Eliminating penalties could save government $12 Billion annually
There are two ways they'll get 'cha:
1. Widows/Widowers/Divorcees
Your spouse has died while employed. He died before retirement age, or he/you are past retirement age and he was still working. (This also applies if you're younger but legally disabled.) You were on his employer's health insurance plan. If you don't make the right decision, you will pay penalties for the rest of your life.
When your spouse dies while employed, you'll be offered COBRA benefits, even if you're Medicare eligible. COBRA legislation was passed in 1985 to give employees and their dependents temporary access to their former employer's health insurance plan. You can receive COBRA for 36 months after your spouse's death. What if you choose it?
COBRA is no walk in the park. While it gives continuity of care to widows (whom professionals advise not to make important decisions for a year), it's expensive. With COBRA, your spouse's employer provides an umbrella for you to continue on the identical health plan you're used to. Many choose it because they've met their deductible for the year. Some choose it due to complex medical issues for which they've assembled teams of caregivers. The only difference is that now you're responsible for the entire premium. Many widows won't be able to afford that, but some will and will do it just to avoid adding more change to an ever-growing pile of change at the worst time in their lives.
If you wish to end it or it expires, you'll need to go on Medicare. That's when you'll find out you've made a big mistake, and you had no idea this was even a thing, let alone something that would cost you more money forever.
You will be charged, without exception, a 10 percent penalty for each year you were eligible for Medicare but chose not to enroll. For example, if you choose to stay on COBRA for the allowed 36 months, you'll pay 30 percent more for your Medicare premium for the rest of your life.
How the Affordable Care Act (aka ObamaCare) makes Medicare penalties possible:
It's an astonishing feat of slight of hand, really. The ACA mandated that people have and employers offer "creditable coverage." This means it must be "affordable" and offer "minimum essential coverage." "Affordable" is whatever they want it to mean. "Minimum essential coverage" is important medical coverage like single men having coverage for prenatal care.
Most widowed people never think going on COBRA is a risk to their financial future because it's identical to the plan they were on when their spouse died. The reason COBRA doesn't meet the standard under the ACA is it's not "affordable."
So the government penalizes you for choosing expensive health insurance, whatever your personal reasons, during what experts say is the most stressful time in a person's life, because they decided for you that it's too expensive. So, to remedy that they make you pay more money for your Medicare insurance for the rest of your life.
Well, that sounds reasonable to absolutely no one. Especially because nobody tells you this when you're faced with the decision. When asked why they don't mandatorily tell widows about the COBRA penalty, the Social Security representative I spoke with after 9.5 hours on hold said it's because, well...because they don't. "It's not in the packet we have for widows." That was the actual answer. Even though every widow with a working spouse will be offered COBRA because it's the law.
2. Retirement-age workers:
Our aging population and bad economy has led to more people (11 million) working past retirement age. According to the Pew Research Center, 62 percent of retirement-age workers work full time, a 33 percent increase since 1987.
You become eligible for Medicare in the seven months straddling your 65th birthday. If you or your spouse have the audacity to work and stay on your employer's health plan past that age, you're going to eventually pay the price. Pew also notes that record numbers of retirement-age workers are eligible for employer benefits like 401(k), pensions, and health insurance. You decide to take it.
Here's where you'll get tripped up. The majority of older workers work for small companies. Small companies don't have to offer health insurance under the ACA, but if they do, they're "required" to offer "creditable coverage." If your insurance doesn't meet that standard, you'll be penalized when you go on Medicare.
Your employer doesn't really have to tell you the insurance they offered doesn't meet the standard. Surprise! This happens more often than you'd expect because the ACA allows for substandard plans to be "grandfathered" and "grandmothered(?)" in. The "requirement" is a soft requirement, which results in the company's not so much being required to provide creditable coverage as your being required to receive it. I've spent hours researching whether small companies pay a per-employee penalty for doing this (large ones do) and some resources say they do, some say they maybe do, some say they don't... I give up. I'm sure that's how they feel too when met with these reams of regulations.
They use the same 10-percent-per-eligible-year penalty system for these workers. I couldn't find any reference to a percentage cap, e.g. if you work until age 75, you'll pay 10 percent for the 10 years you could have been on government insurance. That's a 100 percent penalty, doubling your premium for the rest of your life. If you work longer, it'll be more. (There are also potential Medicare Part D penalties under this scenario, but this is already an exhausting amount of information, so I won't go into that now.)
And here you thought you were saving the government money by not burdening them with your healthcare bills and taking care of it independently! It seems the government thinks that's a bad thing. They argue that they want literally everyone who's eligible for Medicare to enroll because they're spreading the risk by making healthier people pay premiums to cover costs for less healthy enrollees. I understand that risk pools are a part of insurance underwriting, but I'd like some hard data on how much money they're saving under this system.
Possible Solutions
Does the penalty system profit the government on the backs of some of society's most vulnerable: widowed people, the elderly, and the disabled? How does the math shake out from the penalties collected vs money saved by not having to pay for their medical bills for years?* I think at least an estimation of that data should be available and debated so we can move to the important thing: changing policy.
Medicare doesn't tell you about these penalties. The bipartisan BENES 2.0 Act would require them to warn people about the penalties of delaying Medicare enrollment, but there has been no action on the legislation since it was introduced in May of 2023. They should add language to the bill (just in case someone tries to read it again) that mandates all widows be warned during their inevitable contact with Social Security after their spouses die so they, I don't know, WON'T CHOOSE COBRA.
Legislation was introduced in May, 2024 to allow those on COBRA to enroll in Medicare Part B without penalty. One problem with the bill is that it would apply only to those who begin COBRA coverage January 2025 or later. I'd make it retroactive. In fact, I prefer a bill that wipes out penalties altogether for the 779,400 Americans who pay them (as of 2021, the last year for which data is available).
If I could make policy, I'd eliminate the penalties (retroactively) and (after looking at the numbers) propose a 5 percent decrease in premiums for each year someone doesn't enroll in Medicare.
After all, we already have laws in place to help delay people's retirement as long as possible (raising retirement age, increasing benefits for each year you delay, not giving widow's benefits to widows younger than 60, etc.) to keep income taxes rolling in and Social Security dollars in government pockets. Why are opposite systems in place to encourage Medicare enrollment as soon as possible?
Why not a carrot rather than a stick? It's just a hypothesis, but given our population's demographics and increased life expectancy since Social Security was enacted, it could wind up saving taxpayer dollars while simultaneously giving a break to these hardworking, sometimes broken people. Unless saving money isn't really the goal.
Oooh, and while we're problem solving, maybe we should take another look at that Affordable Care Act. Do it for the widows and the elderly.
*Our federal government spends $848.2 billion per year on Medicare, $15,727 per Medicare recipient. Costs have risen from 10 percent of our federal budget to nearly 14 percent in the last 30 years. Medicare Parts B and D have several revenue streams (including premiums), but most revenue is from "government contributions." If each of the 779,400 people who currently pay Medicare penalties delayed enrollment for just one year, it would have saved taxpayers more than $12.3 billion. If each person pays a 10 percent penalty for that year, the government earns just $14.5 million. So, I suppose, they're making money on both ends in the current system, because each person who delays also pays. But incentivizing them to continue on private insurance could save more money than penalizing or threatening penalties if they don't. It's an imperfect calculation, but it shows me that we'd save a lot of money if we encouraged people to delay Medicare enrollment rather than penalizing them.
