Medicare Penalties and How to Avoid Them
June 6, 2023 | John Demko
When it comes to Medicare, there is already so much to navigate; the last thing you want to be concerned about or deal with is penalties! Penalties in Medicare can have lasting, lifelong implications. The best way to steer clear of penalties in Medicare is to be familiar with the different types and how they could affect you. Let’s examine where penalties occur in Medicare and how you can avoid them.
Medicare Part A Penalty
Medicare Part A is generally referred to as “hospital insurance.” It is half of Original Medicare, together with Medicare Part B.
Learn more about Medicare Part A
If you are eligible for Part A but don’t sign up right away, you may have to pay a late enrollment penalty. Your monthly premium could go up by 10%, and you’ll have to pay that higher premium for twice the number of years you didn’t sign up.
This penalty doesn’t apply if you have creditable coverage through your employer. But some employers may require you to enroll in Medicare when you become eligible. Check with your HR department for more information.
How to Avoid
You will want to sign up for Medicare Part A during your initial enrollment period to avoid a Part A penalty.
Medicare Part B Penalty
Medicare Part B can be categorized as medical insurance. It may cover services such as doctor appointments, ambulance services, durable medical equipment (DME), and mental health.
Just as with Medicare Part A, a penalty is associated with Medicare Part B if you do not enroll when you are first eligible.
Learn more about Medicare Part B
If you are eligible for Part B but don’t sign up right away, you may have to pay a late enrollment penalty. Your monthly premium could go up by 10% for each 12-month period you did not sign up when eligible. Therefore, the longer you go without Part B coverage the greater your penalty would be. You would then have to pay this penalty for as long as you have Medicare Part B.
You may also be assessed an income-related monthly adjustment amount (IRMAA) and have to pay a higher premium depending on your income.
See the 2023 income-related monthly adjustment amounts from CMS here.
How to Avoid
To avoid a Medicare Part B penalty, you will want to know your enrollment options and enroll at the appropriate time. Generally, you won’t have to pay a Part B penalty if you were covered by a creditable employer health plan beyond becoming eligible or if you qualify for a special enrollment period (SEP).
Learn More About the Different Parts of Medicare
Medicare Part D Penalty
Medicare Part D provides coverage for prescriptions that are filled at pharmacies in retail and healthcare facilities.
Learn more about Medicare Part D
Just as with Medicare Part A and B, there is a penalty if you do not sign up when you are first eligible. This is true even if you are not taking any prescription medications when you first start Medicare. If you are assessed a Medicare Part D penalty, you’ll pay an extra 1% each month you do not enroll. Therefore the longer you go without Part D coverage, the greater your penalty will be.
You may also pay a higher premium depending on your income.
See the 2023 income-related monthly adjustment amounts from CMS here.
How to Avoid
To avoid a Medicare Part D penalty, you will need to sign up for prescription drug coverage as soon as you are eligible. If you have creditable coverage or qualify extra help you will not receive a Part D penalty.
Read: What is Medicare part D and What Does It Cover
HSA Contribution Penalty
If you continue contributing to an HSA account after starting Medicare, you could be subjected to taxes and a penalty. Once you enroll in Medicare A or B, you can no longer fund an HSA account; not everyone is aware of this, and it could present a financial headache if you do not follow this rule.
How to Avoid
If you plan to enroll in Medicare during your initial election period (when you turn 65) you will want to make your last HSA contribution the month before you turn 65 years old.
If you plan to continue working past 65, when you want to stop contributing to an HSA will depend on how long you will work before enrolling in Medicare. If you plan to work less than six months after your 65th birthday, stop contributing the month before you turn 65. If you plan to work longer, you will want to stop contributing six months before enrolling into Medicare A and/or B.
Get the Working Past 65 & Medicare Guide
Knowing when to enroll in each part of Medicare can be tricky, but getting it right and avoiding penalties that could have lasting implications is essential. By following these guidelines, you’ll be on the right track with your Medicare enrollment. Working with an experienced licensed agent can also help you follow course with your Medicare elections and avoid Medicare penalties.
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