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Signed Up Late for Medicare? Here’s How to Avoid Penalties

Doctor telling old couple about late medicare enrollment

The majority of people become eligible for Medicare in the months surrounding their 65th birthday, although there are special circumstances under which you may be eligible. Failure to sign up during the medicare enrollment period means a penalty in the form of a higher premium. There are several important enrollment periods to take into account.

  • Initial Enrollment Period (IEP): Your IEP is a total of seven months long. It begins three months before the month of your 65th birthday and ends three months after the milestone. For example, if you are born on July 18, your IEP begins on April 1 and ends on October 31.
  • Open Enrollment Period (OEP) The OEP is an annual event between October 15 and December 7. During the OEP, you can switch toa private insurer’s plan from Original Medicare(and vice versa) and change Part D prescription drug plans.

Missing your OEP involves a potentially stiff penalty and the inability to purchase a Part C Medicare Advantage Plan until the following year. While thousands of beneficiaries miss their OEP each year, an even more concerning fact is that an increasing number of people are missing their IEP for a very specific reason.

Confusion about the Affordable Care Act (ACA)

While the ACA has helped tens of millions of Americans get health coverage for the first time, it is also causing costly confusion for thousands of people each year. An increasing number of people make the mistake of believing they don’t need to enroll because they already purchased coverage on a health insurance market. It is a potentially expensive decision with a steep financial penalty as the result.

Another key mistake made by Medicare beneficiaries is to avoid enrolling in the plan because they have coverage from an existing or former employer. However, none of these plans isa substitute for Medicare Part B. If you missed your IEP deadline and you are not eligible for a Special Enrollment Period, you can enroll between January 1 and March 31 of any year (General Enrollment Period), but there is a penalty involved. In this instance, coverage begins on July 1, but your Part B premiums increase by 10% for every 12-month period you delay before signing up.

The good news is that you’ll typically avoid a penalty if you enroll less than 12 months after the end of your IEP. The bad news is if you fall into the ACA trap and miss your deadline for a couple of years, the penalty is severe. For example, if your IEP ended on August 31, 2014, and you enrolled on March 16, 2017, during the GEP, you receive two full 12-month penalty periods. As a result, your Part B premium is 20% more expensive for life. In 2017, the Part B monthly premium is $134 (depending on income). A 20% increase means you’ll pay an extra $26.80 per month or $321.60 per year.

Medicare Offers Temporary Get Out of Jail Card

Given the confusion over the ACA marketplace and Medicare, the feds have decided to give beneficiaries a second chance. You can sign up for Medicare without paying a late penalty fee. You qualify if you are aged 65+ and either have a marketplace plan or had one and lost or canceled it. You also qualify if you are eligible for Medicare due to disability but you chose a marketplace plan.

The main caveat is that you must request a waiver of the normal Medicare penalty for late enrollment to Part B by September 30, 2017. Typically, Medicare also puts a waiting period on people who don’t sign when initially eligible. You can lift this waiting period by meeting the waiver requirements.

The confusion is especially rife amongst individuals who qualify for Medicare due to a disability. For example, some people kept their marketplace plans and dropped Part B coverage. However, when their monthly premiums skyrocketed, they learned that they lost their premium subsidies upon joining Medicare. In this situation, the unfortunate individual has to drop the marketplace plan, wait for their GEP, and pay a steep penalty. According to Medicare rules, beneficiaries under the age of 65 become eligible for Part B after receiving benefits for two years.

Insurers on the marketplace are among the first to spot when someone is about to turn 65, but the ACA bans them from canceling the coverage just because the individual is eligible for Medicare. The act also says insurers must cancel the individual’s subsidies.

Final Words

If you are eligible for Medicare but missed your IEP because you have or had marketplace coverage, request your waiver before September 30, 2017, to avoid a hefty lifelong premium penalty. Although Medicare is attempting to get in touch with as many people as possible, a significant number of beneficiaries are likely to slip through the net. Individual states such as California, New York, and Connecticut are planning statewide campaigns to spread the word. Let’s hope beneficiaries in this situation receive the right information, avoid confusion, and get their waivers in time.