If you don’t enroll in a Medicare Part D prescription drug plan during your Initial Enrollment Period, you could be subject to a permanent penalty on your monthly premium. The rules about it can be a little tricky, so here’s what you need to know about the Part D late-enrollment penalty and how to avoid it.
Enrolling “late” for Medicare coverage often results in a penalty on your monthly premium. This is the case for Medicare Part D—optional prescription drug coverage that you can purchase from private insurance companies on top of Original Medicare Parts A and B. If you incur a Part D penalty, it means your monthly premium will be higher forever.
While other Medicare health plans also have late-enrollment penalties, the rules governing Part D are a little different. This means the Part D penalty can catch people by surprise, especially if they’ve worked past age 65 and had employer-based prescription drug coverage that didn’t meet Medicare standards.
Did you know that you can use the Insurify Medicare comparison tool to find the right Medicare plan for you? Start with your ZIP code, and you’ll be comparing plans in less than two minutes. Try it today!
How Can I Avoid the Part D Penalty?
To avoid a penalty on your monthly Part D premium, you must enroll for the coverage during your Initial Enrollment Period (IEP) or within 63 days of losing your previous creditable coverage for prescription drugs.
Your IEP is your first window of eligibility for Medicare enrollment. If you qualify for Medicare due to your age, it lasts seven full months, starting three months before you turn 65 and ending three months after.
The Part D penalty kicks in if you go more than 63 consecutive days after your IEP without creditable prescription drug coverage. “Creditable coverage” means at least as good as Medicare prescription drug coverage. Creditable prescription drug coverage could include coverage from a current or former employer or union, TRICARE, Indian Health Service, the Department of Veterans Affairs, or individual health insurance coverage. Your plan is required to tell you each year if your coverage is considered creditable.
Enrolling in Medicare drug coverage when you’re first eligible is the simplest way to avoid the penalty. Even if you don’t need prescription medicines now, you very well might later, at which point you’ll incur the penalty for enrolling late. By enrolling as soon as you’re eligible, you might be able to find a Part D plan that meets your needs with little to no monthly premium.
If you have creditable drug coverage from another source past the end of your IEP but later lose that coverage, enroll in Medicare Part D immediately to avoid the penalty.
For example, if you’re working past age 65 and have employer insurance but plan to buy a Medicare prescription drug benefit later, make sure that your employer coverage is considered creditable. You can ask for a notice of creditable coverage from your employer each year, and you should keep this documentation. You should also know the dates of your Special Enrollment Period, which is the time frame you’re allowed to enroll in Medicare after you retire and lose your employer-based coverage. And don’t forget to start researching your Medicare options before your Special Enrollment Period begins.
What Are the Exceptions to the Part D Penalty?
Part D beneficiaries won’t be subject to the late enrollment penalty if they:
- Are eligible for the Extra Help program, also known as the Low-Income Subsidy (LIS);
- Have had another prescription drug plan that meets “creditable coverage” standards; or
- Never enroll in a Medicare prescription drug plan or a Medicare Advantage plan (also known as Medicare Part C) that includes prescription drug coverage.
How Much Is the Medicare Part D Penalty?
The penalty amount depends on how long you go without creditable drug coverage between the end of your IEP and when you enroll in Part D. The Centers for Medicare & Medicaid Services (CMS) calculates the late-enrollment penalty by multiplying one percent of the “national base beneficiary premium” ($33.06 in 2021) by the number of months you were eligible but did not apply for a Medicare prescription drug plan. This amount is rounded to the nearest 10 cents and added to your monthly prescription drug plan premium for as long as you have a Medicare drug plan—even if you change companies.
The national base beneficiary premium may change each year, so the late-enrollment penalty may also change each year.
Here’s an example of how the penalty is calculated: Let’s say you turned 65 in February 2020, which means your IEP ended in May 2020, but you didn’t enroll in Part D until late 2020, and your Part D coverage doesn’t kick in until January 2021.
