Medicare Part D Prescription Drug Coverage
Medicare Part D is prescription drug coverage. It is not an automatic or mandatory part of Medicare. You don’t have to enroll in a Part D plan if you don’t want to.
However, if you decide not to enroll when you are first eligible but then decide to enroll later, you may have some steep late enrollment penalties that you will pay every month for as long as you have Part D coverage.
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63 or More Days Without Coverage
After your Initial Enrollment Period is over, if you have a stretch of 63 or more days in a row without being in a Medicare Part D plan or having creditable coverage, and you later enroll in a Part D plan, you may owe the Part D late enrollment penalty.
How is the penalty calculated?
Medicare calculates the penalty by multiplying 1% of the “national base beneficiary premium” ($33.06 in 2021) times the number of full, uncovered months you didn’t have Part D or creditable coverage. The penalty amount is rounded to the nearest $.10 and added to your monthly Part D premium.
Here’s an example:
Let’s say someone’s Initial Enrollment Period ended on May 31, 2017. She doesn’t have prescription drug coverage from any other source.
She didn’t join by May 31, 2017, and instead joined during the Open Enrollment Period that ended December 7, 2019. Her drug coverage was effective January 1, 2020.
Since she was without creditable prescription drug coverage from June 2017–December 2019, her penalty in 2021 was 31% (1% for each of the 31 months she didn’t have coverage) of $33.06 (the national base beneficiary premium for 2021), or $10.25 each month.
Since the monthly penalty is always rounded to the nearest $0.10, she pays $10.30 each month in addition to her plan’s monthly premium.
Penalty Increases as Premiums Increase
Because the penalty is calculated based on the average Part D plan premium for the year, the penalty goes up as premiums increase. You can’t expect to pay the same amount for a penalty every year.
How to Avoid the Part D Late Enrollment Penalty
Creditable coverage that avoids this penalty can be prescription insurance through your employer group health or retiree plan, the VA, or other sources. It is important that you check with your benefits administrator to find out whether your current prescription coverage is considered creditable coverage by Medicare in order to avoid this penalty.
If you have creditable coverage from another source, you do not have to worry about paying the Part D late enrollment penalty if you don’t enroll in a Part D plan when you first start other Medicare coverage.
Save the paperwork!
It is vitally important that you save documentation proving that you have creditable coverage. Certificates of creditable coverage are commonly requested and not difficult for benefit and HR offices to provide for you.
Medicare plans and brokers can’t provide this documentation for you later. It must come from whatever source provided your creditable coverage.
Medicare Limited Income Extra Help
If you qualify for Extra Help, you will not have to pay the late enrollment penalty even if you did not have creditable coverage. Here is a link for more information on Extra Help: https://www.medicare.gov/your-medicare-costs/get-help-paying-costs/find-your-level-of-extra-help-part-d
How will you know if you owe the Late Enrollment Penalty?
If you owe a late enrollment penalty, a Part D plan will inform you of that after you enroll in a plan.
If you are charged a late enrollment penalty but you don’t believe that determination is correct, you can request a reconsideration from your Part D plan within the first 60 days of being notified by the plan that you owe the penalty.
By law, the late enrollment penalty is part of the plan premium, so you cannot fail to pay the penalty without possibly being disenrolled from the plan.
What if you don’t take any medications and don’t have other creditable coverage?
We have many clients in this situation. What we recommend is that you enroll in the least expensive Medicare Part D plan available in your area just to avoid paying the late enrollment penalty later.
There are plans in most zip codes with premiums of under $10 per month. Enrolling both protects you from penalties later and does provide prescription drug coverage should you have unforeseen medication needs during the year.
I hope that helps explain the Medicare Part D late enrollment penalty. If you have any questions, feel free to reach out to our office at 877-312-1414.
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