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Save Money: Enroll in Medicare Part D at the Right Time to Avoid a Penalty

August 25, 2017

You may have heard you don’t have to choose a prescription drug plan, known as Medicare Part D, as soon as you become eligible for Medicare. You should consider your choice carefully, though, because if you decide to sign up for a Part D plan much later, you will likely get a Medicare Part D late enrollment penalty added to your monthly payment.

Medicare Part D: Understanding the Late Enrollment Penalty

When you become eligible and enroll in Original Medicare (Parts A and B), which is administered by the government, you will also have the option to buy Medicare Part D as a stand-alone prescription drug plan. You can purchase  Medicare drug plans from a private insurance company that are approved by Medicare. Choose your coverage as either:

  • A Medicare Advantage plan (Part C) that includes prescription drug benefits OR
  • A separate Medicare Part D prescription drug plan (PDP), which can be added to Original Medicare or any Medicare Supplement insurance plan

It’s beneficial to make your choice when you first become eligible during your Initial Enrollment Period (IEP) for Original Medicare. If you wait to enroll more than 63 days after your IEP, the Part D penalty can kick in — and it can have long-term consequences.

The Late Enrollment Penalty Has a Lasting Impact on Your Out-of-Pocket Costs

Don’t be fooled: The words “late enrollment penalty” can give the false impression that you would just pay a one-time fee. The truth is that the penalty gets added to your monthly Part D payment for as long as you have Medicare prescription drug coverage, even if you change your drug plan.

As a result, you could pay a higher monthly premium for Medicare Part D, year after year.

The cost of the late enrollment penalty depends on how long you go without Part D or “creditable” prescription drug coverage. Creditable coverage is a plan that pays on average at least as much as Medicare’s standard prescription drug benefits. Examples of creditable coverage include drug benefits from an employer or union, the Department of Veterans Affairs, or health insurance through a private company. If you have one of these, you don’t need to choose a Medicare Part D plan until your existing benefits run out.

How Medicare Part D Penalty Amounts Are Calculated

Medicare calculates the penalty by multiplying 1% of the "national base beneficiary premium" ($35.63 in 2017) times the number of full, uncovered months you didn't have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium. Here’s an example:

Multiply 1% by the National Base Beneficiary Premium: $35.63 x 1% = $0.3563

Times the number of full, uncovered months: $0.3563 x 7months = $2.49

Round to the nearest $.10: Round $2.49 up to $2.50

Monthly Penalty = $2.50

Keep in mind, the national base beneficiary premium will likely increase each year, so your penalty amount may also increase each year.

There are a few exceptions that could spare you from the penalty

Not everyone will pay a late enrollment penalty, and there are some exceptions if you don’t choose a drug plan during your Medicare enrollment. Specific circumstances that could exempt you from paying a penalty include:

  • You already have creditable prescription drug benefits as good as Medicare’s, and there’s been no break in benefits for 63 days or more
  • You enroll in a Medicare Advantage plan that includes prescription drug benefits
  • You qualify for Extra Help to pay for prescriptions and enroll in a Medicare drug plan
  • You can prove that you received inadequate information about whether your existing drug benefits was creditable
Why Take a Chance and Get Stuck With the Late Enrollment Penalty?

Even if you don’t currently take prescription medications, it’s wise to consider enrolling in a Medicare Part D plan — or a private  Medicare plan with prescription benefits, such as a Medicare Advantage plan — when you first become eligible. Then you’ll have benefits if and when you need them, instead of waiting too late to enroll and paying a permanent Medicare Part D late enrollment penalty.

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This information is not a complete description of benefits. Contact the plan for more information. Limitations, copayments, and restrictions may apply. Benefits, premiums and/or co-payments/co-insurance may change on January 1 of each year. You must continue to pay your Medicare Part B premium.

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