Millions of People Pay Medicare Late-Enrollment Penalties for Life after Missing Key Deadlines

While nearly all Americans become eligible for the Medicare health insurance program when they turn 65, many people delay signing up for various reasons. These delays are an important issue, because missing key deadlines can lead to late-enrollment penalties, specifically for people who wait too long to enroll in Medicare Part B (physician and other outpatient services) or Part D (outpatient prescription drug coverage). People who incur late-enrollment penalties pay them along with their monthly premiums—and usually must pay the penalty for the rest of their lives.

The purpose of the penalties is to encourage prompt enrollment and discourage people from waiting until they need costly health care to sign up. This approach not only benefits individuals by protecting them with health insurance but also strengthens the Medicare program by spreading its costs broadly among a wide population, which helps keep per-person costs and premiums as low as possible. However, sometimes people wind up with late-enrollment penalties because they are unaware of the possibility of penalties or are unsure about the steps they must take to avoid them.

This Spotlight report describes Medicare’s enrollment rules, the situations in which late-enrollment penalties apply (and when they don’t), how many people are paying these penalties, and who is most likely to incur penalties. It then discusses a range of policy options that could reduce the financial burden of penalties on individuals while continuing to encourage timely enrollment.

The number of people affected by penalties

On an individual level, the impact of penalties can be significant. In 2021, 779,400 people—about 1.3 percent of Part B enrollees—paid a Medicare Part B penalty. On average, their monthly payment for Part B (standard premium plus penalty) in 2021 was 27 percent higher than it would have been without the penalty.

More than three times as many people paid Part D late-enrollment penalties—about 2.5 million people in 2022 (or about 5 percent of Part D enrollees). Far fewer people paid a Part A late-enrollment penalty because nearly all enrollees qualify for premium-free Part A and do not incur a penalty no matter when they sign up.

Policy options are available to reduce the burden of late-enrollment penalties

Medicare late-enrollment penalties put a financial burden on some people with Medicare for the rest of their lives—often at a stage in life when they can least afford it. Although these penalties were established to encourage people to enroll in Medicare when they first become eligible, some people end up paying late-enrollment penalties simply because they are unaware of them or do not know how they can avoid them.

Policymakers could adopt options that would both reduce the number of people who must pay late-enrollment penalties and lessen the lifetime impact of penalties on the people who do incur them, while continuing to encourage timely enrollment in Medicare. See the full report for a discussion of some options.