Medicare Part D helps cover prescription drugs. You may get Part D through a stand-alone prescription drug plan or through a Medicare Advantage plan that includes drug coverage.
If you go without Part D or other qualifying drug coverage for too long, you may face a late enrollment penalty. This penalty can be confusing because it is not a one-time fee. It may be added to your monthly Part D premium for as long as you have Medicare drug coverage.
Knowing the basic rules before you turn 65 can help you make a more confident decision about your coverage.
What is the Medicare Part D late enrollment penalty?
The Part D late enrollment penalty is an extra amount that Medicare may add to your monthly drug plan premium if you did not enroll when you were first eligible and did not have other creditable prescription drug coverage.
Creditable coverage means prescription drug coverage that is generally expected to pay, on average, at least as much as standard Medicare Part D coverage. Many employer plans, union plans, military benefits, and retiree plans may be creditable. However, you should not assume that a plan qualifies.
Your plan should generally send you a notice each year stating whether its drug coverage is creditable. Keep that notice in a safe place. It may help you show that you had qualifying coverage if questions come up later.
When might the Part D penalty apply?
You may be subject to a penalty if you go for 63 days or more in a row without Part D or other creditable drug coverage after your Medicare eligibility begins.
For many people, Medicare eligibility starts at age 65. But timing can vary, especially if you qualify for Medicare earlier because of a disability or certain health conditions.
For example, someone might decide not to enroll in Part D because they do not take any prescriptions. Later, they may need medications and enroll in a drug plan. If they had no creditable coverage for 63 days or longer, a penalty may be added to the plan premium.
Even if you do not take prescriptions now, it can be worth considering Part D coverage. Health needs can change, and a lower-premium plan may offer a way to avoid a future coverage gap. Plan choices and premiums vary by carrier, plan, and state.
How is the Part D late enrollment penalty calculated?
The penalty is generally based on how many full months you went without Part D or creditable drug coverage. Medicare typically calculates it by multiplying 1% of the national base beneficiary premium by the number of uncovered months.
The national base amount can change from year to year. Because of that, your penalty amount may also change over time. The final amount is generally rounded and added to your monthly Part D plan premium.
You do not need to calculate this amount on your own when choosing coverage. Still, it is helpful to understand that a longer period without qualifying coverage may lead to a larger penalty.
How long do you pay the Part D penalty?
If Medicare determines that a penalty applies, you will generally pay it for as long as you have Part D coverage. This is why it is important to pay attention to enrollment timing, even if prescription drugs are not a major concern today.
The penalty is separate from your plan's regular monthly premium. Your plan premium may change each year, and the penalty amount may change as the national base amount changes.
What coverage may count as creditable drug coverage?
Several types of coverage may count, but you should always review the written notice from the coverage provider. Examples that may be creditable include:
- Drug coverage from a current employer or union plan
- Retiree health coverage that includes qualifying prescription benefits
- TRICARE prescription drug coverage
- Department of Veterans Affairs, or VA, prescription drug coverage
- Some individual health plans with prescription drug benefits
On the other hand, a Medicare Supplement plan, also called Medigap, does not include Part D prescription drug coverage. A Medigap plan may help with certain Original Medicare cost-sharing, but you would generally need a separate Part D plan if you want Medicare prescription drug coverage.
Also, prescription discount cards and cash-pay discounts generally do not count as creditable coverage. They may lower the price of a medication, but they are not the same as qualifying insurance coverage.
Can you avoid the Medicare Part D penalty?
You may be able to avoid the penalty by enrolling in Part D when you first become eligible, unless you already have creditable drug coverage. If you keep other drug coverage, save the annual creditable coverage notices you receive.
If you lose creditable coverage, you may have a limited window to enroll in Part D without a penalty. Acting promptly can be important. The exact enrollment options can depend on why your coverage ended and when it ended.
People who qualify for Medicare's Extra Help program may not have to pay a Part D late enrollment penalty. Extra Help is a program that may assist people with limited income and resources with prescription drug costs. Eligibility rules can change, so consider reviewing current program details if you think you may qualify.
What if you think the penalty is wrong?
You may be able to ask for a review if you believe Medicare applied the penalty by mistake. For example, you may have had creditable coverage but did not have the paperwork available when you enrolled.
Your Part D plan can generally send you information about the review process. Supporting documents, such as a creditable coverage notice or a letter from a former employer, may be helpful. It is usually best to respond by the deadline shown in your notice.
Medicare decisions can feel complicated, especially when you are balancing drug coverage, Original Medicare, Medicare Advantage, and Medicare Supplement options. Eric can provide free, no-pressure help reviewing your situation and discussing Medicare Supplement and prescription drug coverage choices that may fit your needs.