Accessing Medicare after years of paying into the system can feel like finally “making it.” However, once you start receiving Medicare benefits, it’s important to understand that there are terms and conditions.
If you don’t follow some rules, you could end up paying a fine – and some fines have long-lasting consequences. Here’s what you need to know about various Medicare penalties and how to avoid them.
1. Penalty for post-medicare HSA contributions
When you turn 65 and sign up for Medicare, you can no longer contribute to a health savings account (HSA). Once you have Medicare, your contribution limit is $0; anything beyond that is considered a co-payment.
If you overpay for your HSA, you may be subject to additional taxes and a fine:
- You must include the amount of the personal contribution in your gross income in your tax return and pay tax on it.
- An excise duty of 6% is levied on the overpaid premium amount as a fine.
You can avoid the 6% excise tax by deducting your overpaid premiums and earnings and adding them to your income on your tax form. You must do this before your tax due date. You must declare the earnings on your personal contribution as ‘Other income’ on your tax return. You do have to pay income tax on the amounts, but you avoid the excise duty.
How to avoid the HSA premium penalty
Pay attention to when you qualify for Medicare Part A and when to apply. If you enroll in Medicare during your first enrollment period (the three months before you turn 65 through the three months after you turn 65), you must pay your last HSA contribution in the month before you turn 65. That way, you can avoid a fine. It’s also possible to avoid a penalty if you pay your last HSA contribution in the month before you turn 65 if you enroll within two months of your initial enrollment period ending.
Things get trickier if you wait to sign up for Medicare. If you decide to enroll after turning 65, you have two options to avoid the fine, depending on how long you wait:
- Less than six months after you turn 65: Stop your HSA contributions the month before you turn 65.
- At least six months after you turn 65: Stop your HSA contributions six months before applying for Medicare.
As you can see, HSA contributions can get complicated if you qualify for Medicare. Your best way to avoid the penalty is to make sure your last contributions are paid before the month you turn 65 and pay attention to your enrollment period.
2. Penalty for late enrollment in Medicare Part A
Medicare Part A is also known as hospital insurance. It includes hospital stays, skilled nursing, some home care, and hospices.
You are expected to enroll in Medicare Part A when you qualify for your first enrollment period. Except in certain circumstances, such as still being employed and having health insurance that way, you could be subject to a late enrollment penalty if you miss this period.
With Medicare, you don’t just pay a one-time fee and move on. Instead, your penalty is determined by what time you log in. With Medicare Part A, the late enrollment penalty can add an additional 10% to your monthly premium. You pay this penalty every month for twice the number of years you did not sign up when you should have.
For example, if you didn’t enroll until a year after you became eligible for Medicare Part A, you’ll pay the penalty for two years.
How to Avoid the Part A Late Enrollment Penalty
Be sure to enroll in Medicare Part A during your initial enrollment period. You don’t have to worry about the penalty if you apply when you qualify. You can also check whether you are eligible for a special registration period. Find that out before your initial enrollment period normally ends so you’re prepared.
3. Penalty for late enrollment in Medicare Part B
Medicare Part B is for physician and specialist services and covers outpatient and home care. Unlike the Medicare Part A penalty, which has an expiration date, the Medicare Part B penalty is generally a lifetime penalty.
The penalty will be added 10% to your premium for each year you should have signed up for Medicare Part B, but didn’t. If you have a higher income, you may get a higher premium, increasing your fine.
For example, if you wait two years to sign up for Medicare, you could see your Part B premium increase by 20%. And that increase remains on your premium for life.
How to Avoid the Part B Late Enrollment Penalty
Check when your registration period is and register on time. Avoid late registration or find out if you qualify for a special registration period to avoid paying the penalty.
4. Penalty for late enrollment in Medicare Part D
Medicare Part D, prescription drug coverage, is another piece of the puzzle. You are expected to join Medicare Part D when you enroll in Medicare. If you don’t sign up, you’ll be fined an extra 1% on top of your premium for each month you don’t have coverage. This results in a fine of up to 12% per year.
The longer you remain without registration, the higher your fine will be. Your penalty applies as long as you have Medicare Part D, even if you change medications.
How to Avoid the Part D Late Enrollment Penalty
Depending on the situation, you may not need to enroll in Medicare Part D and avoid the penalty. The two main situations in which you can avoid the fine are:
- You already have drug coverage similar to Medicare Part D.
- You are eligible for Extra Help through Medicare.
If you don’t meet these conditions, you can avoid the Medicare Part D penalty by choosing a prescription plan when you enroll in Medicare.
If you disagree with a Part D fine
If you receive a letter stating that you will be charged a Part D late fee, but you believe this is unfair and that you should not be charged, you can request an assessment. You must request your revision within 60 days of the date on your fine letter.
Your letter will include a reconsideration request form for you to complete. Fill it out and send copies of documentation proving your case, such as proof of a creditable drug plan you were enrolled in instead of Medicare Part D.