Delaying Medicare sign-up can be a costly mistake

Lifetime late penalties on Part B can add up to thousands of dollars

Medicare requires that nearly all workers sign up for the program during a seven-month Initial Enrollment Period (IEP) that includes the three months before, the month of, and the three months following their 65th birthday. If you are already receiving Social Security at that point, you will be signed up for Medicare Part A (hospitalization) and Part B (outpatient services) automatically.

But everyone else needs to pay careful attention to the enrollment rules. Missing your IEP can trigger late-enrollment penalties levied in the form of higher premiums that continue for life.

There really is only one important exception to the enrollment mandate. You can postpone enrollment if you are still working beyond age 65 and have insurance through your employer, or if you receive insurance through your spouse’s employer. (One exception to that exception: if you work for an employer with fewer than 20 or fewer workers, you can continue with that coverage, but Medicare becomes your primary source of insurance at age 65, and you should sign up during your IEP).

The penalties were included in the 1965 legislation that created Medicare. The idea was to prevent so-called adverse selection, which occurs when only the people who think they need benefits enroll in an insurance program. That can drive up the program’s costs, so it is important to enroll most eligible people when they reach age 65.

The late enrollment premium penalty for Part B is equal to 10% of the standard Part B premium for each 12 months of delay. Since it is a lifetime penalty, it will become larger in dollar amounts over time, since it is levied as a percentage of the standard Part B premium. That can saddle you with thousands of dollars of extra expenses over the course of retirement.

In my Reuters column this week, I explain how the late enrollment penalties work - and how two federal programs offer help with Medicare premiums for people with very low incomes.

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