP occurs every year from January 1 through March 31.
During the General Enrollment Period, you may sign up for Original Medicare (Parts A and B). You then have from April 1 through June 30 to sign up for a Medicare Advantage or prescription drug plan. There is no late fee for Part C. However, if you go 63 consecutive days without creditable prescription drug coverage (i.e., comparable to Medicare), you will likely owe the Part D late penalty.
Like Part B, you owe the Part D penalty for the entire time you have Medicare prescription drug coverage. The calculation, though, is based on how many months you go without a prescription drug plan instead of years. You'll pay 1 percent of the national base beneficiary premium ($32.74 in 2023) for every month you went without Part D coverage. The calculation looks like this:
($32.74 X 1%) X (# of Months Without Coverage) = Total
You then round that number to the nearest dime to get your late penalty. If you went 26 months without prescription drug coverage, you'd pay an additional $8.50 in 2023:
($32.74 X 1%) X (26) = $8.5124 = $8.50
The amount changes every year as the national base beneficiary premium changes. You do not begin accruing late fees until you go 63 consecutive days without prescription drug coverage.
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