4 Ways to Avoid the Part D Penalty
What is the Part D Late Enrollment Penalty?
The Part D late enrollment penalty is a permanent fee that is added to your monthly prescription drug premium as a consequence of going without creditable prescription drug coverage for more than 63 days. This permanent penalty applies to all Medicare beneficiaries who failed to sign up for a Part D plan during their initial enrollment period, or for those who didn’t have creditable prescription drug coverage, either through an employer or elsewhere while being Medicare eligible. The penalty is permanent and will remain in place the entire time you are enrolled in a Medicare prescription drug plan.
Part D Penalty Example
The amount you pay for the penalty depends on a few factors like how long you went without creditable prescription drug coverage and how much the national base benefit premium is at the time of enrollment. Here’s an example of how Medicare calculates the Part D penalty for someone who went without creditable prescription drug coverage for 4 years (48 months):
.48 (48% Penalty) x 33.37 (2022 Base Premium) = $16.00/ month
The penalty amount is then rounded to the nearest $0.10, making this individual’s penalty $16.00 per month in addition to their monthly premium. That’s an additional $190 a year just for the penalty. As you can see, the Part D penalty is no fun! Luckily, there are ways to avoid it and we’re going to tell you how in the next section.
4 Ways to Avoid the Part D Penalty
- Enroll in Medicare drug coverage when first eligible.
Your first opportunity to enroll in Medicare drug coverage is during your Initial Enrollment Period (IEP). This is a 7-month enrollment opportunity that begins 3 months before your 65th birthday and ends 3 months after your birthday month. Individuals still working while Medicare-eligible or those with specific special circumstances may qualify for a Special Enrollment Period. For more information about Medicare enrollment periods see, “Understanding the Different Medicare Enrollment Periods”
- Enroll in Medicare drug coverage if you lose other creditable coverage.
Medicare requires that all beneficiaries have creditable prescription drug coverage. This means your current prescription drug coverage must provide benefits equal to or better than that of a Medicare prescription drug plan. Most individuals have creditable coverage through their employer’s group health plan. Once, you retire or lose your job you must sign up for drug coverage within 63 days of the termination of your coverage to avoid the penalty.
- Enroll in a low-cost drug plan, even if you don’t currently take prescription medications.
A big mistake new beneficiaries make is not enrolling in a prescription drug plan when first eligible because they don’t think they need it. However, what they don’t factor in is the permanent late enrollment penalty and gaps in coverage should an unforeseen health issue occur in the future. Rather than risk being uncovered and paying a hefty penalty in the future, it’s wise to enroll in a low-cost Part D plan instead. This will ensure you avoid a future late enrollment penalty and provide peace of mind should you need drug coverage in the future.
- Enroll in the Extra Help Program if financial assistance is needed.
Medicare Extra Help is a federal assistance program that helps individuals with limited income and resources pay for Medicare prescription drug costs. Those enrolled in the Extra Help program do not have to pay a late enrollment penalty.