Medicare Late Enrollment Penalties
There are situations where Medicare beneficiaries may have to pay more for their Medicare coverage because they delayed enrolling when they were first eligible. This presentation is designed to help beneficiaries identify when they may be at risk of paying a Late Enrollment Penalty (LEP) and how they can avoid it.
What are they?
If beneficiaries don’t sign up for certain parts of Medicare when first eligible, their monthly premiums may go up due to a Late Enrollment Penalty. There are three LEPs to be aware of:
• Part A – Hospital Insurance
• Part B – Outpatient Insurance
• Part D – Prescription Drug Insurance
Part B Late Enrollment Period
If Medicare beneficiaries don’t sign up for Part B when they’re first eligible, their monthly premium may go up 10% for each 12-month period they could’ve had Part B, but didn’t sign up. In most cases, they’ll have to pay the LEP each time they pay their premiums, for as long as they have Part B coverage.
Example: Their Initial Enrollment Period (3 months before, the month of their 65th birthday, three months after) ended December 2016, and they signed up in March of 2019 during the General Enrollment Period. Their Part B starts on July 1, 2019, leaving a gap of 31 months in which they were eligible for coverage but didn’t have it. The penalty is only applied when they experience a full 12-month period without coverage:
31 / 12 = 2.583
Since there are only two full 12-month periods without coverage, their Part B LEP penalty will be 20%. Social Security will collect the penalty through their regular Part B premium payments.
Part B LEP Exceptions
If beneficiaries were covered by employer or union group coverage based on their or their spouse’s current employment, they can:
• Sign up at any time while they’re covered under the plan
• Sign up within 8 months after the loss of coverage or employment, whichever happens first
Signing up during this Special Enrollment Period will avoid having to pay the Part B Late Enrollment Penalty.
Part B LEP Exceptions Continued
If beneficiaries have limited income and resources, their state may help pay for their Part B premiums through the Medicare Savings Program.
• Monthly Income Limit (2021) – $1,308 individual / $1,762 married
• Resource Limit (2021) – $7,970 individual / $11,960 married (includes stock, bonds, mutual funds, money in checking/savings)
These are the limits for the Specified Low-Income Medicare Beneficiary level of the Medicare Savings Program. These individuals may also qualify for Extra Help to pay for their Medicare Part D coverage.
Part D Late Enrollment Period
Beneficiaries may owe a penalty if at any time after their Initial Enrollment Period (3 months before, the month their Part A and/or B benefits start, 3 months after) ends, there’s a period of 63 consecutive days or more when they didn’t have creditable drug coverage.
They’ll generally have to pay the penalty for as long as they have Medicare Part D coverage (including Part D coverage built into a Medicare Advantage plan).
The cost of the penalty depends on how long they went without Part D or creditable drug coverage before signing up. The formula is:
1% of the national base premium times the number of full months they didn’t have Part D or creditable coverage, then rounded to the nearest $.10 and added to their monthly Part D premium.
As the national base premium changes each year ($33.06 in 2021) so will the Part D LEP.
Example: Their IEP ended May 31, 2017, and signed up for Part D beginning January 1, 2020. Since they were without coverage for 31 months, their penalty is $10.30 each month in 2021.
$33.06 (base premium) X .31 (1% x 31 months) = $10.25, rounded to the nearest $10 = $10.30
Part D (or MAPD) carriers are responsible for notifying the beneficiary of the late enrollment penalty and collecting the premium on a monthly basis. Even if the beneficiary has a $0 premium Medicare Advantage plan, they will receive a bill from their MA carrier for the cost of the Part D LEP
Part D LEP Exceptions
If beneficiaries had creditable coverage since their IEP ended, they will not be charged a penalty when they sign up for Part D coverage. Examples of creditable coverage include:
• Employer/Union Coverage
• State Pharmaceutical Assistance Programs
• Indian Health Service
• TRICARE/TRICARE for Life
• Individual Health Insurance Coverage
Part D LEP Exceptions Continued
Beneficiaries with limited income and resource may qualify for Extra Help on their Part D coverage.
• Income less than 150% of the Federal Poverty Level, and
• Resources less than $13,920 individual / $26,520 married (2021 limits). Resources include stock, bonds, mutual funds, real estate other them primary residence, more then one car, money in a check or savings account, and more.
As long as the beneficiary qualifies for Extra Help, they will not owe a Late Enrollment Penalty.
Part A Late Enrollment Penalty
If a beneficiary doesn’t quality for premium-free Part A (worked 40 quarters paying taxes or claiming under an eligible spouse), and they don’t buy Part A when their first eligible, their monthly Part A premium may go up 10%. This penalty is owed for twice the number of years they didn’t sign up.
Example: The beneficiary was eligible for Part A for 5 years but didn’t sign up and have now purchased coverage. They’ll have to pay the 10% penalty for 10 years.
Part A LEP Exceptions
If they were covered by employer group coverage based on their or their spouse’s current employment, they can:
• Sign up at any time while they are covered under the plan, or
• Sign up with in 8 months after the loss of coverage or employment, whichever happens first
Signing up during this Special Enrollment Period will eliminate any Part A LEP charges.
Also, if they have limited income and resource, their state may help them pay for their Part A premiums through the Medicare Savings Program:
• Monthly Income Limit (2021) – $1,094 individual / $1,472 married
• Resource Limit (2021) – $7,970 individual / $11,960 married
These limits are for the Qualified Medicare Beneficiary level of the Medicare Savings Program, or may be referred to as Full Benefit Dual Eligible. Beneficiaries at the Specified Low-Income Medicare Beneficiary (SLMB) level do not qualify for Part A premium assistance.
Beneficiaries who believe they are wrongly being charged a Late Enrollment Penalty can file an appeal to overturn the decision.
Medicare Part A and Part B
Appeals should be filed with Social Security either by calling them at 800-772-1213, or visiting a local office.
For Medicare Part D appeals
Reach out to your current Part D carrier for assistance.