Medicare and Medigap Penalties

Not many Americans are aware of the penalties they may pay for forgoing any Medicare Part. It is best to understand these penalties before making any decisions relating to Medicare/Medigap.

Medicare used to have just two Parts: A and B. It was not until later that Part C was appended, which allows private all-in-one plans to replace the two. Congress later brought in Part D to deal with prescription drugs. Medicare Advantage offers some plans that bundle up with drug coverage.

Part A does not come with a premium other than the payroll tax. Parts B,C and D have additional premiums that must be paid. Those looking to save money often think to do so by waiting to sign on the dotted line. However, the program does not work that way. There is a penalty when someone does not sign up for Part B,C or D after becoming eligible (unless he or she carries other insurance acceptable to Medicare).
The penalty for Part B is 10 percent for every year the person did not enroll. The Part D penalty is related to the base premium for each year, and rises for every month someone on Medicare does not have drug coverage. The higher premiums for delaying Part C are related to the specific Medicare Advantage Plan.

When someone has alternative coverage that is recognized by Medicare — for instance, an employer or union insurance plan with medical and prescription coverage — the penalties will not apply. Be aware that the rules governing this area may vary if the Medicare enrollee is working or if their spouse is employed. Additionally, those who decline to enroll in Medicare because they have coverage at work may find that coverage limited by their company.  It is possible that they will refuse to cover costs that Medicare would have funded.

Medicare rules are very complex, and one misstep can cost a participant a lot of money. Always check what penalties you may face before forgoing any of the Medicare Parts.

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