By Susan Stewart, Licensed Insurance Agent
It’s not happy news when a Medicare beneficiary finds out they have incurred a Late Enrollment Penalty.
The most common penalty I see is Medicare Part D prescription drug coverage. It often goes like this: When a person signs up for Part B, they are typically healthy and happy to pay the 20 percent coinsurance for medical care, unaware of the financial vulnerability it entails. Or they need no or very inexpensive prescription drugs. It might seem easy to use GoodRx or pay out of pocket.
Then, a day comes when something changes. Their health declines, or they start needing an expensive new prescription. Better get Part D.
Easy, right? Not so fast—you can’t add Part D without a Special Enrollment Period. Then, suppose you do have a Special Enrollment Period. In that case, Medicare will charge you a penalty of an extra 1 percent each month (that’s 12 percent per year) if you didn’t join a Medicare drug plan when you first got Medicare or went 63 or more days without creditable drug coverage.
Let's look at an example below to better understand how the penalty works.
Suppose you waited 14 months after you were eligible for Medicare to join a Medicare drug plan, and you didn’t have creditable drug coverage. In that case, you’ll pay a 14 percent late enrollment penalty in addition to your monthly plan premium. Medicare will apply this penalty to the national base beneficiary premium each month, which is $36.78 in 2025. That means you’d end up paying an additional $5.15 on top of your plan’s monthly premium for the year.
However, the penalties don’t stop there. You’ll continue to pay a monthly penalty as long as you have Medicare drug coverage, even if you switch plans. Additionally, the base beneficiary premium changes yearly, and your penalty amount will change accordingly.
People with creditable drug coverage as good as Medicare’s are not penalized. Most often, this comes through an employer. A GoodRx card or a discount through your union doesn’t count. People who are eligible for Extra Help are excused from the Late Enrollment Penalty. Extra Help is a federal government program designed to assist with prescription costs based solely on income.
Part B penalties are less common. You’ll pay an extra 10 percent each year you could have signed up for Part B but didn’t. For example, if you waited two full years (24 months) to sign up for Part B and didn’t qualify for a Special Enrollment Period, you’ll pay a 20 percent late enrollment penalty on top of the standard Part B monthly premium of $185 in 2025. This penalty continues for life.
Much as with Part D, people who have creditable medical coverage are excused from the Part B penalty. Again, this most often comes through an employer. People can choose to stay on their employer's coverage, but when the time comes to enroll in Part B, they must show proof of employer coverage and its end date to avoid the penalty.
Even less common is the Part A penalty. If you need to buy Part A and don't purchase it when you're first eligible for Medicare, your monthly premium may increase by 10 percent. You'll have to pay the penalty for twice the number of years you didn't sign up.
Medicare.gov is an accurate resource for educating yourself on the rules. Take the time to use it to make the most of your Medicare benefits and avoid frustrating lifelong penalties.
