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For different reasons, Medicare beneficiaries often have questions about the financial implications of dropping Part B coverage. Most importantly, what is the penalty for canceling Medicare Part B?
While canceling Medicare Part B is pretty straightforward, it comes with inherent risks. You can unenroll from Part B without facing late penalties if you have healthcare coverage from another source. If you lack alternative coverage, however, discontinuing Part B could lead to gaps in healthcare coverage and invite a penalty due to late enrollment, should you decide to re-enroll later.
Let’s say you’re not currently employed but have health coverage through a former employer, Veterans Affairs, the Health Insurance Marketplace, a private insurer, Medicaid, or COBRA. It’s worth retaining Medicare Part B as your primary healthcare insurance in such cases. You can claim any expenses not covered by Part B under your secondary policy.
Why You Might Want to Cancel Medicare Part B
Medicare Part B (Medical Insurance) covers outpatient services. That includes doctor’s visits, outpatient services (including outpatient mental health services), preventive care, home health services, ambulance services, durable medical equipment, and certain prescription drugs administered in outpatient settings. Medicare Part A (Hospital Insurance) and Part B are together referred to as Original Medicare.
You might consider canceling Medicare Part B for various reasons, including these common ones:
- Existing employer coverage: If you have health insurance through your current job and are already enrolled in Part B, the latter functions as secondary coverage. If you cancel Part B, though, you might face penalties when re-enrolling later. Losing employer-based coverage, however, triggers a Special Enrollment Period (SEP) free of penalties.
- Preference for private insurance: While Original Medicare offers comprehensive healthcare insurance, there are certain gaps in coverage. As a result, some medical needs may not be fully covered (for instance, long-term care for conditions such as dementia and Alzheimer’s). Private insurance might offer better coverage in such cases.
- Premium Concerns: Finally, some beneficiaries might consider dropping Part B coverage because they are unable to afford the applicable premiums. Such beneficiaries can apply for a Medicare Savings Program, which helps cover the cost of premiums.
Unenrolling from Medicare Part B is a relatively simple process. In case of automatic enrollment, you must follow the instructions in your welcome packet to cancel the policy. You would need to return the Medicare card. Regarding active enrollment, you must complete Form CMS-1763, available through a Social Security office or by phone at 1-800-772-1213 (TTY: 1-800-325-0778), and arrange a private interview with a Social Security representative. This interview ensures you fully understand the implications before cancellation. You can unenroll immediately after the interview if you wish.
Penalties for Canceling Medicare Part B
Let’s understand the potential consequences in terms of your finances and health coverage before you decide to cancel Part B:
- Healthcare expenses: You might have to cover all expenses for services that Medicare usually pays for, such as hospital stays, doctor visits, medical supplies, and preventive services.
- Gaps in healthcare coverage: Should you change your mind and wish to re-enroll later, you might need to wait for the next General Enrollment Period (January 1-March 31 each year) to rejoin. The coverage will start the month after your enrollment.
- Late enrollment penalty if you re-enroll: If you don’t meet the criteria for a Special Enrollment Period (SEP) for Medicare in the future, you might have to pay a monthly Late Enrollment Penalty (LEP) for your Part B coverage. This extra amount is added to your monthly Part B premium. The penalty is 10% of the Part B premium for every 12-month period during which you were without Part B or eligible job-based insurance.
Enrollment Periods and Important Timelines
Medicare coverage initiation depends on your sign-up date and the corresponding enrollment period. The Initial Enrollment Period (IEP) typically begins three months before you turn 65, remains in effect for the whole of that month, and extends for a further three months after.
Once your IEP is over, you can enroll in Part B only during the General Enrollment Period (GEP) from January 1 to March 31 each year. You could face a monthly late enrollment penalty if you don’t meet the requirements for a SEP.
Special Enrollment Periods permit enrollment outside the standard period only under specific circumstances. Part B SEP starts when you have current work coverage (employer insurance from your job, spouse’s job, or family member’s job) during your initial Part B eligibility month. It extends for eight months after losing this employment-based coverage.
Using the Part B SEP exempts you from a Part B late enrollment penalty.
Exceptions and Special Cases for Part B Penalty
Certain conditions allow for the elimination or appeal of the Part B penalty.
You can waive your Part B penalty if you qualify for a Medicare Savings Program. MSPs assist in covering your Medicare expenses when you have limited income and savings. Enrolling in an MSP offers advantages like the ability to join Medicare Part B beyond regular enrollment periods and removing any existing Part B late enrollment penalties.
Here are some valid reasons to appeal your Medicare Part B penalty:
- Job-based insurance coverage: If you had job-based insurance during the relevant enrollment period, contact your former employer or plan for a confirmation letter indicating your coverage. Attach this letter to your appeal form. You can also provide alternative proof, such as tax returns showing payments for health insurance premiums, health insurance cards with policy start dates, pay stubs reflecting deductions for health insurance premiums, W-2 forms indicating pre-tax medical contributions, explanations of benefits received from your health plan, and receipts confirming health insurance premium payments.
- Actual enrollment in Part B: If you were erroneously penalized while still enrolled in Part B, provide proof of your coverage. This could involve Medicare Summary Notices (MSNs) indicating care payments, statements verifying premium payments, or other relevant records.
You have 60 days from the penalty notification to appeal. If you miss this deadline, you can attach a letter explaining a valid reason—such as a serious illness—as part of your appeal.
You must continue paying the Part B penalty during the appeal review process. Successful appeal outcomes result in a refund for any payments made during the review period.
At CoverRight, we’re dedicated to assisting you with insurance-related queries and helping you discover the coverage you rightfully deserve. Contact us today to begin your journey toward finding the ideal Medicare plan for your needs.
Frequently Asked Questions
Can I cancel Medicare Part B at any time?
Yes, you can cancel Medicare Part B, but it’s important to know about potential coverage gaps, late enrollment penalties, and the need to maintain alternate coverage.
What is the penalty if I cancel Part B without qualifying health coverage?
If you drop Part B without having creditable health coverage, you might face a monthly late enrollment penalty. This penalty is 10% of the Part B premium for each 12-month period you didn’t have Part B or eligible job-based insurance.
How is the penalty calculated?
The penalty is calculated by taking 10% of the Part B premium ($174.70 in 2024) for each 12 months you didn’t have Part B or qualifying job-based insurance. This sum gets included in your monthly Part B premium.
Are there exceptions if I had employer-sponsored insurance?
Yes, if you had health insurance through an employer with at least 20 employees, you can delay Part B enrollment without penalties until you retire or lose employer coverage. You then have an 8-month window to sign up for Medicare Part B in such cases.
What if I delayed Medicare Part B due to working past 65?
If you delayed Part B enrollment due to being employed beyond 65 years and having employer-sponsored insurance, you typically won’t face a late enrollment penalty when you eventually enroll.
