Getting access to Medicare after years of pushing through the system can feel like it finally “worked it out.” However, once you begin receiving Medicare benefits, it is important to understand that there are terms and conditions.
If you don’t pay attention to some of the rules, you could end up paying a fine – and some penalties have long-lasting effects. Here’s what you need to know about the different Medicare penalties and how to avoid them.
1. Penalty for HSA contributions after Medicare
When you turn 65 and enroll in Medicare, you can no longer make contributions to a health savings account (HSA). Once you get Medicare, your contribution limit is $0; Anything beyond that is considered an excess contribution.
If you have an excess HSA contribution, you may be subject to additional taxes and a penalty:
- You must include the amount of the excess contribution to your total income on your tax return and pay taxes on the amount.
- An excise tax of 6% is imposed as a penalty on the excess contribution amount.
It is possible to avoid the 6% indirect tax if you withdraw your contributions and excess earnings and add them to your income on your tax form. You need to get this done before the tax due date. Earnings from your excess contributions should be reported on your tax return as “Other Income.” You still have to pay income tax on the amounts, but you avoid excise tax.
How to avoid an HSA contribution fine
Pay attention to when you become eligible for Medicare Part A and when you enroll. If you enroll in Medicare during the initial enrollment period (the period that includes three months before you turn 65 through three months after you turn 65), you must make your last contribution to your HSA in the month before you turn 65. That way, you can Avoid penalty. It is also possible to avoid a penalty if you make your last contribution to an HSA in the month before you turn 65 if you enroll within two months after the initial enrollment period ends.
Things get more complicated if you wait to enroll in Medicare. If you decide to register after you turn 65, you have two options to avoid punishment, depending on how long you wait:
- Less than six months after turning 65: Stop your HSA contributions in the month before you turn 65.
- At least six months after turning 65: Stop your HSA contributions six months before you apply for Medicare.
As you can see, HSA contributions can get complicated if you qualify for Medicare. The best way to avoid the penalty is to make sure you make your final contributions before the month you turn 65 and to pay attention to your filing period.
2. Penalty for late enrollment in Medicare Part A
Medicare Part A is often known as hospital insurance. It covers hospital stays, skilled nursing, some home health care services and hospices.
You are expected to enroll in Medicare Part A when you are eligible for the initial enrollment period. Except for certain circumstances, such as continuing to work and obtaining health insurance coverage in this way, you may be subject to a late registration penalty if you miss that period.
With Medicare, you don’t just pay a one-time fee and then move on. Instead, your penalty is determined by how late you are in registering. With Medicare Part A, the late registration penalty can add an additional 10% to your monthly premium. You pay this penalty each month for twice the number of years you didn’t file by the time you should have.
For example, if you don’t enroll in Medicare Part A until a year after you qualify, you’ll pay a two-year penalty.
How to Avoid the Part A Late Registration Penalty
Be sure to enroll in Medicare Part A during the initial enrollment period. You don’t have to worry about the penalty if you sign up when you become eligible. You can also check to see if you qualify for a special enrollment period. Find out before the initial registration period normally ends so you’ll be prepared.
3. Penalty for late enrollment in Medicare Part B
Medicare Part B is designed for physician and specialist services and covers outpatient care and home health care. Unlike a Medicare Part A penalty, which has an expiration date, a Medicare Part B penalty is generally a life sentence.
The 10% penalty is added to your premium for each year that you should have enrolled in Medicare Part B but did not. If you have a higher income, you may have a higher premium, which makes the penalty larger.
For example, if you wait two years to enroll in Medicare, you could see your Part B premium increase by 20%. This increase remains with your premium for life.
How to avoid the Part B late registration penalty
Find out when your enrollment period is and sign up on time. Avoid late registration, or find out if you qualify for a special registration period to avoid paying the penalty.
4. Penalty for late enrollment in Medicare Part D
Medicare Part D, prescription drug coverage, is another piece of the puzzle. You are expected to join Medicare Part D when you enroll in Medicare. If you do not register, you will face a penalty of an additional 1% added to your premium for each month you do not have coverage. This results in a penalty of up to 12% annually.
The longer you work without a registration, the higher the penalty. Your penalty applies as long as you have Medicare Part D, even if you switch drug plans.
How to avoid the Part D late registration penalty
Depending on the situation, you may not need to enroll in Medicare Part D and can avoid penalty. The two main situations that allow you to avoid punishment are:
- You already have drug coverage similar to Medicare Part D.
- You qualify for additional help through Medicare.
If you don’t meet these conditions, you can avoid a Medicare Part D penalty by choosing a prescription plan when you enroll in Medicare.
If you do not agree with the Part D penalty
If you receive a letter indicating that a Late Registration Part D penalty has been charged, but you believe it is unfair and you should not be charged, you can request a review. You need to request your review within 60 days of the date of your sanction letter.
Your letter will come with a reconsideration request form to fill out. Fill it out and send copies of documents that prove your status, such as proof of a trustworthy drug plan you’re on instead of Medicare Part D.