Understanding Medicare Late Penalties

The saying "time is money" is as true for Medicare as it is for big business. This is because not signing up on time for Medicare can result in penalties that you could be paying for as long as you have Medicare. The Medicare Part B penalty, in particular, could cost you thousands of dollars. Knowing when to enroll in Medicare is crucial so that you can avoid paying more than your share.

Enrollment

The Initial Enrollment Period begins when you are 65 years old. Specifically, it begins three months before and ends three months after your birth month, which gives you a seven-month window to sign up.

You may still be working and have health coverage by your employer at the time you first become eligible for Medicare. If you work for a company that employs at least 20 full-time employees, you can defer your Medicare enrollment to a later date. This Special Enrollment Period allows you to sign up for Medicare over an eight-month period. The time period begins either the day you leave your employer or the day you lose your employer-sponsored health plan, whichever comes first.

Automatic Enrollment

People who are already receiving Social Security benefits of some sort, whether those are retirement (SSI) or disability benefits (SSDI), will be automatically enrolled during their Initial Enrollment Period. Their Medicare premiums will automatically be deducted from their Social Security checks.

This has both pros and cons involved. If you want to opt out of Medicare for any reason (for instance, if you have other insurance coverage), you will have to actively reach out to the government to stop your enrollment. However, with automatic enrollment, you will also never need to worry about Medicare late penalties.

Social Security Retirement

Medicare eligibility and the Social Security retirement age used to occur at the same time—both were set at 65 years of age. Starting in 1983, however, the retirement age was set to increase to 67 years old over a 22-year period. For instance, someone born between 1943 and 1954 has a retirement age of 66 years old, whereas anyone born after 1960 has a retirement age of 67 years old.

If you fall somewhere in between, the Social Security website has a full table that lists retirement ages according to specific birth years.

In order to receive the full retirement benefit, people need to reach their designated retirement age. Otherwise, they will receive only partial benefits. Starting retirement at 62 years old would decrease Social Security benefits by 30%, 63 years old by 25%, 64 years old by 20%, 65 years old by 13.3%, and 66 years old by 6.7%. If you work past your retirement age up to age 70, you can earn as much as 5.5 to 8% more than the standard benefit based on the year you were born. These are referred to as delayed retirement credits. Working beyond 70 years old will not earn you more of these credits.

Many able-bodied Americans will work past 65 years old in order to maximize their retirement income. Since they will not be receiving Social Security benefits when they become eligible for Medicare and will not be automatically enrolled in the program, they are at greater risk for missing their sign-up deadline.

Part A Late Penalty

The Part A penalty accrues for every year you delay signing up for Medicare. You will pay an extra 10% toward your monthly premium for twice the number of years you were eligible for Medicare.

For instance, if you apply two years after you become eligible, 10% will be added to your monthly premium for four years.

Since most Americans or their spouses have worked 40 quarters (10 years) in Medicare-taxed employment by the time they become eligible for the program, they qualify for free Part A premiums. They will not be subjected to late fees.

If you missed your Initial Enrollment Period by 11 months or less, you will not incur any Part A or Part B penalties either. Penalties only come into play after a full 12 months have passed.

Part B Late Penalty

Medicare will charge you an extra 10% for each year you were eligible for the program but did not sign up. The Medicare Part B penalty adds 10% to your monthly premium for every year of missed eligibility.

The monthly penalty calculation is 10% multiplied by your current monthly premium, then multiplied again by the number of years you didn't sign up for Medicare after becoming eligible. The duration of this penalty is usually permanent. For instance, if you apply to Medicare two years after becoming eligible, 20% will be added to your monthly premium as long as you have Medicare.

Avoiding Late Penalties

There are only two ways to cancel your Medicare late penalties, whether they are Part A or Part B.

The first option is only available to people who qualify for Medicare based on end-stage renal disease before they turn 65 years old. Once they become eligible for Medicare based on age, their prior late penalties are absolved, and they are given a clean slate.

The second option is to qualify for a Medicare Savings Program. There are four programs available to help you pay for Medicare premiums, deductibles, copayments, or coinsurance. Your income and assets are used to determine your financial need. To see if you qualify for one of these programs, contact your state Medicare office.

A Word From Verywell

Understanding when to sign up for Medicare could save you thousands of dollars over your lifetime. Since many people get Part A premiums for free, few are affected by Part A late penalties. The same cannot be said for the Medicare Part B penalty. This penalty is permanent and could have a major impact on your financial future.