Guiding clients through the Medicare Part B enrollment minefield

CPAs’ timely advice can help seniors avoid expensive penalties and coverage gaps.
By James Sullivan, CPA/PFS

 Guiding clients through the Medicare Part B enrollment minefield
Image by pinnacleanimates/iStock

Enrollment in Medicare Part B can be tricky. It's all too easy for clients to make costly mistakes. If they fail to enroll at the right time, for example, they'll wind up paying the late enrollment penalty (LEP) for the rest of their lives. They may also experience a gap in health care coverage, meaning they'll have to pay medical bills that Medicare otherwise would have taken care of. By arming yourself with the right information about the details of Medicare Part B enrollment, you can help clients avoid these costly errors.


Unlike Medicare Part A, which covers hospital and skilled nursing facility care, and Part D, which provides outpatient drug coverage, Medicare Part B covers outpatient medical care. Part B coverage includes medical services, tests, and supplies used outside a hospital or skilled nursing care facility. (Part C is not a benefit but the provision of Medicare legislation that allows individuals to buy Medicare through private insurers rather than the federal government.) For more details, see

An eligible individual can only enroll in Medicare Part B during one of three periods (see the chart "The 3 Medicare Enrollment Periods"):

  1. The Initial Enrollment Period (IEP),
  2. The Special Enrollment Period (SEP), or
  3. The General Enrollment Period (GEP).
The 3 Medicare enrollment periods
The 3 Medicare enrollment periods

The IEP can be used by anyone who is "aging into" Medicare at age 65. The SEP can be used by 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 GEP can be used by individuals who failed to enroll during the IEP or SEP. People who enroll during the GEP may incur the LEP. If an individual has to enroll during the GEP, most likely something has gone wrong.


CPAs want clients to avoid paying the LEP. The penalty is 10% of the monthly premium for every full 12 months a beneficiary delayed his or her enrollment in Part B, and, once it's levied, it lasts the remainder of the 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—not an insignificant amount for most retirees. What's more, the LEP increases along with a beneficiary's Part B premium, and there is no cap.


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

Unfortunately, an individual who is not collecting Social Security when he or she turns 65 will not be informed by any federal agency of the Medicare enrollment rules. Therefore, it's up to him or her to decide whether to enroll during the IEP or whether it is safe to wait for the SEP.

What's more, if a beneficiary enrolls during the last four months of his or her IEP, a coverage gap may result. The chart "The IEP and Potential Coverage Gaps" gives examples of potential coverage gaps for a beneficiary who turns 65 in June.

The IEP and potential coverage gaps
The IEP and potential coverage gaps

Therefore, to avoid the coverage gap when enrolling during the IEP, clients should plan to enroll during the three months prior to the beginning of the month in which they turn 65. You may want to place a reminder on your clients' calendars to discuss enrollment with them several months before their 65th birthday.


If a Medicare-eligible individual remembers only one thing about the SEP, it should be this: An enrollee only qualifies for the SEP if he or she is leaving or losing coverage under a group health plan offered by his or her employer or his or her spouse's employer. And that coverage must have been provided because the individual or spouse was actively working for (i.e., was not retired from) the employer that provided it.

The SEP does not apply to other types of health care coverage, such as:

  1. A retiree health care plan provided by a former employer.
  2. A plan provided under COBRA.
  3. An individual or family plan purchased directly from the insurance company.
  4. Coverage provided by the Veterans Health Administration.

It also does not apply if an individual is working for one employer while receiving health care coverage from a former employer. For example, an individual who retires at age 65 and is covered by her former employer's retiree group health plan goes to work full time for another employer that does not provide health care coverage (or she elects not to take the coverage). Under these circumstances, she must use her IEP because her coverage is not provided by her current employer. She will be unable to use the SEP later should the retiree coverage be terminated or should she decide coverage under Medicare is the better choice.

Note that missing an SEP results in a different penalty calculation than missing an IEP. If an individual retires and misses his or her SEP, the LEP calculation is based on the date of retirement, not the end of the eight-month SEP. This adds eight months to the penalty calculation. Beneficiaries who miss their SEP will likely also experience a coverage gap. Also, be aware that the SEP for enrollment in Part D is just two months, not eight months.


