Healthcare

Medicare Initial Enrollment and Avoiding Late Enrollment Penalties

by Alli Thomas

Nov 1, 2021

If you’re approaching 65, it’s important to have a strategy for signing up for Medicare, even if you plan on keep working. 

Like most healthcare plans, Medicare has specific enrollment windows. If you don’t enroll on time, you may face a coverage gap. 

But unlike private insurance plans, there are additional enrollment rules to follow and you may face a penalty if you don’t enroll during your initial enrollment period (IEP).  

For all parts of Medicare, the initial enrollment period begins three months before the month of your 65th birthday and ends three months after your birthday month. 

Late enrollment penalties may be incurred for Medicare Parts A, B, and D, but not Medicare Part C (Medicare Advantage). Here’s how you can avoid the penalties for each: 

Medicare Part A

Medicare Part A covers hospital costs and is premium-free as long as you or your spouse have a minimum of 10 years of work experience.  

If you’re eligible, consider enrolling as soon as you can, even if you’ll still be working and covered under your employer’s health plan. 

If you aren’t eligible for premium-free Part A and you don’t buy it during your IEP, your monthly premium may go up by 10%. 

You’ll have to pay the higher premium for twice the number of years you could have had Part A, but didn’t sign up.

Medicare Part B

Medicare Part B covers medical care and equipment. For 2021, Medicare Part B premiums start at $148.50 per month and go up to $504.90 per month for the highest earners. 

This is the most important part of Medicare to enroll in on time as it has the most significant late enrollment penalty. 

For each year that you’re eligible for Part B but are not enrolled, your Part B premium will go up by 10%.  

That increase is permanent, not temporary, which means the penalty lasts for the rest of your life. 

You can delay enrolling in Part B if you keep working and your company’s health coverage is qualifying.  

To be considered qualifying, your employer must have more than 20 employees and offer group health plan coverage as defined by the IRS.  

If your employer healthcare is qualifying, you won’t pay the penalty if you sign up for Part B within eight months of leaving your job during the Special Enrollment Period. 

 

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Medicare Part D

Part D covers prescription medications and costs about $33 per month. Like Part B, the premium may be higher if you are a high earner. 

The penalty for Part D is a one percent premium increase for each month that you should have been enrolled. 

As is the case with Part B, you can delay enrollment if you have qualifying employer healthcare coverage. Unlike Part B, however, you’ll only have two months to enroll once you no longer have that coverage. 

After you do enroll in Part D, the insurance company will send you a form to complete and return to verify that you were allowed to delay enrollment. If you fail to send the letter back, you will have to pay the penalty. 

Non-Qualifying Healthcare

Two types of healthcare coverage that are NOT considered qualifying in the eyes of the IRS are COBRA and health insurance from your employer after you stop working.  

If you retire and continue your company’s health insurance plan (either directly or through COBRA benefits), make sure to enroll in Parts B and D before their respective deadlines.

What About Medicare Advantage?

There is no late enrollment penalty for Medicare Advantage.  

If you’re considering a Medicare Advantage Plan, you’ll have two months from the date your employer healthcare coverage ends to enroll without waiting for the annual open enrollment period from October 15 to December 7.   

You should also know that Medicare Advantage has a separate open enrollment period that lasts from January 1 to March 31.   

However, this period is only for people with an existing Medicare Advantage plan. During this period, they can switch to traditional Medicare, change to a different Medicare Advantage plan, or sign up for Medicare Part D. 

Don’t Risk Penalties – Create a Medicare Plan  

As you can see, if you don’t enroll in a timely way, you could not only face a gap in healthcare coverage, you may have to pay late penalties in the form of higher premiums for the rest of your life.  

That’s why it’s so important to work with a professional who can walk you through the process.

The best time to make decisions about Medicare is at least several months before you plan to retire.

Get started today by requesting a no-cost, no-obligation conversation with one of our financial advisors! 

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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