Medicare’s Best-Kept Secret: Late Enrollment Penalties

By John Patrick Buckwell

Just how many millions if not billions of dollars go into the Federal Government’s till each year in terms of Medicare’s late enrollment penalties being levied out to unsuspecting Americans is anyone’s guess.* But what is known is that each day more and more baby boomers contribute to this obscene amount as approximately 10,000 boomers reach Medicare age, many of whom haven’t a clue as to what is required of them. And it’s not totally their fault.

The Rules

Medicare’s rules, regulations and requirements are anything but straightforward and clear. To boot, they are not widely publicized, especially the aforementioned Late Enrollment Penalty (LEP). These two factors coalesce into a costly and largely avoidable scenario where Americans – when they can least afford it – end up having to pay these extra costs FOR LIFE. If properly informed, they can avoid or minimize the surchage.

Many Americans do not know the following:

  • They may have to pay higher premiums if they don’t sign up for Medicare during their initial enrollment period (Medicare Part A Late Enrollment Penalty and Medicare Part B Late Enrollment Penalty); and,
  • If they don’t carry prescription drug coverage deemed ‘creditable’ by Medicare over a period leading up to their enrollment in Medicare, they will likely end up paying a penalty even if they don’t use prescription drugs. (Medicare Part D Late Enrollment Penalty)

Unlike the prescription drugs that most Americans are saddled with, these LEP’s do not have an expiration date; they are for life, or for as long as the individual carries Medicare.

Case History

I didn’t know any of this despite visiting a Social Security office in late 2019 and asking the civil servant there what actions were needed to get prepared for Medicare. The response was to hand me an imposing, inch-thick book entitled Medicare and You. My employer did not provide a prescription drug plan, or health insurance of any kind for that matter. As I rarely get sick and even more rarely use prescription drugs, preferring natural remedies, I decided not to invest in a private health plan. Now I am one of thousands of Americans who pay an LEP as part of their Medicare payment.

Feeling an injustice had been done, especially on learning that the penalty was for life, I called my plan’s home office to complain. It was there that I learned about the LEP appeal process, so appeal I did. I also learned from the rep that I was not the only one upset about LEP. “I get many complaints”, she told me.

My appeal was answered by a letter stating, “The appeal decision is UNFAVORABLE. Our decision is that you are required to pay an LEP.” And further down the page, “This decision is final and not subject to further appeal.”

“Ha!” I thought to myself, “I am not finished, I’ll just get rid of Part D,” thinking that that had to be an option. It is, but my agent assures me that my premiums will be even higher if I drop Medicare Part D altogether. It’s a lose-lose proposition.

(Possible) Good News on the Horizon

I am not alone in thinking that American taxpayers are entitled to full disclosure of the Medicare regulations that may affect them, especially the penalty clauses.

A bipartisan bill (Casey/Young) was introduced in the Senate earlier this year that would require the federal government to inform the public about Medicare enrollment rules before they reach 65, the Medicare-eligible age. Although some Americans are automatically enrolled in Medicare, not all are, due to more people working later in life and delaying Social Security. This new bill** advocates including information on Social Security statements, beginning at age 60, that explains the rules for Medicare enrollment so that those nearing Medicare eligibility age are informed and understand their responsibilities for signing up.

Passing this bill would go a long way towards clarifying Medicare’s rules as well as helping seniors to avoid the LEP pitfall and keep more money in their pockets.  It would behoove us all to contact our elected officials to urge its passing.

*Although the Part B penalty hits a small share of beneficiaries — an estimated 776,200 in 2020 — the average penalty increased their monthly premium by 27%, according to the Medicare Rights Center. Based on this year’s $170.10 premium, that would mean an additional $45.93 monthly, or $216.03 total.  And this is just the Part B Penalty. (Source: Sarah O’Brien, CNBC 3/2/22)

**Note: The bill is known as Benes 2.0 (Beneficiary Enrollment Notification and Eligibility Simplification Act) and will augment an earlier Benes bill passed in 2020.