Avoiding the Medicare Penalty Box

by Marc Manor

Relative to most individual healthcare plans, many people find Medicare a significantly less expensive alternative with more coverage and lower deductibles.  After all, if you have been employed throughout your life, you have been paying into the Medicare system and have earned the Medicare Benefit!  If you have been employed for 10 years or more, it is likely your Medicare Part A will have no cost and your Medicare Part B will be only $135.50 per month* for most people (*Part B premiums are higher for higher income earners).   Medicare costs can be found here:  

https://www.medicare.gov/your-medicare-costs/medicare-costs-at-a-glance#collapse-4809

Courtesy of canva.com

To take full advantage of the value of your Medicare benefits, it is best to avoid late enrollment penalties.  There are late enrollment penalties for Medicare Part B and Part D and with so many low-cost options available, there are few reasons that would justify putting yourself in the Medicare “Penalty Box.”  Sometimes people seem surprised and are frustrated by the penalties.  They claim they just aren’t fair.  I understand how someone must feel but Medicare justifies these penalties because they base their rates and calculate their risk based on eligible beneficiaries in the pool of enrollees.  But you won’t care about why they penalize you for being late. So, let’s talk about the penalties and some ways you can stay within the rules and avoid them!

Part B Penalties.  If you fail to sign up or cancel your part B when you become eligible, you may have to pay a penalty.  The penalty will increase your Part B premiums (your share to pay monthly) 10% each full 12-month period you do not enroll after your initial enrollment period.  This penalty will be assessed by the Centers for Medicare and Medicaid Services (CMS), not the insurance company. However, the insurance company will add any penalty assessed by CMS to your monthly premium.  So, if you fail to pay your Part B for two full years, you can expect your Part B premium to be 20% higher.  

I have known a number of military veterans who have used the VA to elect not to pay their Part B.  While these people could have access to healthcare using VA clinics and hospitals etc., it can limit their ability to access some healthcare options in their community.  If you do not have VA or other coverage, leaving yourself unprotected without Part B can leave you at a high risk for financial hardship.  I highly recommend anyone without Part B Medicare or other creditable coverage be fully aware of their risk before allowing their Part B to lapse.

Courtesy of canva.com

Part D Penalties. Medicare Prescription Drug coverage is also required by CMS once you become eligible.  Part D penalties are assessed at 1% of the national base beneficiary premium per month you fail to have it.  In 2019 the monthly national base beneficiary premium is listed at $33.19 so the penalty is not that significant but remember that it continues to increase and would be 12% for each year and could continue to grow if you wait too long for coverage.  People that do not take any prescription drugs sometimes do not see a need for the Part D coverage but there are some very inexpensive options that will keep you out of the Part D penalty box and cover you in the event you get some new prescriptions.

Ways to avoid the Penalty Box:

•Both Part B and D penalties can be avoided by having “creditable” coverage from an employer of 20 or more employees.   If employed and you are happy with your plan and drug coverage you can differ your Part B premiums and continue with your employer plan until you decide to leave/retire from your job.  

•Some employers offer retirement packages with other creditable healthcare or prescription drug coverage.  This is treated the same as if you keep working and keep your employer plan.  

•You may have Medicare coverage with your employer as well.  This means you may have to pay the Part B premium and have access to supplement or other wrap-around coverage that pays the 20% portion Medicare does not cover.  

•Veterans with VA benefits can usually differ their Part D coverage when using the VA to fill prescriptions but the VA medical is not usually considered creditable coverage for Medicare.

Courtesy of canva.com

•People receiving full Medicaid as Dual Medicare/Medicaid beneficiaries may have their penalties waived.

As always, I recommend talking to Medicare, your employer benefits administrator, or an independent agent trained and knowledgeable about Medicare to see if you are putting yourself in a position that may lead to a Part B or Part D penalty.  Even the healthiest individuals need medical help at some point.  So, be sure you are educated on the risks and costs associated with Medicare late enrollment penalties.

Marc Manor is a 30-year military veteran who is now dedicated to teaching his 

fellow Americans how to make the most of their Medicare and Supplemental Insurance benefits. As an independent agent, Marc has access to a wide variety of carriers with an abundance of resources to find tailored solutions. There is no charge for a consultation so call 904-222-0698 or email: marc@marcmanor.com.