• 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.

    • If the mandate is repealed, I still think this would be worth a shot combined with limited enrollment periods. I see limited downside risk even if it is not as effective. Probably just wishful thinking since if the mandate is repealed, it could not be passed. It looks to me as though the GOP would rather have the ACA run higher costs so that it could all be repealed, rather than try to amend it.


    • I am a disable veteran since 1987 . I used to live near a VA hospital and dropped Med. part B, Now I live about 144 miles round trip from the VA hospital.. If I need emergency care, I have to pay for it out of my pocket and plus the ambulance to take to me the nearest emergency care.
      I went to get on Med. part B at the Social Security office. . I was told I would have to pay $115.00 plus the 10% penalty which would be over $300.00 a month.I am already hurting to pay my bills.Is their any way that I can get the penaity waivered?
      If not beware of the penaity !

      • I am no expert, but the way I understand the VA, is: They will pay for the first ambulance ride, and the treatment to “stabilize” you. You are then responsible to get to the VA for teatment and care.

      • Hey Bob,
        I am in a similar situation. Did you find any good answers? So you must now be about 76 years old?
        I now get $950.00 per month from SS. By my calculations if I were allowed to enroll now they would deduct about $205.00 each month. I am pushing towards 72. The $105.00 payment used to be $85.00. So the increase is more than 3% per year.
        Thanks, wapeters@nvbell.net

      • no you shouldnt due to the fact that the va is considered credible coverage they may send a lep attesation letter just call your medicare insurance provider to do a verble attestation

    • What happens when you continue to work after 65 and they now want to charge me 233.00 per month due to basing it on 2 years ago income? Now I am ready to retire and cannot afford 233.00 a month Will they take into consideration my drastic drop in income and reduce the Part B premium?

    • I do have a problem with LEP. I can understand a penalty for the first year of enrollment but for the rest of my life ? That is rediculous and should be repealed. Dont the idiots who enacted the law realize that most seniors only have there pensions to live on and every penny counts ?

      • Being charged a Late Enrollment Penalty FOREVER is a bit over the top. Because my husband and I did not have drug coverage during the last four months of 2011, we will penalized by paying the LEP the rest of our lives. This is clearly a case of the powers that be having us where they want us, feeling powerless. Would someone please explain how this is fair?

    • Brilliant program. Medical costs skyrocketing and most government social programs are broke or about to go broke.

      Yet, instead of rewarding those who do not enroll in medicare right away, we penalize them. Penalize them for saving Medicare money.

      Welcome to the world of government mandated programs run by people who would otherwise be on welfare.

      • My husband’s workplace closed in Dec. 2002 and we had the best BCBS coverage I have ever seen. I was eligible for Medicare Part B in 1998 but didn’t have to have it because of his employee & spousal coverage. I decided I would rather keep that coverage through COBRA, so I did. When the COBRA coverage was 2 months away from being gone, I talked with Medicare to re-enroll. TOO late (I didn’t know I had to re-enroll within 8 months of the company closing) and COBRA coverage doesn’t count as creditable coverage, so now I pay a 40% penalty for saving Medicare money. That makes a lot of sense, doesn’t it?

    • The Medicare late enrolement fine makes no sense if you had your FEHB during the time that you did not take Medicare. Many of us believe that if you always were covered by a health plan such as FEHB, you should be able to enrole in Medicare Part B any time.

      Somebody in Washington is not thinking straight

    • To help you all out, you need to understand when the penalty does take effect. If you have credible coverage then you can delay making your part B effective. Also the penalty for not having drug coverage is nominal about $.30 per month. Right now the part B premium is $104.90/month was $.99.90. Now if you did not have credible coverage then you would subject yourself to a 10% penalty and it is not 10% per month, So do some more research.

      • I don’t understand how 10% of $104.90 works out to 30 cents per month. Moreover, the post says everything else you wrote about creditable coverage and the 10% penalty. More at the link. Did you even read the post? What, exactly, are you objecting to?