The GEP is an easier period to understand than the IEP or SEP because it is so restrictive and has little flexibility. It begins each year on Jan. 1 and ends on March 31. If a client signs up for coverage during this period, his or her coverage begins on July 1. Note that if he or she doesn't have other health insurance coverage during this Jan. 1 through June 30 period, he or she will experience a coverage gap of at least six months. But the gap can be much longer, as the example of Janice in the chart "Enrolling During the GEP Can Result in Lengthy Coverage Gaps" illustrates.

Enrolling during the GEP can result in lengthy coverage gaps
Enrolling during the GEP can result in lengthy coverage gaps

Had Janice enrolled during her IEP, she could have had coverage as early as Oct. 1, 2015, the month she turned 65. Instead, she will go without coverage until July 1, 2017, a total of 21 months. She will also pay an LEP on her monthly Part B premium equal to 10% of her current Part B premium for the rest of her life.

These are harsh consequences, but they exist for a reason. Medicare, like any other health insurance plan, is supported by the premiums paid by its healthy beneficiaries. For it to succeed, a large number of participants must never (or seldom) put in a claim. Therefore, Medicare provides a powerful negative incentive for people approaching retirement age, many of whom are still healthy, to enroll as soon as they are eligible. With a little know-how, though, CPAs can help clients avoid this penalty and save them money in retirement.

Do your clients need both Medicare and employer-sponsored coverage?

Should an employee enroll in Medicare even if he or she has employer-provided coverage? If his or her company has fewer than 20 employees, definitely. In that case, Medicare will be the primary payer of his or her health care expenses, and his or her employer-provided plan will be the secondary payer. He or she should enroll during the IEP rather than wait for the SEP, when there is a risk of having a coverage gap. However, if his or her company has 20 or more employees, the health care plan will be the primary payer, and Medicare will be the secondary payer. In that instance, whether it's worthwhile for the employee to enroll in Medicare depends on the value of the employer-provided coverage.

What about Medicare Part A?

The vast majority of Medicare beneficiaries do not pay a monthly premium for Part A (hospital) coverage. As a result, its enrollment rules are more relaxed than Part B's. (After all, it is hard to impose a late enrollment penalty on a monthly premium of zero.) A beneficiary can enroll in Part A at any time as long as he or she meets the other requirements, such as being age 65 or older.

If a beneficiary is not entitled to no-premium Part A (e.g., he or she had fewer than 40 work credits and was never married to a spouse with 40 or more work credits), he or she can buy into Part A. (A beneficiary can buy into Part A at a reduced rate if he or she had between 30 and 39 work credits.) For people buying into Part A, the enrollment rules are similar to Part B's with an IEP, SEP, and GEP.

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

About the author

James Sullivan ( is a financial planner in Wheaton, Ill.

To comment on this article or to suggest an idea for another article, contact Courtney L. Vien, associate editor, at or 919-402-4125.



  • The CPA's Guide to Financing Retirement Healthcare (#PPF1503E, ebook) (also available to PFP Section members, inclusive of CPA/PFS credential holders as a part of the Personal Financial Planning Collection in the Online Professional Library; a free excerpt is available at
  • Personal Financial Planning Services Library (#PFPCOLLO, one-year online access)
  • Tax Planning After the Healthcare Surtax: Tools, Tips, and Tactics (#PTX1407M, online access)

CPE self-study

  • Social Security and Medicare: Maximizing Retirement Benefits (#745610, text; #163250, one-year online access)

CPE webcasts

  • "PFP Boot Camp: Retirement Planning and Employee Benefits," Dec. 7, video webcast (#VPFSE5004)
  • "Social Security and Medicare: Maximizing Retirement Benefits," Dec. 8, live audio webcast (#VCL4SSM029); Dec. 29, live audio webcast (#VCL4SSM030)

For more information or to make a purchase or register, go to or call the Institute at 888-777-7077.

Online tools

  • 3.8% Healthcare Surtax Checklist for Individuals, (member login required)
  • AICPA Webinar on Medicare Surtax and Estates and Trusts (webinar), (member login required); (presentation slides) (member login required)
  • Checklist—2015 Medicare Part D Enrollment, (member login required)
  • "Dealing With the Inevitable: Social Security & Medicare" (webcast), (member login required)
  • PFP Online Professional Library, (member login required)
  • Practical Planning for Aging & Elder Issues (seminar recording and presentation material),
  • Retirement Planning and Issues Related to Aging (seminar recording and presentation material),
  • Sample Newsletter Article—2015 Medicare Part D Enrollment, (member login required)


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