Medicare can be confusing before you actually sign up and use it. (Then it starts to make more sense.)
But, you have to meet some enrollment deadlines even if things still aren’t clear. And you’ll face costly penalties if you miss them.
Medicare has four “parts,” including:
Part A (inpatient hospital insurance)
Part B (outpatient medical insurance)
Part C (private Medicare Advantage insurance)
Part D (prescription drug coverage)
Only Parts A, B and D can lead to penalties.
(Part C is a separate program called Medicare Advantage that you can choose after enrolling in Parts A and B.)
Let’s look at Part B and Part D, where most penalties are charged.
Late enrollment fees
Why does Medicare charge late enrollment fees? Because it doesn’t want you to wait and enroll when you’re sick. It needs healthy 65-year-olds paying into the program to make premiums affordable to everyone.
That explains why everyone’s Initial Enrollment Period (IEP) is a 7-month period around their 65th birthday: three months before their birth month, their birth month and three months after their birth month.
Most people look at Medicare as a benefit and not as the obligation that it is. That’s why it’s critical to know the exact dates this IEP period applies to you.
Part B (outpatient medical insurance) and its penalty
If you’re already receiving Social Security when you turn 65, you will be enrolled automatically in Part B. If not, you need to sign up through Social Security during your IEP. Soon you’ll see your Part B premium being deducted automatically from your Social Security check.
Late penalty: 10% of your monthly premium for every 12 months you’re late in enrolling, added to your Part B premium for the rest of your life.
Exception: If you have alternative qualified coverage when you turn 65. You can sign up for Part B when that coverage ends, during the 8-month period that follows (called a Special Enrollment Period).
Part D (prescription drug coverage) and its penalty
You can sign up for Part D – a private prescription drug plan – once you become eligible for Parts A and B and for up to three months after your Parts A and B become active.
Late penalty: 1% of the average monthly Part D premium ($33.37 in 2022), times the number of uncovered months. (If you wait 14 months to sign up, your penalty is 14% of the average monthly premium for as long as you have Part D coverage.)
Exception: Same as Part B if you have other qualified coverage.
“Takeaway” action step
Medicare “motivates” you with costly penalties. So, to avoid them, be sure to enter the dates of your Initial Enrollment Period on all of your calendars, no matter how far off.