Why Does Medicare Have Penalties on Benefits?

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Signing up later than your personal deadline can result in having to wait for benefits and pay higher premiums for Part B and Part D for all future years. The reason is the same in each case: Medicare wants to persuade you to sign up as soon as possible, and financial penalties or delays in coverage are the big sticks it uses to convince you.

Why can’t Medicare allow you to sign up when you please? Allow you to postpone enrollment, in fact, until you actually need that coverage? The answer is rooted in basic insurance principles. Medicare needs a large pool of people enrolled in it — younger and healthier ones as well as older and sicker ones — to keep its head above water.

If all users were able to delay enrollment until they needed Medicare, the program would either cease to function or become so expensive that few people could afford it.

To put this idea in perspective, consider other types of insurance. You buy home insurance in case the basement catches fire. You buy car insurance in case you total the minivan. And you pay monthly premiums for both of these for decades even though you hope you’ll never need to make a claim.

With Medicare, you know that you’ll make a claim sooner or later — probably many of them — and that having this coverage will save you money every time.

Of course, Medicare isn’t entirely insurance in the ordinary commercial sense. It’s also a benefit, and that’s why being penalized for signing up late seems a bit confusing. The federal government subsidizes your Medicare coverage in various ways — paying for about 75 percent of your costs in Part B and Part D and considerably more in drug coverage for people with low incomes or high drug expenses.

Nonetheless, Medicare is built on insurance principles, with late penalties and delayed coverage as its cornerstone.

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