Medicare For Dummies
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Nobody can force you to sign up for Medicare and pay premiums if you don’t want to. But if you think you’ll need Medicare at some stage in the future, you should be aware of the consequences of late enrollment.

You should know what happens if you miss your personal deadlines for Part B (in which enrolling late has the costliest repercussions), Part A, and Part D. Each — of course! — has different rules.

Depending on your situation, your personal deadline for Part B enrollment is either

  • The end of your seven-month IEP around the time you turn 65

  • The end of the eight-month SEP that you’re entitled to if you were able to delay Part B beyond age 65 because you had health insurance from your (or your spouse’s) current job

For example, say your 65th birthday falls in October. That month is the fourth month of your seven-month IEP, so the last day of your IEP is January 31. Or say that you continue working beyond 65 in a job with health benefits, and retire a few years later at the end of March. In this case, the last day of your eight-month SEP would be November 30.

Whichever final date applies to you is your deadline. Beyond it, you can certainly still enroll in Part B, but you then face two consequences:

  • You can sign up only during the general enrollment period (GEP), which runs from January 1 to March 31 each year, and your coverage doesn’t begin until the following July 1.

  • You may be hit with late penalties that are added to your monthly Part B premiums for all future years.

For some people, there’s a third consequence: If you retire and continue to receive health benefits from your former employer, Medicare often becomes your primary coverage, meaning that it pays your medical bills first. So if you don’t sign up for Medicare as soon as you can, your retiree plan may refuse to pay for medical services you’ve received, leaving you to foot the entire expense yourself.

Going without health coverage

For many people, the first of these consequences is the worst because it can mean going for months without health coverage. Other circumstances — especially receiving retiree health benefits from a former employer — can land you in a similar scary situation if you don’t know the rules or you ignore them.

Paying more for Part B services than you need to

The worst thing about being hit with Part B late penalties after age 65 is that they’re permanent — you continue paying them as extras added to every monthly premium for as long as you continue in the program. So you’d always pay more (perhaps a lot more) for exactly the same coverage than if you hadn’t missed your deadline.

If you get the penalties when you’re under 65, the penalties continue only until you’re 65; at that point, when you become entitled to Medicare based on age rather than disability, they cease.

In a nutshell, here’s how the Part B penalty is calculated: It amounts to an extra 10 percent for every full 12-month period that has elapsed between the end of your IEP and the end of the GEP (March 31) in which you finally sign up — minus any time you were covered by group health insurance after age 65 from your or your spouse’s active employment.

But these words need parsing if you’re to understand exactly when the Part B penalty clock may start ticking in your own case:

  • If you should’ve signed up at age 65 but missed the deadline, it’s straightforward: Your liability for penalties begins on the day after your seven-month IEP ends.

  • If you should’ve signed up during the eight-month SEP that followed your or your spouse’s retirement from work and you missed that deadline, the Part B penalty clock is reset to the time of the retirement or when your group health coverage ended (whichever is earlier) and starts ticking then — not when your SEP expired.

And that’s not all. Here are some other things about Part B penalties that you should be aware of:

  • Meaning of full 12-month period: In the definition of how the Part B penalty is calculated, this wording — “You pay an extra 10 percent for every full 12-month period” — is very precise and may even work to your advantage.

    It means that if the length of time between those two crucial dates — your enrollment deadline and the end of the GEP when you eventually sign up — falls short of 12 months (even by a day or two), the 10-percent penalty isn’t applied.

  • Penalty increase over time: Not only are Part B late penalties permanent, but the amounts you pay are also likely to increase a little every year. That’s because the penalty is always calculated as a percentage of the Part B premiums for any given year.

    For example, a person who received a 50-percent penalty in 2004 paid a total $1,198.80 — $799.20 for the standard Part B premiums in 2004 plus $399.60 in penalties. In 2013, that same person paid a total $1,868.20 — $1,258.80 in premiums plus $609.40 in penalties.

  • Higher penalties for higher-income premiums: Keep in mind that if you need to pay higher-income premiums, any late penalties you incur are calculated as percentages of your entire premium.

  • When late penalties may be waived: If your Part B premiums are paid by your state under one of the Medicare Savings Programs, you don’t have to pay late penalties. Also, if you incur late penalties when you have Medicare through disability, these will stop when you reach 65.

Examples of enrolling passed the deadline

All these rules are enough to make anyone’s eyes glaze over. But these examples may make them clearer:

  • Melinda missed signing up at the end of her IEP in May but enrolled the following February during a GEP. Because fewer than 12 months had elapsed between May 31 and March 31 (the last day of the GEP), she didn’t have to pay a late penalty. But she did have to wait several months until July 1 for her Medicare coverage to begin.

  • Joyce’s IEP ended in March, but she didn’t sign up for Part B until the following January, as soon as the next GEP began. This gap was an actual enrollment delay of only 10 months. But under the rules, the penalty clock continued to tick until the last day of the GEP, so the delay was counted as a full 12 months — April 1 to March 31 — and Joyce had to pay an extra 10 percent on her Part B premiums.

  • George worked in a job with health insurance until age 69 and although he was entitled to an eight-month SEP on retirement to sign up for Part B, he chose not to because as a veteran he had VA health benefits. But later he decided he needed Medicare coverage as well.

    When he signed up in January, almost four years (46 months) had gone by between the end of the month when he retired and the end of the GEP. The three full years counted toward the penalty, but the remaining 10 months didn’t. So George paid an extra 30 percent (but not the 40 percent he expected) for his Part B coverage.

  • Clint and Maria didn’t see the point of paying for Part B after he retired at 65 because they got good retiree health benefits from his former employer. But ten years later, the premiums for this insurance had risen so high that the couple could no longer afford them.

    Medicare was their only alternative, but by then they each had to pay 100 percent more for their coverage (a 10-percent penalty for each of the ten years of delay) — double what they’d have paid if they’d enrolled when he retired.

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