A new Medicare rule could end up forcing seniors to switch health insurance plans or face a significant penalty, many seniors who continue to work after age 65 are still on their employer’s health plan instead of government-run Medicare, however, a new update to Medicare coverage under the Inflation Reduction Act means seniors who delay enrolling in Medicare could run into extra hurdles when it comes to drug coverage.
Currently, seniors can avoid penalties for delayed Medicare Part D payments as long as their company’s plan pays on average the same as the traditional Medicare prescription drug plan. However, starting January 1, employer plans will no longer be accepted as a way to avoid late payment penalties because they will no longer pay as much as the new and improved Part D coverage.
January 1 is when personal out-of-pocket maximums will be set at $2,000, and certain previously accepted creditable employer plans will no longer meet the qualifying threshold.
“The main concern is that most employer group plans have combined health and drug benefits with a maximum out-of-pocket outlay that usually exceeds $2,000,” said Chris Fong, a Medicare specialist and executive director of Smile Insurance Group. “Therefore, the employer’s plan with a maximum out-of-pocket greater than $2,000 would not qualify as credible coverage and would subject the Medicare-eligible employee to the late enrollment penalty.”
New Medicare Rule Could Lead to Costly Penalties
Basically, all plans provided by private companies that do not cap policyholders’ out-of-pocket costs at $2,000 or less are no longer going to be eligible for seniors, which means that seniors who are within those plans could be facing a late enrollment penalty.
The late enrollment penalty applies every month you are enrolled in Medicare if, after that initial enrollment period, you went 63 days or more without Medicare drug coverage or an employer-provided creditable drug coverage plan.
The exact amount of the penalty is calculated by multiplying 1% of the national base premium for beneficiaries, which was $34.70 in 2024, by the number of months you were without Part D or any other creditable coverage. The monthly penalty is permanently added to your monthly Part D premium.
“The penalty is monthly, for life, and will only apply when they enroll in a Medicare plan that covers prescription drugs,” Fong said. “I’ve seen people with fines of up to 135%, which equates to an additional $46.85 per month when they enroll in a plan that covers prescription drugs.”
Some Seniors Must Have to Change Health Plans
While it’s true that the new Inflation Reduction Law says that insurers have a duty to notify their Medicare-eligible customers whether their prescription drug coverage is considered creditable or not, seniors should act now to avoid any confusion revolving around the late payment penalty.
Experts give as a recommendation, to call before to make sure that the replacement of the Part D insurance is still valid. “Because many older adults are still working long after the traditional retirement age, those in that group should pay close attention to the policy change,” said Alex Beene, a financial literacy instructor at the University of Tennessee at Martin. “If you continue to work and your employer provides you with health insurance, that plan should be up to the level of financial support that Medicare offers in some categories.”
Beene commented that older people already face high costs and that’s why they should be “aware” of the changes to avoid fines. “With health care costs already at all-time highs, you don’t want to miss out on significant savings you could get with a health care plan,” Beene said.
