If you're approaching 65 years old, it's time to start thinking about your healthcare plans and where Medicare will fit into them. Although Medicare hospital coverage (Part A) is free for most seniors, you shouldn't treat this government-sponsored healthcare plan as something you can leave on autopilot. In reality, there are a surprising number of Medicare decisions to make and pitfalls to avoid.

Late enrollment penalties are some of the most common and potentially costly issues you might face. Healthcare costs tend to increase with age, so these enrollment penalties discourage seniors from signing up when their care costs are already extremely high. Unfortunately, they can also take many people by surprise and leave them paying unaffordable rates.

What Are Late Enrollment Penalties?

You may face late enrollment penalties for Medicare Parts A, B, and D. Since most people qualify for free Medicare Part A at age 65, you usually won't need to worry about penalties on your hospital coverage. However, there is still a late enrollment penalty if you don't qualify for free Part A, but this penalty will eventually expire and allow your rates to return to normal.

For Medicare Parts B and D, the penalties for late enrollment can be more severe. In both cases, you'll be paying any accrued premium increases for the rest of your life, making it particularly critical to avoid them when possible. The Part B penalty is 10% for each year you go without coverage, while the Part D penalty is slightly more complex and accrues monthly rather than yearly.

What Can You Do?

It's important to remember that late enrollment penalties are nearly always avoidable. In general, the best way to avoid late penalties is by enrolling in Medicare as soon as you are eligible. Since some enrollment decisions (such as choosing between traditional Medicare and Medicare Advantage) can be complex, it's a good idea to start planning well before you become eligible. However, you may be able to defer enrollment if you're currently working and covered by an employer health insurance plan. In these cases, never assume that your current plan qualifies you for a deferment. You will need to discuss with your current employer first whether your health insurance coverage allows you to delay Medicare enrollment. If not, you must enroll when eligible to avoid late enrollment penalties.

Keep in mind that the requirements for delaying Parts A and B may vary from Part D requirements. To delay Part D enrollment, you must have "creditable prescription coverage." You may need to enroll in a Part D plan even if you can delay Part A or B enrollment. Since the penalties can be so severe, always speak with your health insurance plan manager or Medicare's helpline if in doubt. For more information, contact a medicare service provider near you to learn more.