You may start thinking of retirement and your next steps as you get closer to 65. One aspect that is sure to be on your radar is Medicare. So, is Medicare Mandatory? The short answer is no; Medicare is not mandatory. However, if you don’t sign up for Medicare, you may face financial obstacles.
If you don’t sign up for Medicare when you are first eligible and do not have other creditable coverage, you will be charged with penalties if you sign up later. The penalties are permanent and stick with you for the entirety of your Medicare enrollment, which is essentially a lifetime penalty.
There are potential penalties for Medicare Part A, Part B, and Part D. However, there are no penalties for Medigap plans or Advantage plans. Learn more about the difference between those plans here boomerbenefits.com/medicare-advantage-vs-medicare-supplement/.
You will pay 10% more for your monthly premium if you receive the Part A penalty. Additionally, you will pay this higher premium amount for twice the number of years you did not sign up for Part A when you were first eligible.
If you don’t sign up for Part B when you are first eligible and don’t have creditable coverage, you will pay a 10% increase on your monthly premium for every 12-month period. The Part B premium increases each year for everyone, so the late enrollment penalty will increase every year as well.
The Part D penalty is calculated based on the time you went without a Part D plan. Medicare multiplies 1% of the national average Part D premium times the number of months you went without a Part D plan or creditable coverage to the nearest $.10. This amount is added on top of your Part D plan’s premium.
What counts as creditable coverage?
According to the Centers for Medicare and Medicaid Services (CMS), creditable coverage is any insurance that is equivalent to Medicare coverage. Employer insurance is the most common form of creditable coverage for many people.
However, specific requirements must be met for your employer insurance to qualify. If you actively work for an employer with 20 or more employees and are covered under that employer’s insurance, that insurance is considered creditable. This means you can choose to delay all parts of Medicare past 65 without penalty.
However, if you work for an employer with less than 20 employees, that does not count as creditable coverage. This means you would not be able to delay Medicare without penalty, so you will likely need to sign up for Medicare during your Initial Enrollment Period (IEP) around your 65th birthday.
What about Medigap plans?
You are not required to sign up for a Medigap plan, and there are no financial penalties if you decide to enroll later past 65. However, Part B only pays for 80% of Medicare-approved costs, which leaves you responsible for the remaining 20%.
Medigap plans help cover some of all this 20%, depending on your plan. Many Medicare beneficiaries choose to sign up for a Medigap plan to help cover these costs, including deductibles, premiums, copayments, and coinsurance.
Medigap Open Enrollment Period
Although there are no penalties associated with Medigap plans, if you don’t sign up for one during your Medigap Open Enrollment Period (MOEP), insurance carriers can decline your application based on your health status.
Your MOEP is an enrollment window that takes place six months from your Part B effective date. During this time, you can sign up for a Medigap plan without having to answer health questions. If you sign up during your MOEP, insurance carriers must accept you into their plan.
What about Advantage plans?
There is no requirement to sign up for an Advantage plan either. However, if you choose to sign up for an Advantage plan, you’ll likely need to sign up during your IEP. If you miss this enrollment period, there are no health questions you’ll need to answer.
However, you will have to wait until another qualifying enrollment period like the Annual Election Period or the Medicare Advantage Open Enrollment Period.
Medicare and its supplemental plans are not mandatory. You can technically choose to go your whole life without enrolling. However, if you don’t, you will accrue penalties that stick with you for your lifetime if you decide to sign up down the road. So, you should strongly consider signing up for Medicare when the time comes.