The December 7th Open Enrollment deadline for 2015 Medicare Advantage and Part D is approaching. The General Enrollment period starts on January 1. With these dates in mind, there are a few items that deserve special attention. Attending to these items can save you money for years to come.

Medicare depends on full participation to work properly. If at 65 you have no medical problems you can opt out of certain aspects of Medicare. If you wait until you develop health issues down the road and need the insurance, you will pay a penalty to benefit from Medicare. Let’s look at how this works.

Part D Penalties

We talked about finding Part D (prescription drug) coverage last week. If you don’t take any prescription meds, it is tempting to skip that coverage all together. But the penalty for that choice can be high if you need coverage later.

The length of time you go without creditable prescription coverage determines the penalty. It is based on a percentage of the “national base beneficiary premium.” Let’s break that down:

Creditable coverage means prescription coverage that offers similar benefits to those Medicare offers. The provider of your non-Medicare drug coverage should notify you if it is creditable or not.

The “national base beneficiary premium” is a national average bid for prescription coverage for the year you seek coverage. It changes each year.

Penalties apply if after becoming eligible for Medicare you go without creditable coverage for 63 days or more. At that point you will pay one percent per month you went without creditable coverage.

Let’s say you go 16 months without creditable prescription benefits. The national base beneficiary premium for 2015 is $33.13. You will have to pay 16 percent – one percent for each month without coverage - of $33.13. That’s $5.30 each month. If you go ten years without drug coverage and then develop heart problems that require costly medications, you will pay a 120 percent penalty, or $39.80 per month. That’s over and above your monthly Part D premium.

Since the penalty is a percentage, it will increase as the national base beneficiary premium does.

Part A Late Enrollment Penalties

If you or your spouse receive or are eligible to receive Social Security or Railroad Retirement benefits you won’t have to pay premiums for Part A benefits.  Likewise, if one of you had Medicare covered government employment, you won’t have to pay premiums for Part A. In these cases, Medicare typically enrolls you automatically in Part A. You should check the Medicare website to be sure of this.

If you are one of the very few who don’t meet these criteria, you will have to pay premiums for Part A – premiums as high as $407 per month. If you don’t have major health problems it could be tempting to skip this. But consider what will happen if you try to sign up for Part A later. You will pay a 10% penalty on your premium for twice the number of years you went without coverage. If you decide not to buy Part A for the first three years you are eligible, you will pay a 10% higher premium for six years when you do buy it.

The other risk is that you will need hospitalization. Your initial enrollment period is the seven month window around your 65th birthday. If you miss this, you will have to wait until the general enrollment period of January through March each year to sign up for coverage.  That coverage won’t begin until July 1 of the same year. Hospitalization during that window until coverage kicks in can be costly.

Part B Late Enrollment Penalties

Part B is your Medicare medical coverage. Premiums start at $104.90 per month and go up with income.  If you go without Part B when you are eligible, you will pay a 10 percent penalty on your monthly premiums for each 12 month period you went without coverage.

For example, someone who has gone without Part B for three years and qualifies for the lowest premium will pay a monthly penalty of $31.47 in 2015. This penalty does not time out, so as long as you have Part B, you will pay this penalty every month.

The Harshest Penalty

I’ve mentioned a number of penalties you may pay for forgoing Medicare or parts of Medicare. But you won’t find the most significant penalty on the Medicare website.

Part of the benefit of Medicare is the collective bargaining they offer on behalf of Medicare patients. When you opt out of Medicare, you also opt out of their negotiated rates for medical services. This can leave you paying up to ten times as much for identical services.  One ER visit or hospital stay can end up costing more than a year of Medicare premiums.

When you skip Medicare coverage, you do so at great risk.

Special Circumstances

There are a couple of situations where Medicare penalties don’t apply. If you are over 65 and have insurance from another source, you may not incur these penalties. If you are under 65 and disabled, a different set of guidelines will apply to your situation. Spend some time on the Medicare website to determine how to proceed.

Don’t forget that retirees who have difficulty paying Medicare premiums may qualify for special help. Visit the Medicare website to find out if there are special programs that you qualify for.

Health insurance can be a costly item. Medicare is no different. It can be tempting to skip key parts of the Medicare program when you are spending rather than accumulating assets. But before you make a decision like this, consider the long term consequences your choice will have. It could end up being a very expensive decision.