Medicare Penalties Explained
Navigating Medicare enrollment can be tricky, and making mistakes can have long-lasting consequences. Here are three of the most common Medicare penalties and how you can avoid them.
The Part D Penalty
Many people in good health may not see the need for a Prescription Drug plan (Part D) and opt out of it. However, if you do not enroll in a Part D plan when you first become eligible for medicare during the initial enrollment period or have other creditable drug coverage, you will incur a penalty when you eventually sign up. The penalty is approximately $3 per month for every 12-month period you go without coverage. For instance, if you wait until age 70 to get a drug plan, you would face a penalty of $15 per month (5 years x $3) added to your drug plan premium indefinitely.
How to Avoid It: Enroll in an inexpensive Part D Drug plan if you don’t have other drug coverage to avoid the penalty.
Tip: You can eliminate an existing Part D penalty by qualifying for Medicare’s Low Income Subsidy program.
The Part B Late Enrollment Penalty (LEP)
If you are eligible for Medicare Part B but do not enroll during your initial enrollment period and lack creditable coverage, you will incur a late enrollment penalty. This penalty is a 10% surcharge on your Part B premium for each 12-month period you delay enrollment. For example, this translates to about $17 extra per month.
How to Avoid It: Enroll in Part B during the three-month window before your 65th birthday or as soon as you lose employer coverage.
Higher Premiums Due to High Income (IRMAA)
If your income exceeds certain thresholds, the government imposes an Income-Related Monthly Adjustment Amount (IRMAA) on your Part B and Part D premiums. For 2024, these thresholds are $103,000 per year for individuals and $206,000 per year for joint filers, based on your 2022 adjusted gross income. High-income individuals could see their Part B premiums increase to $594.00 per month and their Part D premiums rise by an additional $81.00 per month.
How to Avoid It: Consider filing an IRMAA appeal if your income has decreased due to retirement or a one-time windfall. About half of appeals are approved.
Tip: File your IRMAA appeal promptly. Appeals should ideally be filed within 60 days of receiving your initial IRMAA determination letter.
FAQs
Will I Be Penalized If I Delay Medicare to Keep Working?
No, as long as you maintain creditable coverage from your employer group health plan, you will not face penalties for delaying Medicare enrollment.
Summary
Medicare penalties are lifelong, meaning they can add up significantly over time. It's crucial to avoid these penalties to save money in the long run. By being proactive and informed, you can ensure that your Medicare enrollment is smooth and penalty-free.
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