Medicare’s late enrollment penalties (Part’s D and B)

Since policymakers are casting about for alternatives to the individual mandate, we should consider what Medicare does to encourage folks to enroll in its programs. I’ve already posted on Part D before.

When the legislation authorizing Part D was under consideration some thought that only beneficiaries who expected to have high drug costs would enroll. That is, it was thought that PDPs would experience high adverse selection, that they would be like “providing insurance for haircuts.” Adverse selection severe enough can cause an insurance plan to die by requiring it to charge higher and higher premiums as relatively lower risk individuals drop out (the so-called “death spiral“).

To reduce adverse selection beneficiaries are encouraged to enroll in a Part D plan while they are young and relatively healthy. The chief mechanism that encourages early enrollment is a financial penalty in the amount of 1% of premium per month that enrollment is later than one’s initial eligibility (penalty waived in the case of creditable coverage).

That’s all fairly well known. It seems Part B’s enrollment incentives are not as well known. In fact, I wasn’t fully aware of them. By e-mail, Jonathan Oberlander pointed me to a good summary:

If you are approaching age 65 and you already receive Social Security or Railroad Retirement benefits through early retirement, you will be automatically enrolled in Medicare Parts A (hospital insurance) and B (medical insurance) when you turn 65. […]

If you turn down Part B and don’t have other coverage, but later decide you want Part B coverage, you can only enroll during the annual General Enrollment Period (GEP), which is January 1 through March 31. Your Part B benefits will not be effective until July 1 of that year. You may also be required to pay a late enrollment penalty of 10% of the current Part B premium for each 12-month period you could have had Part B coverage, but did not take it.

For beneficiaries age 65 and older, this penalty is for life, and you will always pay more for your Part B coverage than other people.

If you are younger than age 65, have Medicare because of a disability and are charged the Part B penalty, it will be waived when you turn 65 and qualify for Medicare based on age. [Bold mine.]

On top of that, Medicare Part B, and all the other parts, are highly subsidized. It’s no wonder the program achieves very high enrollment, nearly everyone eligible for Part B, for example.

Does this generalize? No. About this, I agree with Jon Gruber. Medicare beneficiaries are vastly more likely to need and want health care services, relative to the non-disabled, working-age population. They’re highly motivated to obtain subsidized coverage. The Part D penalty may help a little in beating down adverse selection, but I seriously doubt the Part B penalty is necessary. I would not make the same claim about a program for younger, non-disabled individuals.

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