Medicare Part B Penalties Explained for HR Teams

An employee turns 65, decides to skip Medicare Part B, and nobody really pushes back. Your health plan is solid. They're still working. It doesn't feel like a problem.

And in a lot of cases, it isn't.

But there's a version of that story that ends ten years later with a permanently higher Medicare premium — one that follows that employee for the rest of their life. And the employer who could have prevented it, didn't, not out of bad intent, but because nobody sat down and explained when delaying Part B is safe and when it isn't.

That's the gap this post is about.

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How the Part B Late Enrollment Penalty Actually Works

When someone first becomes Medicare-eligible, they get what's called an Initial Enrollment Period — a seven-month window centered on their 65th birthday (three months before, the birthday month, and three months after).

Enroll during that window, and they pay the standard Part B premium. At 2026 rates, that's $185.00 per month. Delay enrollment without qualifying coverage in place, and the penalty can apply.

The calculation is straightforward and unforgiving: 10 percent of the standard Part B premium for every full 12-month period they went without Part B when they should have had it. Two years without Part B equals a 20 percent increase. Five years equals 50 percent. And that percentage isn't a one-time fee — it gets added to their monthly premium and stays there permanently.

Run the numbers on a three-year gap at today's rates: roughly a $55 per month increase. Over a 20-year retirement, that's more than $13,000 in additional cost. All of it preventable. None of it refundable.

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What Actually Protects Someone From the Penalty

This is where most of the confusion lives.

Employees who have creditable coverage tied to active employment can delay enrolling in Part B without incurring a penalty. In most cases, that means coverage through their own employer or a spouse's employer, where the group health plan is considered the primary payer.

But here's where employer size matters, and it matters a lot.

If your organization has 20 or more employees, the group health plan is typically primary and Medicare is secondary for active employees. In that scenario, an eligible employee can generally delay Part B safely — as long as they enroll once that coverage ends.

If your organization has fewer than 20 employees, Medicare is typically primary. In that case, delaying Part B can create both coverage gaps and penalty exposure, even if the employee stays on your group plan. Being enrolled in a group plan is not the same as having qualifying coverage for MSP purposes when your organization falls under the small employer threshold.

Most HR teams know the 20-employee rule exists. Fewer have actually verified which side of that threshold they're on using the CMS definition — which counts differently than a headcount on the org chart. If this is unfamiliar territory, that's worth addressing before the next employee approaches 65.

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The COBRA Trap

There's one scenario that deserves its own section because it catches people off guard consistently.

An employee retires, elects COBRA, and assumes their Medicare clock isn't running yet. They figure they have active coverage, so they have time.

They don't.

COBRA is not active employment coverage for purposes of delaying Part B. It does not extend a Special Enrollment Period. Once an employee leaves active employment, they have an eight-month window to enroll in Part B. If they spend months on COBRA before getting around to Medicare enrollment and that window closes, the penalty applies to the gap period.

The employee is usually surprised when they find this out. The HR team is usually the one who has to explain it. It's a much easier conversation before the COBRA election than after the penalty notice.

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The Distinction That HR Should Be Communicating

There's an important difference between a compliant delay and a gap — and that difference is what determines whether a penalty applies.

A compliant delay is when an employee has active, qualifying employer coverage and chooses not to enroll in Part B. No penalty, no problem, as long as they enroll within the Special Enrollment Period once that coverage ends.

A gap is when that coverage ends and the employee doesn't enroll in Part B within the eight-month window. That gap — however long it runs — is what the penalty calculation is based on.

The Part B penalty doesn't care about intent. It doesn't get waived because someone assumed they had more time, or because their HR team wasn't sure what to tell them, or because the COBRA paperwork looked like it covered everything. Once the window closes, the math runs.

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What Employees Actually Need to Hear Before They Turn 65

The clearest version of this message, tailored by employer size, looks something like this:

If you are still working and covered under our health plan, you may not need to enroll in Medicare Part B yet. Whether that's true depends on our organization's size and how the plan is structured.

If we have 20 or more employees, our plan is typically primary and you can generally delay Part B while actively employed.

If we have fewer than 20 employees, Medicare is typically primary. You should strongly consider enrolling in Part B when you are first eligible.

Either way: once you lose active employer coverage, you have an eight-month window to enroll in Part B. If you miss that window, Medicare can apply a permanent penalty that increases your monthly premium for the rest of your life.

That's the message. It's not complicated. What makes it complicated is waiting until someone is already on the other side of 65 and the timeline is suddenly ambiguous.

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A Small Communication Gap, a Long-Term Cost

The Part B late enrollment penalty exists because Medicare has always used financial incentives to encourage timely enrollment. It enforces those incentives consistently, and there are very few circumstances where the penalty gets waived once it's applied.

From an employer's perspective, this is one of those situations where the cost of a clear, proactive communication is effectively zero. The cost of not having it can follow an employee — and the HR relationship — for the rest of their working and retired life.

Getting in front of this before employees approach 65 isn't a heavy lift. But it does require knowing which message to deliver and making sure it actually reaches people before the enrollment windows start closing.

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Next in the Exact Benefits Newsletter: Medicare Part A and HSA Conflicts: What Employers Overlook. Why contributing to an HSA after Medicare enrollment can create unexpected tax problems — and how to catch it before the IRS does.

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