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How a few little mistakes can lead to a Medicare late enrollment penalty

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Abe Wischnia

Special features columnist

Imagine waiting to pick up a prescription at a pharmacy only to discover that your Medicare prescription drug insurance has been canceled. Worse, as you try to restore your coverage, you find out you’ve got to pay a Medicare late enrollment penalty.

That’s what happened to Mark Stevens. A series of small mistakes grew into a problem that left him feeling trapped in a “catch-22”.

While I can’t help him avoid paying a penalty, I can help you learn how not to make the same mistakes with your Medicare coverage.

Moving but not notifying the insurance company

It all began when Stevens moved from Arizona to Florida in 2021. He notified Medicare of his address change but did not alert Aetna, his drug plan provider. That was mistake number one. He assumed Medicare would handle the the Aetna notification. As Stevens said when he wrote asking for help, “I realize now that was a mistake. It is my responsibility to contact all of the Medicare providers directly.”

He’s right.

If you have a major change in your life, don’t count on Medicare, Social Security or any other government agency to handle all of the necessary notifications. It’s up to you to make sure your information is up to date with your insurance plans.

In Stevens’ case, it took about two years before something triggered Aetna to send him a letter asking him to verify his address.

That’s when things started to unravel.

On May 6, 2023 Aetna mailed me a form to verify my address. I was traveling and placed my mail on hold at the post office for three months. When I returned in August 2023, I opened the mail and saw the request from Aetna and immediately sent it back to the company on August 15, 2023.

But by then it was too late.

Fact: Medicare rates can vary by state

As I mentioned in a previous story, Medicare premiums, copays and deductibles can vary depending on where you live. Insurance companies want to confirm you are paying the correct costs for your plan.

Placing a postal hold on your mail while traveling is generally a smart thing to do. So that wasn’t a mistake on his part. However, Aetna’s letter included a deadline to respond. Because he didn’t see the letter, Stevens missed the deadline by a couple of months. As far as Aetna was concerned, he was out of compliance with their plan requirements so they canceled his insurance.

Stevens was understandably frustrated.

I realize it’s my responsibility to be diligent. But when they send physical mail, no email notifications, and then penalize me for not actually getting my mail, it seems like an arbitrary penalty.

You can avoid missing important notices by taking advantage of your plan’s member web portal. When you log in, most plans will let you change your address, make payments, view your claims and see your coverage. Many will send you email alerts when there is something new affecting your account.

Aetna canceled your Medicare prescription plan

By the time Stevens replied to Aetna, the company had already canceled his insurance. But he didn’t know that.

He would have known earlier had he paid attention to a letter he received from Social Security.

In July, 2023, I did receive a notice of a refund from Social Security. I didn’t question it or look into it because I was traveling and the amounts were so small, it just seemed like some random COLA adjustment or something.

In fact, the refund from Social Security was for drug plan premiums covering the period after Aetna canceled him.

He had previously opted for his drug premiums to be withheld from his social security benefit. That’s something I generally counsel against because it can lead to complications such as delayed payment, underpayment, double payment, and possibly additional paperwork if you change plans. It’s best to set up payment for drug plan premiums as an auto-pay from your bank account.

The repercussions: No prescription coverage

Stevens told me that he first learned that his drug insurance had been canceled when he went to the pharmacy to fill a prescription. The pharmacist looked up from the computer and told him that he had no coverage.

Stevens immediately contacted Aetna to restart his plan. That’s when he got another unpleasant surprise. While the company was willing to re-enroll him, the representative told him he would have to pay a late enrollment penalty because of the gap in his coverage.

I spoke to a representative on September 9, 2023 and she explained that because of the break in service, there was nothing she could do. I explained the situation, but she said that because I didn’t contact them within the time limit, the penalty would apply. When I again explained that I did not get the notification and that once I did, returned the form immediately, the conversation came to an end.

The Medicare Part D late enrollment penalty

Unfortunately for Stevens, the Aetna representative was correct. There really was nothing she could do because of Medicare’s Part D rules. Here’s how the Medicare website explains it:

You may have to pay a late enrollment penalty if at any time after your Initial Enrollment Period is over, there’s a period of 63 or more days in a row when you don’t have Medicare drug coverage or other creditable prescription drug coverage. You’ll generally have to pay the penalty for as long as you have Medicare drug coverage.

It does say “may have to pay.” You can avoid the penalty if you can prove you have or had other “creditable” prescription drug coverage. That’s defined as coverage at least as good as that provided under Medicare. The drug coverage Stevens had during his stay in Mexico does not qualify. The Medicare website lists examples of creditable coverage and explains how to avoid the Part D late enrollment penalty.

How much is Medicare’s late enrollment penalty?

Social Security finally sent him a formal notice of the late enrollment penalty a few weeks ago. The notice also gave him an opportunity to avoid the penalty by submitting proof that he had other creditable coverage. But Stevens did not have qualifying coverage.

Medicare calculates the amount of the penalty by multiplying the number of full, uncovered months by 1% of the “national base beneficiary premium” (which is $32.74 in 2023 and will be $34.74 next year) and then rounding the result to the nearest $0.10.

Here’s how the penalty calculations work for Stevens: He went four months (June – September) without coverage. So his penalty will be 4 times $0.3274 rounded to $1.30 per month for the rest of this year and 4 times $0.3474 rounded to $1.40 next year. Those penalties will be on top of whatever plan premium he pays.

This is a permanent penalty.

Since the national base beneficiary premium may increase or decrease each year, the penalty amount may also increase or decrease each year.

I explained the rules to him and how the penalty is calculated. While he isn’t happy about the way the Medicare rules are written (and I have yet to meet anyone who is) he is relieved that the penalty amount is not greater.

One more piece of advice

While we were on the phone, I pointed out that now, during Medicare’s annual election period, he should check the official Medicare plan finder to determine if his current drug plan is still the best for him.

Oh, and should he go on an extended trip again — he’ll make sure to regularly check his online portal so he can avoid any future Medicare penalties. (Abe Wischnia, Consumer Rescue)

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Abe Wischnia

Abe Wischnia is a special features columnist at Consumer Rescue, focusing heavily on the Medicare system. His goal is to help seniors navigate the complex rules, coverage issues, plans, and premiums while also helping his readers steer clear of scams and fraud. Abe started his career as a television news reporter and newscaster. He later transitioned to roles as a senior public relations and investor relations executive for companies in technology and biotech. With degrees in journalism and an MBA, Abe has written for newspapers, television news and documentaries, magazines, and corporate publications.