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Medicare Penalties Explained

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The number one concern we hear is, how do I avoid penalties? So, we're here to explain how to avoid late enrollment penalties with Medicare in one minute.

Late enrollment penalties are typically assessed to someone who is eligible for Medicare but had a lapse in their medical coverage. The penalty amount depends on how long the person has gone without credible coverage and that penalty is added to their Medicare premium for the rest of their life.

There are basically three parts to Medicare: Part A, Part B, and Part D.

With Part A, you can experience a penalty, but most people don't, because they get it premium-free because they've earned it by working 40 quarters over their lifetime.

With your Part B coverage, as long as you have creditable employer coverage, you do not need to sign up for Part B at age 65. The Part B penalty is assessed for anyone who does not have creditable coverage and puts off signing up for Medicare when they're eligible. The amount of the penalty is 10% for every 12-month period that they went without the Medicare coverage. And again, it's added to their premium for the rest of their life.

For your Part D drug plan, if you don't pick up your plan when you're required, you'll have a 1% penalty assessed to your current drug plan for the rest of your life. For example, let's say at 65, you don't pick up a drug plan because you're not on any medications and you don't think you need it. Two years later, you pick up a drug plan. You're going to be paying up to 24% more than you would have if you had signed up on time.

So, with Parts B and D, there are penalties if you don't sign up at the right time and lots and rules and regulations around those. The good news is you can give us a call and we'll talk you through that to make sure you avoid any late enrollment penalties.

Here’s what you need to know to avoid Late Enrollment Penalties.

As individuals approach age 65, questions often come up about Medicare enrollment and the risk of being “penalized” for not enrolling on time. Whether you’re retiring soon or plan to work past your 65th birthday, we have the facts about late enrollment penalties.

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What Is a Late Enrollment Penalty (LEP)?

Late enrollment penalties (LEP) are issued to individuals if there’s a lapse in their health care coverage once they are eligible for Medicare. The penalty amount depends on how long the person has gone without creditable coverage. This is added to their Medicare monthly premium for the duration of their Medicare plan enrollment. There are three types of LEPs:

  • A Medicare Part A LEP for going without creditable hospital coverage (for those who don’t automatically qualify).
  • A Medicare Part B LEP for going without creditable medical coverage.
  • A Medicare Part D LEP for going without creditable prescription drug coverage (the most common LEP).

Creditable coverage is any health care coverage that is comparable to or better than what is available through Medicare for prescription and/or medical coverage.

How do I know if my coverage is creditable?

If you’re eligible for Medicare and are on an employer group health plan, check with your HR department to find out if your coverage is creditable. If you’re on a Medicare plan that includes prescription drug coverage, your plan is creditable.

When would someone acquire a Late Enrollment Penalty?

The most common cause for someone to be issued an LEP is if they do not obtain creditable prescription coverage when they first become eligible for Medicare. For most people, this is when you turn 65.

Those who continue working past the age of 65 can remain covered under their employer group plan. However, it’s still important that they compare their plan to what’s available through Medicare. In most cases, employer group plans are creditable for medical coverage, but that doesn’t mean they’re creditable for prescription coverage. If you go more than 63 days without creditable prescription coverage, you’ll be assigned an LEP.

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What do you do if you receive a Late Enrollment Penalty?

If there was a gap in your coverage and you are issued an LEP, you must continue to pay the penalty as a part of your plan’s monthly premium for the duration of your Medicare coverage.

If you’ve never had a gap in your coverage and received an LEP, you may have been assigned the penalty in error. This is typically the result of Medicare’s records simply needing to be updated. Unfortunately, whether the LEP is correct or not, you must pay the penalty until it is resolved. The LEP becomes a part of your plan’s monthly premium and if you do not pay it, your plan may be canceled. When the LEP is corrected, you will be reimbursed by your insurance company.

Look for the Declaration of Prior Prescription Drug Coverage form.

If you enrolled in Medicare after your 65th birthday, your insurance company will mail you a Declaration of Prior Prescription Drug Coverage form. You’ll need to provide proof that you had creditable drug coverage from age 65 until your new Medicare plan enrollment. After returning the form, call your insurance company to verify they received it. To prevent incurring lifetime penalties, you must complete and return the form. You may have provided similar information to Social Security when you first signed up for Medicare, but that initial information will not show on your Medicare plan.

Please keep in mind that if you started on Medicare when you first became eligible at age 65, you won’t receive this form from your insurance company and don’t need to complete these steps. This only applies to individuals who enrolled after their 65th birthday.

Need help?

For more information about late enrollment penalties or to explore Medicare or individual health insurance plan options, contact us.

Call: 937.915.3563

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