Medicare Part D is the part of Medicare that covers prescription drugs.
Part D plans are not offered by Medicare itself. Rather, Medicare authorizes Part D plans from private insurance companies that meet yearly standards set by Medicare to be sold to the public.
If you take expensive prescription medications, it’s definitely to your benefit to enroll in a Part D plan when you become eligible for Medicare.
But what if you take only a few inexpensive generic medications or no medications at all? Should you enroll in a Part D plan?
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Part D Enrollment
Part D enrollment is not required by Medicare. However, enrollment in Part D is incentivized by Medicare. With any insurance product, the goal is to have as many people as possible in a group to spread financial risk around.
That’s why, when Medicare Part D was set up about 15 years ago, a hefty late enrollment penalty was included to strongly encourage everyone eligible to enroll in a Part D plan, even those who take few or no medications.
Initial Enrollment Period (IEP)
Most people first become eligible for Medicare when they turn 65. The first opportunity to enroll in a Part D plan is your Initial Enrollment Period (IEP): if you are enrolling in a Medicare Part D plan when you turn 65 and are enrolling in Medicare Parts A and/or B, your IEP is the three months prior to your birth month, your birth month, and the three months following your birth month, for a total of seven months.
It’s important to make a note of those seven months because you aren’t able to enroll in a Medicare Part D plan anytime you might want to during the year.
If you choose not to enroll during your Initial Enrollment Period, your next chance to enroll, unless you have something that triggers a Special Election Period, will be the Annual Enrollment Period between October 15 and December 7. Any enrollment completed during the Annual Enrollment Period takes effect on January 1 of the following year.
Late Enrollment Penalty
If you don’t enroll in Part D coverage during the seven months of your Initial Enrollment Period, and you don’t have creditable prescription coverage from another source like a group health plan from your employer or union or a government program such as the VA, your Part D late enrollment penalty kicks in.
The cost of the late enrollment penalty depends on how long you didn’t have creditable prescription drug coverage.
The late enrollment penalty is calculated by multiplying 1% of the “national base beneficiary premium” ($33.06 in 2021, $33.37 in 2022) by the number of full, uncovered months that you were eligible but didn’t enroll in Medicare drug coverage and went without other creditable prescription drug coverage. The final amount is rounded to the nearest $.10 and added to your monthly premium.
Since the “national base beneficiary premium” may increase each year, the penalty amount may also increase each year. After you enroll in Medicare drug coverage, the plan will tell you if you owe a penalty and what your premium will be with that penalty added.
Penalty Examples
So, for example, if your seven months of Initial Enrollment Period end March 30, 2022, and you don’t enroll in Part D coverage and don’t have creditable coverage from another source, the earliest you can enroll in a Part D plan is the next year, 2023, on Jan 1.
The intervening 9 months without coverage are all subject to the late enrollment penalty. In 2022, that’s 30 cents per month for each month not enrolled in a Part D plan or creditable coverage, which adds up to an extra $2.70 per month that gets added to your Part D plan premium when you enroll.
An extra $2.70 a month doesn’t sound too bad.
However, remember though that the penalty amount is always calculated using the national base beneficiary premium for the year, and that almost always goes up, so your penalty amount will increase every year.
Also, the big issue is that you will pay an extra $2.70 per month for as long as you are enrolled in Part D coverage. It never goes away.
So, if our hypothetical person has Part D coverage for 20 years, and to keep the math simple, let’s assume the penalty stays at $2.70 a month for all twenty years, even though in the real world, that’s very unlikely. After 20 years, our person has paid an extra $648 in late enrollment penalty.
Remember, that person only had 9 months of non-coverage. If you go for years without coverage, the penalty amount continues to grow. If someone didn’t have Part D coverage for 5 years and wants to enroll in a Part D plan for Jan 1, 2022, that person’s monthly late enrollment penalty would be an extra $18 tacked onto a Part D plan premium.
If that person spends 20 years on a Part D plan, the total penalty paid would be $4,320.
The longer a person doesn’t have Part D coverage, the worse the penalty gets.
Ok, what are the alternatives?
You can go without Part D coverage and plan to self-fund all prescription costs. We’ve had a few clients over the years who have chosen to do this and have the financial reserves to make that possible, but for most people, this is a risky option.
Medications for some medical diagnoses are extremely expensive and can eat through retirement savings quickly. None of us knows what our health future holds, but for most people, as we age, we need more medical intervention, including more medications.
The course of action we recommend is to enroll in the Part D plan with the lowest monthly premium in your zip code during your Initial Enrollment Period if you take no medications.
The insurance companies know that there are a growing number of people who are in their 60s and don’t need maintenance medications. There are usually at least a few plans in every zip code with very low premiums.
For 2022, there are plans that have premiums of less than $10 per month.
If you take no medications and enroll in a $10 per month Part D plan for all of 2022, that’s a total of $120 spent to avoid the late enrollment penalty later.
Enrolling does also give you, obviously, Part D prescription drug coverage. If you have illnesses or injuries during the year, you have coverage for any medications your doctor may prescribe.
Have Questions? We Can Help!
If you have questions about Medicare Part D prescription drug coverage, or any other Medicare questions, please feel free to give our office a call at 877-312-1414 or schedule a free, no obligation Medicare Plan Consultation.
We’re here to help you understand your Medicare coverage options and choose the plan that’s the best fit for you.
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