How to Avoid the Medicare Part D Late Enrollment Penalty

Be careful to avoid the Medicare Part D late enrollment penalty!

Medicare Part D, an outpatient prescription drug benefit, is offered to everyone with Medicare. To get Part D drug coverage, you have to join a plan run by a private insurance company that has been approved by Medicare (stand-alone Part D coverage) or enroll in a Medicare Advantage plan that includes drug coverage. This is because Original Medicare (also known as Traditional Medicare, ie Medicare Parts A and B, run by the federal government) does not include coverage for outpatient prescription drugs.

How to Join, Switch, or Drop a Medicare Drug Plan

Medicare has specific rules about when and how you can join, switch, or drop a Medicare Part D drug plan. You can join a Part D drug plan:

  • When you first become eligible for Medicare (the seven-month period that begins three months before the month you turn 65, includes the month you turn 65, and ends three months after the month you turn 65).
  • If you get Medicare due to a disability, you also have a seven-month window during which you can enroll in Part D, and it's centered around the month that you become eligible for Medicare coverage as a result of your disability. That happens after you've been receiving disability payments for 24 months, so the enrollment window for Part D starts three months before your 25th months of disability, and ends three months after it.

You can join, switch, or drop a Medicare Part D drug plan:

  • Between October 15 and December 7 each year, for coverage effective the first of the following year.
  • Anytime, if you qualify for Extra Help from Medicare, or are dual-eligible for both Medicare and Medicaid.
  • Between January 1 and March 31, you can switch from a Medicare Advantage plan to Original Medicare, and you can purchase a Part D plan to supplement the Original Medicare coverage. This is new as of 2019, as part of the Medicare Advantage Open enrollment period. It does not grant as much flexibility as the annual election period in the fall, as it does not allow a person with Part D coverage to switch to another Part D plan, nor does it allow a person without Part D coverage to newly enroll. In order to take advantage of this enrollment window, you must already be enrolled in Medicare Advantage.

In most cases, you can't change your Part D plan mid-year; the plan you select during open enrollment or your initial enrollment period is the plan you'll have until the end of the year, assuming you continue to pay your premiums (your plan can drop you if you fail to pay premiums). However, you may be able to join, switch, or drop your Medicare drug plans at other times:

  • If you move out of your Part D plan’s service area, such as relocating to another state.
  • If you lose other creditable prescription drug coverage.
  • If you live in an institution such as a nursing home or other long-term care facility.

Medicare’s Definition of Creditable Prescription Drug Coverage: Prescription drug coverage (for example, from an employer or union) that is expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage. People who have this kind of coverage when they become eligible for Medicare can generally keep that coverage without paying a penalty if they decide to enroll in Medicare prescription drug coverage later.

The Medicare Part D Late Enrollment Penalty

Medicare’s late enrollment penalty is an amount that is added to your Part D monthly premium. You may owe a late enrollment penalty due to the one of the following:

  • You didn’t join a Medicare Part D drug plan when you were first eligible for Medicare, and you didn’t have other creditable prescription drug coverage.
  • You didn’t have Medicare prescription drug coverage or other creditable prescription drug coverage for 63 days or more in a row.

Note: If you get Extra Help, you don’t pay a late enrollment penalty.

You can avoid paying a penalty by:

Joining a Part D drug plan when you’re first eligible for Medicare.

Not going 63 days or more in a row without a Medicare Part D drug plan or other creditable coverage. Creditable prescription drug coverage could include drug coverage from a current or former employer or union, TRICARE, Indian Health Service, Department of Veterans Affairs, or health insurance coverage. Your plan will tell you each year if your drug coverage is creditable coverage. This information may be sent to you in a letter or included in a newsletter from the plan. Keep this information, because you may need it if you join a Medicare drug plan later.

Making sure to tell your plan about any drug coverage you had if they ask about it: When you join a plan, and they believe you went at least 63 days in a row without other creditable prescription drug coverage, they will send you a letter. The letter will include a form asking about any drug coverage you had. Complete the form. If you don’t tell the plan about your creditable coverage, you may have to pay a penalty.

The Penalty Can Add Up

How much the late enrollment penalty will cost you depends on how long you did not have creditable prescription drug coverage. The late enrollment penalty is calculated by multiplying 1 percent of the “national base beneficiary premium” ($33.19 in 2019) by the number of full months that you were eligible for but didn’t join a Medicare drug plan and went without other creditable prescription drug coverage.

That amount is then rounded to the nearest $0.10 and added to your monthly Part D premium. Since the “national base beneficiary premium” generally increases over time, the penalty amount can also increase over time. You may have to pay this penalty for as long as you have a Medicare drug plan.

Example 1: Mrs. Jones did not join a Part D plan when she was first eligible (in June 2006). She joined a Medicare drug plan during the 2009 enrollment period, for an effective enrollment date of January 1, 2010. Since Mrs. Jones did not join when she was first eligible and went without other creditable drug coverage for 43 months (June 2006–December 2009), she was charged a monthly penalty of $13.90 in 2011, when the national base beneficiary premium was $32.34 ($32.34 x 0.01 x 43 = $13.90) in addition to her plan’s monthly premium.

By 2017, the national base beneficiary premium had increased to $35.63, so the penalty for Mrs. Jones has grown to $15.32 per month ($35.63 x 0.01 x 43 = $15.32). But the national base beneficiary premium was a little lower by 2019, at $33.19. So in 2019, her penalty amount is $14.27 per month ($33.19 x 0.01 x 43).

But even with that slight reduction in penalty amount, if Mrs. Jones continues with her Part D drug plan for ten years, her penalty will cost her over $1,700.

Example 1: Mr. Smith did not join a Part D plan when he was first eligible (in February 2010). He joined a Medicare drug plan during the 2010 enrollment period (November 15—December 31, 2010), for an effective enrollment date of January 1, 2011. Since Mr. Smith did not join when he was first eligible and went without other creditable drug coverage for 11 months (February 2010-December 2010), he was charged a monthly penalty of $3.56 in 2011 ($32.34 x.01 x 11 = $3.56) in addition to his plan’s monthly premium.

By 2017, Mr. Smith's penalty (assuming he still had Medicare Part D coverage) had grown to $3.92 per month, in addition to his plan's regular premium ($35.63 x 0.01 x 11 = $3.92). In 2019, since the national base beneficiary premium is a little lower, his penalty amount is $3.65 per month ($33.19 x 0.01 x 11). His penalty is a lot smaller than the penalty Mrs. Jones has to pay, because he was only 11 months late in enrolling, instead of 43 months. But even a few dollars a month adds up over the rest of a person's life.

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Article Sources

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  1. Centers for Medicare and Medicaid Services. What Happens When a Member Doesn't Pay His or Her Premiums?

  2. Centers for Medicare and Medicaid Services. Creditable Coverage.

  3. Medicare.gov. Part D Late Enrollment Penalty.

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