Medicare Part D: Understanding the Late Enrollment Penalty
When you become eligible for Medicare , you will have a variety of options related to Medicare Part D (also known as Medicare Prescription Drug Coverage).
If you decide to use Original Medicare, which is administered by the government, you will also have the option to buy a stand-alone Medicare Prescription Drug Plan. Participants with Original Medicare often choose to purchase Medicare Part D from private companies. It is important to know that private insurance companies who offer prescription drug coverage are approved by Medicare to offer prescription drug plans.
If you decide not to purchase a Medicare Part D plan when you first become eligible during your Initial Enrollment Period (IEP or ICEP) for Original Medicare, there might be long-term consequences. For example, if you decide to purchase it after your initial enrollment period, you may have to pay a late enrollment penalty.
The words "late enrollment penalty" may give the impression that you might have to pay a onetime fee, however, the penalty payout will last for the duration of time that you have coverage. As a result, you could pay a higher monthly premium for Medicare Part D.
How much is the Medicare Part D late enrollment penalty?
Here is the way Medicare.gov describes how late-enrollment penalty is calculated:
- The cost of the late enrollment penalty depends on how long you went without creditable prescription drug coverage.
- The late-enrollment penalty is calculated by multiplying 1% of the "national base beneficiary premium" times the number of full, uncovered months you were eligible, but chose not to join a Medicare Prescription Drug Plan or weren't covered under some other "creditable" plan. The final amount is rounded to the nearest $0.10 and added to your monthly premium.
- The national base beneficiary premium may increase each year, so the penalty amount may also increase each year.1
Not everyone will pay a late enrollment penalty, and there are some exceptions.
Participants who have "creditable" prescription drug coverage through other types of insurance
Some participants will satisfy the requirement for creditable prescription drug coverage. Even after age 65, some people maintain prescription drug coverage through their current or former employers or their union. Other participants may have drug coverage through military or veterans' benefits programs.
These other insurance plans are required to determine whether the drug coverage is "creditable" - meaning it must be as good as, or better than Medicare Part D.
As long as the plan is considered creditable coverage, many participants decide not to purchase a Medicare Part D plan until their existing coverage runs out. Why? Because the drug benefit and coverage are often more generous with these other types of insurance. Once this coverage is no longer available or offered, participants can avoid the late-enrollment penalty if they buy a Medicare Part D plan within 63 days of the day creditable coverage ended.
Other situations to consider-is your Part D coverage already included in your plan?
There are other situations participants should know about. First, if you choose a Medicare Advantage Plan instead of Original Medicare, a Medicare Prescription Drug Plan may already be included. In this case, you do not (and should not) buy a separate plan for drug coverage.
Also, participants with low incomes and very few financial resources may qualify for Medicare Part D's Extra Help program. If participants qualify, a late enrollment penalty would not apply, even if they've never had prescription drug coverage of any kind.
1Medicare.gov, "What's the Part D late enrollment penalty?" http://medicare.gov/part-d/costs/penalty/part-d-late-enrollment-penalty.html
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You can find out more about Medicare Part D late penalty fees at Medicare.gov.