If you’re turning 65 soon and thinking about Medicare, then you may already be overwhelmed by your options. Enrolling in a health plan can be confusing and complicated, especially when it comes to dates and deadlines. Should you sign up right away, or can you wait until you need the coverage? In short, enrolling in Medicare late could cost you. Sign up when you’re first eligible to avoid costly penalties.
Initial Enrollment Window
When you first become eligible for Medicare, typically at age 65, you have a 7-month initial enrollment period to sign up. This initial window begins three months before the month you turn 65, includes the month you turn 65 and ends three months after the month you turn 65. If your birthday is on December 1, for instance, then you’ll have from September 1 through March 31 to enroll.
You may also be eligible for Medicare if you receive Social Security Disability Insurance. If you’ve been receiving disability for more than 24 months, you will be eligible for Medicare and automatically enrolled at the beginning of the 25th month you receive a disability check. The only exception is for those who have been diagnosed with Amyotrophic Lateral Sclerosis (ALS or Lou Gehrig’s disease). In that case, Medicare begins the first month you receive a disability check.
You may also qualify for Medicare if you are under age 65 and suffering from kidney failure, known as end-stage renal disease (ESRD). You must be getting dialysis treatment or have had a kidney transplant, and you must apply for Medicare benefits. It’s not automatic. For specifics about your enrollment window in this scenario, contact Social Security directly.
Other than special enrollment periods for people who are still working when they qualify for Medicare, along with special enrollment periods for people who experience significant life events, your initial eligibility window is your only chance to sign up for Medicare without incurring any penalties. Coverage begins July 1, and late penalties will apply as described below.
Late Enrollment Penalty for Medicare Part A
Almost everyone gets Medicare Part A for free (no premium) because of the taxes that are withheld from paychecks and the taxes that self-employed people pay on their income. But some people will pay a premium. If you never worked or didn’t earn enough work credits throughout your life, you are still eligible for Medicare Part A, but you may have to pay for the coverage. If that’s the case, then you’ll need to sign up for Medicare Part A during your initial enrollment period or you will be required to pay a late penalty of 10 percent of the current Part A premium on top of the premium you pay.
- The penalty is assessed for twice the number of years you were eligible for Part A but did not enroll.
- For example, if you missed your initial window and didn’t sign up for Part A for a year, then you’ll pay your monthly premium plus 10 percent for two years.
You may qualify for a special enrollment period, which would allow you to sign up outside of your initial window and not have to pay a fee. Some enrollees also qualify for financial assistance in paying premiums for original Medicare. If these situations apply to you, make sure to ask before assuming that you have to pay a late enrollment penalty. Note that if you sign up late for Part A but don’t have to pay a premium anyway, then you won’t be charged any penalties since you get Part A for free already.
Late Enrollment Penalty for Medicare Part B
Unlike Part A, which most people get for free, Medicare Part B requires a monthly premium. How much you pay depends on your income, but there is a standard amount that everyone pays. Those with higher incomes pay more. Signing up late for Medicare Part B can also result in a penalty.
- Medicare Part B has a standard monthly premium, which most people pay. In 2018, that standard premium is $134 a month. Higher-income and lower-income enrollees will pay more or less, depending, but $134 a month is the current standard.
- If you sign up late for Part B (outside of your initial window) and don’t have a good reason to delay it, such as work-based coverage, then you will pay a penalty of 10 percent for every full 12-month period that you could have had Part B but chose not to.
- This penalty lasts for as long as you have Part B.
For example, let’s say you skipped Part B coverage during your initial eligibility window but realized three full years (36 months) later that you wanted the coverage. You’ll have to pay a penalty fee of 30 percent on top of the premium you would owe. If your premium is the standard amount, then you’ll pay $174.20 a month for coverage that would have cost you $134 – that’s an extra $40 a month, and the penalty is permanent. And of course, since the Part B premium changes from year to year, your penalty will also increase each year, making your premiums even more expensive.
You may also have to wait until the general enrollment period (January 1 to March 31) to sign up, and coverage doesn’t start until July 1 in that case, which will delay your coverage for general medical benefits even further. As with Part A, however, you may qualify for a special enrollment period given certain situations, so research your options ahead of time, especially if you’re still working and have good coverage through work.
Late Enrollment Penalty for Medicare Part D
As with original Medicare, you have an initial signup window to enroll in Part D, which covers prescription drugs. You will be assessed a late penalty if you enroll later. Open enrollment for Medicare runs from October 15 to December 7, which is when you can add a drug plan (Part D) to your coverage. Unless you have creditable coverage from another source, such as your job or TRICARE, you’ll pay a penalty fee for Part D coverage if you sign up outside of your initial eligibility window. Calculations for the Part D late enrollment penalty are more complex than they are with Parts A and B.
- You’ll be charged a late enrollment penalty of 1 percent of the “national base premium” for Part D for every full, uncovered month that you go without drug coverage.
- The total fee is rounded to the nearest 10 cents, and like Part B, it lasts for as long as you have Part D coverage.
- The national base premium changes each year. In 2018, it’s $35.02 a month.
As an example, let’s say you were eligible to enroll in Part D for seven months ending in May 2015. You decided to skip Part D coverage at the time, but now that you need more medications, you want to add the coverage. If you waited until October to enroll – since that’s when you can add Part D coverage again – for coverage that starts in January 2019, then you’d owe a penalty of $15.10 on top of whatever your monthly Part D premium is. Here’s how we got that total:
- National base premium is $35.02 a month in 2018.
- You went without Part D coverage (or a creditable alternative) for 43 months (seven months during 2015, followed by a full three years because your coverage won’t start until January 2019).
- 43 months x 1 percent = 43 percent, multiplied by the national base premium.
- $35.02 x 43 percent = $15.06, which rounded to the nearest 10 cents is $15.10 a month.
The penalty does not apply if you are eligible for extra help with the cost of Medicare or if you qualify for a special enrollment period. You qualify for special enrollment if you had drug coverage that offers as good of coverage as Medicare when you turned 65. This could be retiree coverage, VA coverage or coverage through employment, for example.
This penalty fee is added to whatever your plan’s premium is regardless of what the national base premium is. That figure is just used to calculate the penalty. Your plan may charge nothing for Part D or $20 a month. Either way, you’ll pay the penalty fee on top of it, and it lasts for as long as you have Part D coverage. And since the base premium changes each year, so too will your penalty fee. Also note that the example above was calculated using 2018 figures, but you would calculate the late penalty using the base rate for the year your coverage becomes effective.
Failing to sign up for Medicare plans when you first become eligible can be a costly gamble. You may not need drug coverage right away, but you’ll pay a higher price for adding it later. Once you become eligible for Medicare, explore your options early to cut down on long-term costs.