Gaining access to Medicare after years of paying into the system can feel like you’ve finally “made it.” However, once you start receiving Medicare benefits, it’s important to understand that there are conditions.
If you don’t follow some of the rules, you can end up paying a fine – and some penalties have long-lasting effects. Here’s what you need to know about the various Medicare penalties and how to avoid them.
1. Penalty for Post-Medicare HSA Contributions
When you turn 65 and enroll in 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 deductible.
If you overcontribute to your HSA, you may face additional taxes and a penalty:
- You must include the excess contribution amount in your tax return in your gross income and tax it.
- A consumption tax of 6% will be charged as a penalty on the excess contribution amount.
It is possible to avoid the 6% consumption tax if you deduct your excess contributions and income and add them to your income on your tax form. You must achieve this before your tax due date. The income from your excess contributions must be reported as ‘Other income’ on your tax return. You still have to pay tax on the amounts, but you avoid excise duty.
How to avoid the HSA contribution penalty
Be aware of when you are eligible for Medicare Part A and when you enroll. If you enroll in Medicare during your first enrollment period (the period that includes the three months before you turn 65 through the three months after you turn 65), you should submit your last HSA contribution in the month before you turn 65 Afford. You can avoid a penalty. It is also possible to avoid a penalty if you make your last HSA contribution in the month before you turn 65 if you register within two months of your initial registration expiring.
Things get harder when you wait to enroll in Medicare. If you decide to enroll after you turn 65, you have two options to avoid the penalty, depending on how long you wait:
- Less than six months after age 65: Stop your HSA contributions the month before you turn 65.
- At least six months after reaching the age of 65: Stop your HSA contributions six months before you apply for Medicare.
As you can see, HSA contributions can get complicated when you’re eligible for Medicare. To avoid the penalty, it’s best to make sure your last contributions are made before the month you turn 65 and be aware of your enrollment window.
2. Penalty for Late Enrollment in Medicare Part A
Medicare Part A is often referred to as hospital insurance. It includes hospitalization, skilled nursing, some home nursing and hospice.
You are expected to enroll in Medicare Part A if you are eligible for your first enrollment period. Except in certain circumstances, e.g. B. If you are still employed and thus have health insurance coverage, you may be assessed a late payment if you fail to meet this deadline.
With Medicare, you don’t just pay a one-time fee and then move on. Instead, your penalty will be determined by how late you log in. With Medicare Part A, the late filing penalty can add an additional 10% to your monthly premium. You pay that penalty every month for twice the number of years you didn’t sign up when you should have.
For example, if you enrolled a year after you became eligible for Medicare Part A, you would 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 sign up if you are eligible. You can also check if you are eligible for a specific registration period. Find out before your initial registration normally ends so you are prepared.
3. Penalty for Late Enrollment in Medicare Part B
Medicare Part B is designed for physician and specialty services, covering outpatient and home health care. Unlike the Medicare Part A penalty, which has an expiration date, the Medicare Part B penalty is generally a life sentence.
The penalty is 10% of your premium for each year you should have enrolled in Medicare Part B but didn’t. If you have a higher income, you may have to pay a higher premium, increasing your penalty.
For example, if you wait two years to enroll in Medicare, you might see your Part B premium increase by 20%. And that increase stays with your premium for life.
How to avoid the Part B late enrollment penalty
Find out about your enrollment period and register in good time. Avoid late filing or find out if you are entitled to a special filing period to avoid paying the fine.
4. Penalty for Late Enrollment in Medicare Part D
Medicare Part D, coverage for prescription drugs, is another piece of the puzzle. You are expected to join Medicare Part D when you enroll in Medicare. If you do not sign up, you will have to pay a penalty of 1% on top of your premium for each month that you are not covered. This results in a penalty of up to 12% per year.
The longer you stay without enrollment, the higher your fine will be. Your penalty applies as long as you have Medicare Part D, even if you switch medication plans.
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 that allow you to avoid the penalty are:
- You already have Medicare coverage similar to Medicare Part D.
- You are entitled to extra help from Medicare.
If you don’t meet these conditions, you can avoid the Medicare Part D penalty by selecting a prescription plan when you enroll in Medicare.
If you disagree with a Part D penalty
If you receive a letter stating that you will be charged a penalty for late registration under Part D, but you feel this is unfair and you should not be charged, you can request a review. You must request your review within 60 days of the date on your penalty letter.
A reconsideration request form is enclosed with your letter and must be completed. Fill it out and send copies of the documents supporting your case, e.g. B. Proof of an eligible medication plan that you were enrolled in instead of Medicare Part D.