James Sullivan
Guiding clients through Medicare enrollments: Part 1

Help your clients avoid costly late penalties and coverage gaps.

June 1, 2015
by James Sullivan, CPA/PFS

Mistakes in enrolling for Medicare can be costly. If your clients fail to pay for Medicare Part B on time, they will wind up paying the late enrollment penalty (LEP)—for life. They can also experience a gap in health care coverage, meaning they’ll have to pay bills that Medicare otherwise would have taken care of. Understanding the details of Medicare enrollment can help you prevent your clients from making such errors. In the first part of this series, I’ll discuss the first of the three Medicare enrollment periods, called the Initial Enrollment Period (IEP), and whether your clients need to enroll during the IEP or can afford to wait.
Late enrollment penalty basics

At all costs, you want your clients to avoid paying the LEP. It’s assessed at 10% of the monthly premium for every full 12 months the beneficiary delayed his or her enrollment in Part B, and, once it’s levied, it lasts the remainder of a beneficiary’s life. According to the Centers for Medicare & Medicaid Services, on average, beneficiaries subject to the penalty pay 31% more for their monthly premium, or $390.24 per year. If your clients live a long time, that can quickly add up. What’s more, the LEP increases along with a beneficiary’s Part B premium, and there is no cap on it.

Medicare enrollment periods 

An eligible individual can only enroll in Medicare during one of three specified periods:

  1. Initial Enrollment Period (IEP)
  2. Special Enrollment Period (SEP)
  3. General Enrollment Period (GEP)

The IEP is tied to the month in which a person turns age 65 and is first eligible for Medicare benefits. (Note that if he or she was born on the first of any month, his or her first eligible month is the prior month.)

The SEP is for eligible individuals who did not enroll for Medicare during the IEP, but who now need to because they are leaving an employment-related health plan. (The emphasis on the word employment is important because an individual or family plan, retiree plan, COBRA coverage, and some VA coverage are not considered employment related and therefore, the SEP is not available.)

The GEP, for reasons I’ll describe in a later article, is the least desirable of the three enrollment periods. If an individual has to enroll during the GEP, most likely something has gone wrong.

The Initial Enrollment Period: No LEP, but coverage gap may apply

The IEP lasts for seven months. It begins the third month prior to the month in which a person turns age 65, includes his or her birth month, and ends the third month following the birth month.

Unfortunately, if an individual is not collecting Social Security at the time he or she turns 65, no federal agency will inform him of his obligations or of the Medicare enrollment rules. Therefore, it’s up to him or her to decide whether he or she needs to enroll during his IEP or can safely wait for the SEP.

The decision whether or not to use the IEP is where most mistakes are made. For example, someone may decide he doesn’t need the IEP because he’s participating in his ex-employer’s retiree health plan. When the retiree plan is terminated five years later, he finds out he can’t enroll in the SEP. He then must use the GEP, pay the LEP, and experience a coverage gap of several months.

What’s more, even if a beneficiary does enroll during the IEP, a coverage gap may result. The chart below shows how:


Initial Enrollment Period

3 mos. prior

2 mos. prior

1 mo. prior

Birthday month; turns age 65

1 mo. after

2 mos. after

3 mos. after

Enrollment month








Gap in coverage


1-month gap

3-month gap

5-month gap

6-month gap

Effective date of coverage

June 1

July 1

Sept. 1

Nov. 1

Dec. 1

Therefore, to avoid the coverage gap when enrolling during their IEP, clients should plan to enroll during the three months prior to the beginning of the month in which they turn 65.

At a minimum, everyone should enroll in Part A during their IEP. That way, their enrollment in Part A will be on record, as well as their decision to delay enrolling in Part B due to their or their spouse’s ongoing employment. Most participants will pay no premium for Part A, and it may provide coverage unavailable in their employer’s plan. (The only reason for a client not to enroll in Part A is if he or she participates in a high-deductible health plan and contributes to a health savings account [HSA]. In that case, enrolling in Part A will prohibit him or her from making future contributions to the HSA.)

If an eligible individual misses the IEP, for whatever reason, he or she will need to enroll in Medicare during either the SEP or the GEP. I will discuss both of those enrollment periods in subsequent articles.

* The AICPA PFP Section provides information, tools, advocacy, and guidance to CPAs who specialize in providing tax, retirement, estate, risk management, and investment advice to individuals and their closely held entities. PFP Section members, including PFS credential holders, will benefit from Jim Sullivan’s overview of Medicare in The CPA’s Guide to Financing Retirement Healthcare (for sale to non-PFP members on cpa.com) in the Resource section and in Forefield Advisor on the AICPA PFP website at aicpa.org/pfp.

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James Sullivan, CPA/PFS, is a financial planner in Wheaton, Ill. He specializes in working with clients, and the families of clients, suffering from chronic illness.