Not everyone chooses to enroll in Medicare when they become eligible at age 65. In fact, the entire enrollment process is a bit more complicated than some may realize.
It’s imperative to inform your clients about different enrollment scenarios to help them prevent penalties and higher premiums due to deferred enrollment.
Here’s a quick refresher on the Medicare penalties you can help your clients avoid.
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Medicare Part A Penalty
Not everyone qualifies for a premium-free Part A, resulting in Part A needing to be purchased. If a client needs to buy Part A but does not do so when they’re first eligible for Medicare, their monthly premium may go up 10 percent. They’ll have to pay this higher premium for twice the number of years they were eligible but not enrolled.
For example, if your client was eligible for Part A but waited three years to enroll, they will have to pay the higher premium for six years.
Because of this, it’s good to advise your clients to sign up for Part A coverage as soon as they’re able. Even if insurance coverage through work or a spouse is in effect, Medicare Part A can act as a secondary payer.
Medicare Part B Penalty
Similar to Part A, if a client doesn’t enroll in Part B when first eligible, their monthly premium could go up 10 percent for each 12-month period in which they could have signed up but didn’t. Usually, this penalty lasts the entirety of their Part B coverage and increases the longer they are without coverage. This is definitely a penalty you want to help your clients avoid.
Example 1: Your client’s Initial Enrollment Period (IEP) ended in December 31, 2018, and they didn’t sign up for coverage until March 1, 2021, during the General Enrollment Period. Their coverage starts July 1, 2021. They weren’t covered under Medicare Part B for a total of 27 months, which includes two full 12-month periods. As a result, their Part B premium penalty is 20 percent of the standard premium for as long as they receive this coverage.
Example 2: Your client’s Initial Enrollment Period (IEP) ended in December 31, 2021, and they didn’t sign up for coverage until February 1, 2023, during the General Enrollment Period. Their coverage starts April 1, 2023, due to the new General Enrollment Period effective date rules. They weren’t covered under Medicare Part B for a total of 13 months, which includes one full 12-month periods. As a result, their Part B premium penalty is 10 percent of the standard premium for as long as they receive this coverage.
Now, it is possible to delay Part B and not receive a penalty. If your client intends to keep working past age 65 and receives creditable health care coverage through their employer, Part B can be delayed, if preferred. Be sure to inform clients that company size matters in this scenario. If the company they work for has fewer than 20 employees, enrollment in Part B should still occur when eligible. However, if there are more than 20 employees, delayed Part B enrollment can be a possibility.
Medicare Part D Penalty
Part D coverage also has a late enrollment penalty. This occurs when a client goes 63 days or more in a row after their IEP without Part D or other creditable drug coverage. Usually, this penalty must be paid as long as the beneficiary has Medicare drug coverage. You can help your clients avoid this by making sure they enroll in Medicare prescription drug coverage during their IEP.
The Part D late enrollment penalty is permanently added to your client’s premium.
The penalty for Part D is calculated by multiplying one percent of the “national base beneficiary premium” ($33.37 in 2022) times the number of months your client didn’t have Part D or other creditable coverage. Since the national base beneficiary premium changes each year, so could the penalty amount.
For example, your client’s first chance to enroll in Part D coverage (usually their IEP) ended on July 31, 2019. They had no prescription drug coverage from any source until they signed up within the Annual Enrollment Period that ended December 7, 2021. Their Part D coverage started January 1, 2022. Since your client was without prescription drug coverage for 29 months (from August 2019 to December 2021), their penalty in 2022 is 29 percent of $33.37 or $9.68 each month. The monthly penalty is rounded to the nearest $0.10, so your client must pay an extra $9.70 each month as a penalty.
80 percent of Medicare beneficiaries were unaware of the Part D late enrollment penalty.
According to a 2021 survey, 80 percent of Medicare beneficiaries were unaware of the Part D late enrollment penalty. Many also think that Medicare Part A and B includes drug coverage. There are a lot of factors that go into choosing a Part D plan, and it’s your job to make sure your client is informed.
Helping Your Clients Avoid Medicare Penalties
One of the best ways to help your clients avoid these penalties is to make them aware that they exist! Providing your clients resources before they are eligible for Medicare ensures they have plenty of time to think about their options. The Centers for Medicare & Medicaid Services (CMS) has a Medicare enrollment fact sheet you can give to clients. This sheet provides helpful facts, tips, and questions your clients can answer to help them make smart enrollment decisions.
Also, make sure your clients are aware that enrollment periods play a big part in deferring Medicare coverage. If enrollment in Parts A, B, or D doesn’t happen when first eligible (usually their IEP), they must wait for another enrollment period to sign up. This can cause a gap in coverage, which results in a late penalty. If your client has chosen to defer coverage, be sure to follow up with them regularly and continue discussing their options.
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Many Medicare beneficiaries don’t know they can be penalized for not enrolling in Medicare coverage when they turn 65. As their agent, you need to guide them through this time and make sure they are making decisions to get the best possible coverage they need.
Ritter is also here to help with this process! Register for free and get access to exclusive resources like our Medicare Quote Engine with a built-in Drug Cost Estimator to easily compare Medicare coverage options for your clients.
Editor’s Note: This article was originally published in March 2022. It has been updated to include relevant information to the 2023 plan year.