Your penalty would be calculated as 0.01 x 33.06 x 7 (the number of full months you went without creditable coverage), for a total of $2.31 added to your monthly premium. While the amount might seem low, it can add up over time, especially if you delay Part D enrollment for many years.
What Can I Do If I Think Medicare’s Penalty Decision Is Wrong?
You have the right to appeal if you don’t agree with the CMS calculation of your penalty. The letter you receive explaining your penalty calculation will also explain how to appeal for reconsideration and will include the form you need to file it.
Some reasons for appeal include:
- You submitted information about your creditable drug coverage, but the information was not taken into consideration.
- You think the plan miscalculated the number of months without creditable drug coverage.
- You didn’t enroll in a Part D plan sooner because you did not receive adequate notice that your other drug coverage was not creditable.
- The end date of your Initial Enrollment Period (IEP) was not correctly identified.
- Your LIS/Extra Help late-enrollment penalty premium was not correctly waived.
You must file for reconsiderations within 60 days from the date on the letter you receive about your late-enrollment penalty. You should include any proof that supports your case, such as a copy of your notice of creditable prescription drug coverage from an employer or union plan.
All reconsideration requests regarding the Part D penalty should be directed to Medicare’s contractor:
MAXIMUS Federal Services
3750 Monroe Ave., Suite 704
Pittsford, NY 14534-1302
You can also contact their customer service at:
- Toll-free customer service line: 1 (877) 456-5302
- Fax: 1 (585) 869-3330
- Toll-free fax: 1 (866) 589-5241
- Email (for case status inquiries): medicareappeal@MAXIMUS.com
MAXMIUS has to notify you of their decision within 90 days of receiving your request for reconsideration. The decision is final and cannot be appealed, but you can request that the reconsideration be reopened if there was an error or there is new information that might change the Part D penalty decision. If you’d like your decision to be reopened, you must submit a detailed written request within 180 days from the date of the reconsideration decision letter.
FAQ: Medicare Part D Penalty
How long does the Part D penalty last?
The monthly penalty will be added to your premium for as long as you have Part D coverage, even if you change plans.
Is there a maximum for the Part D penalty?
No, and the cost of waiting many years can really add up. For example, let’s say you were eligible for Part D in 2005 but didn’t enroll until 2021. The cost of your penalty would be an additional $57 a month, totaling a $684 penalty in 2021.
Can I have my Part D premium deducted from my Social Security or Railroad Retirement Board (RRB) payments?
Yes. Contact your plan (not Social Security or the RRB) if you want your premium deducted from your monthly Social Security or RRB payment. If you want to stop premium deductions and get billed directly, you should also contact your plan.
What is Part D-IRMAA?
People with higher incomes might have to pay more for Medicare drug coverage. If your income is above $87,000 (individually) or $174,000 (if filing jointly), you’ll pay an extra amount in addition to your plan premium (sometimes called “Part D-IRMAA”). You’ll also have to pay this extra amount if you’re in a Medicare Advantage plan that includes drug coverage. This doesn’t affect everyone, so most people won’t have to pay an extra amount. If you have Part B and you have a higher income, you may also have to pay an extra amount for your Part B premium, even if you don’t have drug coverage. Social Security will contact you if you have to pay Part D-IRMAA based on your income. The amount you pay can change each year.
The Part D Late-enrollment Penalty Is Avoidable
While the penalty amount might not seem like that much per month, it adds up over time—an unnecessary expense when the Part D late enrollment penalty can usually be avoided. Be sure to enroll in Part D coverage within 62 days of your Initial Enrollment Period or keep documentation to prove your creditable coverage if you enroll in Part D later. And remember that folks who are eligible for Extra Help are exempt from the penalty.
For help in your area, go to Medicare.gov and use the “Find Someone to Talk To” tool on the right side of the page.
Score savings on car insurance with Insurify