Late Medicare Enrollees Face Steep Penalties. If a New Bill Passes, That Could Change.

Medicare eligibility begins at 65, and seniors’ initial enrollment window begins three months before the month of their 65th birthday and ends three months after that month. Signing up for Medicare Part B beyond that point, however, can result in costly lifelong penalties. But a new bill is looking to change the rules in that regard, and it could spare some seniors a world of added costs.

There are penalties for being late

Signing up for Medicare late means facing extra costs on a permanent basis. Specifically, you’ll be penalized to the tune of 10% of the standard Part B premium for each year-long period you were eligible to enroll, but didn’t. (Because Medicare Part A is generally free, there’s no penalty for late enrollment in that program.)

But some people don’t want to sign up for Medicare at 65. For one thing, once you enroll in Medicare, you can no longer make contributions to a health savings account, and some seniors are loath to give up that benefit due to the tax savings involved.

Also, some people don’t need coverage under Medicare at 65 because they have a health plan they’re happy with. In this situation, you can avoid a Medicare Part B surcharge as long as you’re covered by a group health plan with 20 or more participants. But things get more complicated if you leave your job but keep your employer’s health insurance through COBRA (the Consolidated Omnibus Budget Reconciliation Act) for a period of time.

Many people opt out of COBRA coverage because it can be prohibitively expensive — you’re paying for your health insurance in full, as opposed to getting a large chunk of your premiums subsidized by your employer. But if you decide to leave your job at 65 and retain your employer’s coverage for a year through COBRA, you could run into a situation where you’re on the hook for Medicare Part B surcharges due to late enrollment. That’s because being on COBRA isn’t considered being enrolled in a group health plan.

A new bill called the Medicare Enrollment Protection Act seeks to change that. Basically, it would change the rules to treat COBRA coverage as group health coverage so that those using COBRA aren’t subject to late enrollment penalties.

If you’re covered by a group health plan come 65, you get a special enrollment period to sign up for Medicare once you separate from your employer or your group health coverage ends. If you enroll in Medicare during that special enrollment period, you don’t face Part B surcharges. The Medicare Enrollment Protection Act would allow COBRA enrollees to get a similar special Medicare enrollment window and avoid penalties once their COBRA coverage comes to an end.

A positive development

Healthcare can be a huge expense for seniors — and those who largely rely on Social Security for income often struggle to keep up with it. The fact that lawmakers are fighting to help seniors avoid Medicare surcharges is therefore a positive thing.

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