Unfortunately, when it comes to Medicare there are penalties/surcharges involved. Here are the most common penalties and how to avoid them.
Part B – Late Enrollment Penalty (LEP)
If you do not have *creditable coverage* and are eligible to sign up for Medicare Part B but miss your enrollment window, you will be charged a 10% penalty on top of your Part B cost which will stay with you forever. That comes out to roughly $15 extra per month for each 12-month period you don’t sign up for Medicare Part B when you should have. Yikes!
How to avoid? Simple, sign up for your Part B during the 3 month window before your 65th birthday or as soon as you lose coverage through an employer plan.
Paying Extra Due To High Income (IRMAA)
If your income is above certain thresholds, the government will add on a “surcharge” to your monthly Part B and Part D premiums. In 2020, those limits are $85,000/yr as an individual and $170,000/yr filing jointly. For folks in this situation, Part B can cost up to $491/mo and Part D can cost an extra $76/mo above your plan premium.
How to avoid? Our team can file an IRMAA appeal form for you to see if you qualify to get out of this surcharge. We see roughly 60% of appeals get approved, especially if your income will be going down as you enter retirement or if your income was unusually high due to a windfall payment of some sort (sale of property, inheritance, lump sum pension, etc).
Part D Drug Plan – Late Enrollment Penalty
Many of the healthier people we speak with may not be taking any medications at all and therefore, don’t want to pay for a Prescription Drug plan that they do not plan on using. However, if you do not enroll in a Part D drug plan and no not have any other *creditable* drug coverage, you will have a penalty added onto your drug plan once you do sign up for one. The penalty works out to roughly $3/mo for every 12-month period you don’t have a drug plan. So for example, if you wait until age 70 to get a drug plan….that is 5 years x $3/mo = $15/mo added on to your drug plan premium each month indefinitely.
How to avoid? If you don’t have other drug coverage, just get an inexpensive Part D Drug plan so that you avoid the penalty.
As you can see, there are a lot of ways to get penalized when you’re dealing with Medicare. The easiest way to avoid them is to work with a professional who can guide you through the process and make sure you’re in a good spot. Give us a call, we’d love to help.