Key Retirement Solutions Blog
Key Retirement Solutions Blog
This month All Facts, No Frills will clear up confusion surrounding Medicare penalties. Let’s get straight to the facts.
If you fail to enroll on time, Medicare can penalize you in two ways: 1) a 10% per year penalty applied to your Part B premium and 2) a 1% per month penalty applied to your Part D premium.
A few questions need to be answered.
What is Part B?
Medicare Part B (medical insurance) helps pay for services from doctors and other health care providers, outpatient care, home health care, durable medical equipment, and some preventive services.
What is Part D?
Medicare Part D (prescription drug insurance) are plans provided by private insurance companies. Part D plans help pay for the costs of your prescriptions at your pharmacy. Each plan that offers prescription drug coverage through Medicare Part D must give at least a standard level of coverage set by Medicare. Plans can vary the list of prescription drugs they cover (called a formulary) and how they place drugs into different "tiers" on their formularies.
How is the penalty for Part B applied?
If you didn't get Part B when you're first eligible, your monthly premium may go up 10% for each 12-month period you could've had Part B, but didn't sign up. In most cases, you'll have to pay this penalty each time you pay your premiums, for as long as you have Part B. And, the penalty increases the longer you go without Part B coverage.
How is the penalty for Part D applied?
Medicare calculates the penalty by multiplying 1% of the "national base beneficiary premium" ($32.74 in 2020) times the number of full, uncovered months you didn't have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.
The national base beneficiary premium may change each year, so your penalty amount may also change each year.
An Example for both B and D:
In January of 2020, Jim turned 65 and retired without any creditable health coverage. Jim decided not to take his social security benefit until the age of 67. He is healthy, so he also decided not to apply for his Part B coverage ($144.60/month). In January 2022, Jim begins to draw his social security retirement income but notices his check is $173.52 less than he expected. Shortly after Jim receives his first social security check, a red, white, and blue medicare card arrives in the mail.
Why is Jim’s check $173.52 short? Why did he get this medicare card?
When Jim activated his social security benefit, he was automatically signed up for Medicare Part B and assed a 20% penalty (10% per year he was eligible for Part B but didn’t enroll). Jim has the option to decline Part B coverage, BUT the monthly cost of Part B will continue to increase by 10% with each year that passes.
Mrs. Martinez is currently eligible for Medicare, and her Initial Enrollment Period ended on May 31, 2016. She doesn't have prescription drug coverage from any other source. She didn't join by May 31, 2016, and instead joined during the Open Enrollment Period that ended December 7, 2018. Her drug coverage was effective January 1, 2019.
Since Mrs. Martinez was without creditable prescription drug coverage from June 2016–December 2018, her penalty in 2019 was 31% (1% for each of the 31 months) of $33.19 (the national base beneficiary premium for 2019) or $10.29. Since the monthly penalty is always rounded to the nearest $0.10, she paid $10.30 each month in addition to her plan's monthly premium.
“I didn’t understand any of that!!!”
If you made it this far and don’t understand anything you’ve read so far, you’re not alone. This is complicated stuff. The terminology and abbreviations used in insurance (LEPs, IEPs, OEPs, AEPs, A, B, C, D....) look like four cans of Spaghetti O’s were dumped out on the kitchen floor.
Luckily, we at Key Retirement Solutions are the Chef Boyardees of Medicare. Call us so we can make sense of this Medicare mess for you.