A new Medicare rule might force seniors to switch health insurance plans or pay a substantial penalty.
Many seniors over 65 continue to work on their employer’s health plan rather than the government-run Medicare.
However, a new modification to Medicare coverage under the Inflation Reduction Act implies that seniors who delay enrolling may encounter further challenges when it comes to drug coverage.
Seniors can already avoid Medicare Part D late fines if their company’s plan pays roughly the same amount as the typical Medicare prescription medication plan.
Beginning January 1, however, employer plans may no longer be approved as an exemption from late fines because they will no longer pay as much as the new and enhanced Part D coverage. Starting January 1, out-of-pocket maximums will be set at $2,000, and some previously approved creditable employer plans will no longer meet the qualifying threshold.
“The primary concern is that most employer group plans have combined health and prescription max out-of-pocket benefits which are generally higher than $2,000,” said Chris Fong, a Medicare specialist and CEO of Smile Insurance Group, to Newsweek.”Thus, it would make the employer plan with max out of pockets higher than $2,000 unqualified as credible coverage and subject the Medicare eligible employee to the late enrollment penalty.”
Essentially, all private company-offered plans that do not limit policyholders’ out-of-pocket expenses to $2,000 or less would no longer be eligible for seniors. That means seniors who continue on those plans may incur the late enrollment penalty.
The late enrollment penalty applies to each month you are enrolled in Medicare if you were 63 days or more without Medicare drug coverage or an employer-provided creditable drug coverage plan after the first enrollment period ended.
The actual penalty is derived by calculating one percent of the national base beneficiary premium, which was $34.70 in 2024, by the number of months you were without Part D or other creditable coverage. The monthly penalty is then permanently applied to your monthly Part D premium.
“The penalty is per month, is a lifetime penalty, and will only occur when they enroll into a Medicare plan covering prescriptions,” Fong informed me. “I have seen people with penalties upwards of about 135 percent which amounts to an additional $46.85 per month when they enroll into a plan covering prescriptions.”
While the new Inflation Reduction Act requires insurers to advise Medicare-eligible customers whether their prescription medication coverage is considered creditable or not, seniors should act early to avoid confusion about the late penalty.
Experts recommend phoning ahead of time to ensure that your Part D insurance replacement remains valid.
According to Alex Beene, a financial literacy lecturer at the University of Tennessee at Martin, seniors who work beyond the typical retirement age should be aware of the rule change. “If you continue to work, and your employer provides you with health insurance, that plan must be up to the same level of financial support in some categories Medicare provides.”
Beene stated that seniors already face significant costs and should be “mindful” of the adjustments to avoid penalties.
“With healthcare costs already at near historic highs, you don’t want to find yourself missing out on significant savings you should get with a healthcare plan,” Beene told me.