All it takes is one bad decision or missed deadline for a client enrolling in Medicare at age 65 to face years of paying monthly Medicare penalties. If they’re relying on you to prepare them for the future, pointing out potential Medicare pitfalls isn’t a courtesy — it’s a must.
Here are the main points (and an infographic) for you to remember and to convey to clients:
There are two late-enrollment penalties to be aware of:
Medicare Part B (medical insurance)
Medicare Part D (prescription drug coverage)
The penalties can be costly, because they are assessed every month for a client’s lifetime.
Most people should enroll in Medicare Part B and Part D when they turn 65, because neither the Part B nor the Part D late-enrollment penalty is a one-time slap on the wrist. These penalties are charged every month moving forward. That can add up.
Every client’s Initial Enrollment Period — and late-enrollment deadline — is different, because it depends on their birthdays.
Clients already receiving Social Security benefits and with enough qualifying work quarters will automatically be enrolled in Medicare Part A (hospital insurance) and Part B the first day of the month in which they turn 65 or on their 25th month of disability. However, clients who are not yet collecting Social Security benefits will need to enroll in Medicare during their Initial Enrollment Period, a seven-month window that starts three months before the month they turn 65, includes their birth month and concludes three months after the month they turn 65. To help clients determine their Initial Enrollment Period, refer to this handy chart from the Medicare BackOffice® “Guide to Medicare.” This is typically when clients sign up for Medicare Part D Prescription Drug coverage.
Make sure your turning-65 clients understand that to avoid costly penalties, in most cases they should sign up for both Medicare Part B and Part D when first eligible, unless their primary coverage — such as their employer-provided health care insurance plan — allows them to opt out or sign up later.
Encourage your client to call Medicare BackOffice to speak with a Licensed Insurance Agent, who can help walk them through the initial Medicare enrollment. You don’t have to understand all the nuances that can impact the penalties. By sending them to Medicare BackOffice, you’re connecting them with Medicare experts who can navigate whether they should sign up immediately for Part B and Part D or if they’re eligible to delay coverage without penalty. For example, if your clients have group coverage through an employer or spouse’s employer, they usually can delay signing up for Part B without being penalized. Or if they lose insurance or retire, they may qualify for a Special Enrollment Period to sign up for Part B. The knowledgeable and friendly agents will assess your clients’ individual situations and help them.
So just how much are these late-enrollment penalties? While it’s impossible to determine an accurate total cost of their late-enrollment penalties — because they are calculated on figures that change each year — we’ve drawn some illustrations so that you can still get a rough idea of how costly they can be. Because these illustrations do not take into account normal cost increases of Medicare each year, actual costs would likely be higher than these estimates.
Medicare Part D Prescription Drug Late-Enrollment Penalty
The cost of this penalty depends on how long your client went without Part D or creditable prescription drug coverage. Medicare calculates the penalty by multiplying 1% of the national base beneficiary premium by the number of months your client could have been enrolled in a Part D plan but was not, rounded to the nearest $0.10. That amount is then added to the premium of the plan the client chooses to enroll in. The base beneficiary premium can change each year, so the exact amount of the penalty you pay can also change each year.
Mary, whose Initial Enrollment Period ended in October 2017, elected not to take a prescription drug plan because she was not on any medications at the time and didn’t expect to be put on any in the foreseeable future. (While we typically would advise against this, we do see it all too often.) In September 2018, Mary learns at her annual checkup that she has high blood pressure as well as elevated cholesterol levels. (Both happen often in later adulthood.) Mary’s doctor prescribed two medications for her to take daily. To help pay for her prescription drug costs, Mary decides she wants to enroll in a Part D plan. The plan she chose has a premium of $25 per month. However, her premium will actually be higher due to the late-enrollment penalty, and she can't enroll in a Part D plan until the Annual Election Period (Oct. 15 through Dec. 7, with coverage going into effect the following January). While the penalty sounds somewhat small — an additional $4.32 a month — that, roughly speaking, could add up to nearly $780, if Mary lives an additional 15 years.
13 = the number of months Mary could have been enrolled in a Part D plan but chose not to (November 2017 to January 2019)
$33.19 (National Base Beneficiary Premium for 2019) x 13% (late enrollment penalty) = $4.32
$25 = monthly Part D premium
$25 + $4.32 penalty = $29.32
Mary’s Part D penalty of $4.32 a month x 12 = $51.84 a year
$51.84 x 15 additional years = $777.60
Medicare Part B Late-Enrollment Penalty
As is the case with Part D, the Part B penalty is incurred when your clients are first eligible but fail to sign up. There are some exceptions — such as creditable coverage from an employer — in which your client can delay the Part B premium and the penalty is waived. However, if your client does not have creditable coverage and fails to sign up for Part B when first eligible, your clients will incur a 10% penalty on Part B for each full 12 month period that he or she could have signed up for Part B but didn’t.
Tom, who is single and filed his taxes with a modified adjusted gross income (MAGI) for 2019 of $135,000, was eligible for Medicare and his Initial Enrollment Period ended in October 2014. Tom believes now is a good time to enroll in Part B and purchase supplemental coverage to help with his medical costs. From October 2014 until now, Tom was not covered under any employer group plan or other coverage that could have been deemed creditable, so Tom will incur a Part B penalty. Furthermore, Tom can only enroll in Part B during the General Election period from Jan. 1 through March 31 each year, with coverage beginning July 1. Because Tom’s MAGI was over the standard amount, he will pay a base rate of $352.20 for his Part B Medicare coverage and incur a penalty in addition to that. The penalty, however, is based off the standard Part B premium rate, which is $135.50 in 2019. The penalty is significant: $54.20 a month. Assuming he lives another 15 years, that could add up to more than $9,756 in penalties!
Tom’s Part B premium (adjusted because he is a high-wage earner) = $352.20
4 (number of full 12 months in which Tom could have been covered under Part B but was not)
4 x 10% = 40% penalty
Using the standard Part B premium to figure the penalty: $135.50 x 40% = $54.20 penalty
That increases his Part B monthly premium to $406.40
Tom’s Part B penalty of $54.20 a month x 12 = $650.40 a year
$650.40 x 15 additional years = $9,756
Again, these illustrations don’t take into account increases in premiums on which they are calculated —which generally go up each year — so they are rough. But they illustrate how important it is for your clients to make informed decisions about enrolling in Medicare. That 65th birthday is an important one!
Help your clients understand that penalties can be assessed if they don’t initially enroll in Medicare Part B and Part D, that these penalties can stick with them and add up over time and that they can contact Medicare BackOffice for help by calling 1.877.385.8083 or having them fill out this form. That advice can save them hundreds, if not thousands, of dollars.
