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Why you can’t afford to get Medicare Part B wrong

Enrollees aging into Medicare face a multitude of options. Delaying Part B enrollment is one you should approach carefully.

There are two main ways to avoid the Part B late-enrollment penalty and enroll in the right medical coverage at the right time.

Medicare Part B covers most of the services people expect in a health plan – such as outpatient physician visits, mental health services, lab tests, and physical therapy. It’s important to sign up at the correct time for this part of Medicare – because simple enrollment mistakes can result in gaps in coverage and lifelong premium penalties.

What is the penalty for delaying enrollment in Medicare Part B?

An increasing number of Americans are putting off enrolling in Medicare Part B when they first qualify for it. Medicare-eligible individuals can delay enrolling in Part B only if they’re covered by an employer-sponsored group health plan (GHP) through a current job (their own or their spouse’s). Those who postpone enrollment – and aren’t covered by a GHP – will owe a 10 percent Part B late-enrollment penalty (LEP) for every year they delay signing up.

The Part B premium in 2020 is $144.60 per month for most people. Consider an individual who qualified for Part B five years ago but didn’t enroll until this year – and didn’t have qualifying GHP coverage. They will owe a 50 percent LEP that increases their monthly cost for Part B this year to about $217.

While the percentage of the premium increase is fixed for as long as an individual has Medicare, the penalty amount would actually get higher over time. This is because the penalty is set as a percentage of the monthly Part B premium – which usually increases each year.

How can I safely delay Medicare Part B enrollment?

You must have coverage from a GHP through your or your spouse’s current job to safely delay signing up for Part B.* You also have to have been covered through an employer-sponsored GHP or Medicare Part B during the month you qualified for Medicare. If you meet these criteria, you’ll receive an 8-month long special enrollment period (SEP) during which you can enroll in Part B without penalty.

The Medicare Part B SEP begins the sooner of when:

  • You (or your spouse) are no longer currently employed; OR
  • Your GHP ends – even if you (or your spouse) continue to be employed.

Note that coverage through Medicaid, a retiree plan, COBRA, or individual market coverage (e.g., through HealthCare.gov) will never allow you to safely delay enrolling in Medicare Part B.

*Disabled Medicare beneficiaries under age 65 can also qualify for a Part B SEP if they’re covered through a non-spouse family member’s large group health plan (i.e., through a company with 100+ employees).

Common Part B mistakes

Here are Part B enrollment scenarios where people often make mistakes, in order of severity (high to low):

You’re eligible for Medicare but purchase an individual plan

Coverage purchased in the individual market (e.g., through HealthCare.gov or a state-based marketplace like Covered California) is usually not available to Medicare beneficiaries. In fact, Medicare beneficiaries are not allowed to purchase individual market policies other than Medigap plans.

Many Americans are enrolled in the individual market when they qualify for Medicare – and can keep their individual market plan after becoming Medicare eligible. But once you’re eligible for Medicare, an individual market plan may pay little or nothing toward your care. This is why it’s important to enroll in Medicare (and a Medigap or Medicare Advantage plan) when you’re first eligible for the benefit.

Here is more information about transitioning from individual market coverage to Medicare.

You get bitten by COBRA

The Consolidated Omnibus Reconciliation Act (COBRA) allows most employees and their family members to continue coverage after their employment ends – usually for up to 18 months. But having COBRA benefits does not mean you can safely delay signing up for Part B. Individuals who delay enrolling in Part B because they have COBRA coverage will not receive a SEP to enroll in Part B later.

Furthermore, COBRA carriers may recoup what they paid toward your medical bills when they discover you were eligible for Medicare but not enrolled in it. This is because COBRA plans cover only the portion of your health care claims Medicare wouldn’t be responsible for paying – even if you don’t have Medicare.

COBRA insurers may not know you’re eligible for Medicare at first. But by the time your COBRA plan ends, the insurer usually becomes aware of your Medicare eligibility and may begin recouping that Medicare should have paid on first. This usually occurs after the Part B SEP has ended, causing you to wait to enroll in Part B during the general enrollment period (GEP) – from January to March of each year.

Enrolling in Part B during the GEP means Medicare coverage won’t begin until July of the year you enroll.

You take retiree coverage without taking Part B

Most retiree plans (i.e., coverage offered to former employees and their spouses) will inform you that you have to take Part B in order to be covered by the plan. If you don’t sign up for Part B when you first qualify for it, your retiree plan might pay little or nothing toward your health care.

Additionally, many employers offer retiree benefits through Employer Group Waiver Plans (EGWPs) – a type of Medicare Advantage plan. You have to be enrolled in Medicare Parts A and B to receive retiree benefits through an EGWP.

You’re still employed … and ‘pass’ on Part B

If you’re happy with the coverage your employer offers, you may think you don’t need to enroll in Medicare. But individuals who work for a small employer (i.e., generally one with fewer than 20 employees*) should enroll in Part B because that will be their “primary” insurance coverage.

Employees of large companies (i.e., usually one with more than 20 employees) do not have to enroll in Medicare. However, if they choose to sign up for Part A and B, Medicare will act as secondary coverage and pay for care after the GHP pays.

*The threshold for being considered a “large employer” is 100 employees when an individual qualifies for Medicare based on a disability.

It’s worth asking Human Resources these questions.

If you’re covered by a GHP and will be qualifying for Medicare soon, it’s worth your time to talk to Human Resources about transitioning to Medicare coverage. Here’s what you should ask:

  1. Is my health plan a large group health plan?
  2. Am I still considered a current – or “active” – employee?
  3. Can my spouse safely delay enrolling in Part B while they’re covered under this plan?

Josh Schultz has a strong background in Medicare and the Affordable Care Act. He managed a Medicare technical assistance contract at the Medicare Rights Center in New York City and represented clients in Medicare claims and appeals. Josh also helped implement federal and state health insurance exchanges at the technology firm hCentive. He has also held consulting roles, including an associate at Sachs Policy Group, where he worked with insurers, hospital, and technology clients.