Depending on your past and/or current coverage, the timing of when you enroll in Medicare and what type of plan you enroll in are all contributing factors in whether you may incur a penalty. I get asked all the time, ‘I don’t take any prescription medications; do I even need to enroll in a Part D plan and pay a premium every month’? Well the answer is truthfully ‘No’. No one HAS to do anything. However, if you don’t enroll in a Part D or Advantage Plan with Part D included, you could incur a penalty which increases over time. Let’s take a look at types of penalties and how to avoid them.
Penalty #1
Let’s dive right into the Part D penalty. This is the most common since there are occasions where people turning 65 are not on any prescription medications and thus don’t want to pay a monthly premium. You have a 7 month window around turning 65 whereby you can sign up with no penalty. [Window = 3 months before, the month you turn 65, and 3 months after] However, if you are still working and have ‘creditable’ employer coverage as determined by Medicare for medical and prescription drugs, you can choose to stay on the employer plan as long as you are working. When you leave the employer plan because you have decided to elect Medicare or because you are leaving employment with no retiree medical benefit, you have 63 days to then add a Medicare Part D plan. Otherwise, the penalty begins by adding on 1% of the national average premium per month for every month you do not have a plan. Note- There are exceptions: VA drug coverage is considered creditable for forever and many federal retiree drug plans are considered creditable for forever.
Penalty #2
There is also a risk for penalty if you do not sign up for Medicare Part B in a timely fashion. This happens less frequently than in Part D, but in scenarios where folks have VA coverage or a federal retiree plan. Those are NOT considered creditable for Medicare Part B. So years later, they decide they want to begin using Medicare to gain some additional benefits. The penalty is 10% added to your Part B premium for each year you didn’t sign up when you could have. Again, you have a 7 month window around turning 65 to sign up. If you chose to stay with a ‘creditable’ employer plan for years after turning 65, and then leave the plan, you have 8 months to sign up for Medicare Part B without penalty. After that, the penalty begins to accumulate.
Penalty #3
This one isn’t really related to a time frame, but some in the industry claim that the Part B and D ‘surcharge’ by the Social Security Administration is like a penalty. This is a premium add on some individuals incur simply because they were high earners. The official title is Income Related Medicare Adjustment Amount or IRMAA. Premiums owed to SSA are set by your adjusted gross income earned two years in a rears. The surcharge amount is added to premiums of those over a certain income threshold. You can request an ‘re’-adjustment based on a life change or major change in income to bring it back down to standard rate. Talk to your trusted agent for more details! Wink!
Every individual’s situation is different, so be sure to work with an Independent Insurance Agent so you can avoid penalties but also not pay into Medicare before you have to. Engage with your agent well before your 65th birthday even if you are still working. There are many options to consider and ultimately avoid any future penalties! Email me at carrie@cdi-cares.com or check me out on www.cdi-cares.com
“If you’re in the penalty area, and don’t know what to do with the ball, put it in the net and we’ll discuss the options later”
-- Bob Paisley
