Understanding Medicare: How to Avoid Penalties

Today we delve into a concern of many who are turning 65: Medicare penalties. As we navigate through the complexities of healthcare coverage for seniors, understanding these penalties is crucial for making informed decisions about your future health and financial well-being. First, let's take a quick look at the basics of Medicare.

Medicare Part A: Inpatient Hospital Insurance

Medicare Part A primarily covers inpatient hospital stays, skilled nursing facility care following a hospital stay, some home health care, and hospice care. This segment of Medicare is often referred to as "hospital insurance" because it focuses on the costs associated with institutional care. For many beneficiaries, Part A is premium-free if they or their spouse paid Medicare taxes while working.

Medicare Part B: Outpatient Coverage

Complementing Part A, Medicare Part B covers a broad spectrum of outpatient services. This includes doctor visits, preventive services, diagnostic tests, durable medical equipment, and some home health services. Unlike Part A, Part B does require the payment of a monthly premium, which is adjusted according to income levels.

Part A and Part B together are called "Original Medicare" which is the baseline health coverage offered by the government. It's important to know Part D is NOT INCLUDED with Original Medicare.

Medicare Part D: Prescription Drugs

Part D helps pay for the medications you take at home. It also covers many things you would not expect such as vaccines, some medications given during dialysis, and certain medications for osteoporosis.

Part D is offered through private insurance companies approved by Medicare. Each plan has its formulary (list of covered drugs), costs (premiums, deductibles, copayments), and coverage levels. Plans can vary widely and can change every year, so it's important to review them annually.

Exploring Late Enrollment Penalties for Medicare Parts B and D

When discussing Medicare, understanding the implications of late enrollment for Parts B and D is crucial for anyone turning 65. Here, we delve into what these penalties entail, how they're calculated, and scenarios where they might be avoided.

Medicare Part B Late Enrollment Penalty

If you refuse to enroll in Part B and do not have insurance coverage comparable to Medicare (creditable coverage), you may face a penalty. The penalty increases your monthly premium by 10% for each full 12-month period you delay enrollment without creditable coverage.

• Example: If you missed enrollment for two years it would result in a 20% penalty added to your base Part B Premium. The penalty is based on the standard Part B premium, which for 2024 is $174.70. Thus, if you're subject to a 20% penalty, you'd pay an extra $34.94 monthly on top of the standard premium. $209.64 in total.

This penalty can only be avoided by either enrolling in Part B within the expected timeframe or by having another form of health insurance that is considered creditable coverage. Note: despite the benefits your COBRA plan may offer, it is not considered creditable coverage!

Medicare Part D Late Enrollment Penalty

Just like with Part B, refusing to enroll in a Part D Medicare plan without creditable prescription drug coverage leads to a permanent increase in your premium. Unlike Part B, this penalty isn't based on a percentage but rather on a calculation involving the number of months you were without coverage.

• Penalty Structure: For each month you go without creditable coverage you pay 1% of the national base beneficiary premium ($34.70 in 2024). This only activates after 63 days have passed without coverage, meaning there is a bit of a grace period with enrollment in a plan. Remember, it will be based off of the first month without coverage, meaning it will include the 63 days.

• Implications: This penalty lasts indefinitely, emphasizing the importance of maintaining continuous coverage or ensuring any alternative coverage you have is deemed creditable by Medicare standards.

Here is an example that comes directly from CMS:

"Mr. Ray joined a plan with Medicare drug coverage before the end of his Initial Enrollment Period in February 2021 and disenrolled from that plan effective December 31, 2021. He later joined another plan in Fall 2023 during the Open Enrollment Period, with coverage effective January 1, 2024. Mr. Ray went a full 24 months (January 1, 2022–December 31, 2023) without creditable coverage.

Starting January 1, 2024, he has to pay a penalty equal to 24% (1% for each full, uncovered month that he went without creditable coverage) of the base beneficiary premium for 2024 ($34.70). The penalty amount is $8.33 each month. Since the monthly penalty is always rounded to the nearest $0.10, Mr. Ray will pay $8.30 each month in addition to his plan’s monthly premium in 2024.

Here’s the math: .24 (24% penalty) x $34.70 (2024 base beneficiary premium) = $8.33 $8.33 rounded to the nearest $0.10 = $8.30 $8.30 = Mr. Ray’s monthly late enrollment penalty. This amount is added to his plan’s monthly premium."

As you can see it can become quite costly!

General Considerations for Avoiding Penalties

• Creditable Coverage: Both Parts B and D allow for exceptions if you have creditable coverage from other sources like an employer's plan or certain government programs. It's essential to check with your plan provider on whether your current coverage qualifies.

• Review and Appeal: If you believe you've been incorrectly penalized, Medicare allows for appeals. This process might involve proving you had creditable coverage or misunderstanding your enrollment requirements.

The penalties for late enrollment in Medicare Parts B and D are designed to encourage timely sign-up, ensuring that you're covered when you need it without facing unexpected financial burdens later. While these penalties can be significant, knowing is only half the battle. Be sure to figure out your plan of action!

As always, we are here to help. We are independent representatives for private insurance companies that offer plans for those entitled to Medicare. If you have any questions or need any clarity, please do not hesitate to reach out. It costs you nothing and there is never any obligation to enroll.