How to Avoid the Part D Penalty

According to medicare.gov, the cost of the late enrollment penalty can depend on how long you went without Part D or creditable prescription drug coverage. Medicare calculates this penalty by multiplying 1% of the “national base beneficiary premium” ($33.06 in 2021 and $33.37 in 2022) by the number of full, uncovered months you didn’t have Part D or other creditable coverage. This monthly premium will be rounded to the nearest $.10 and then added to your monthly Part D premium.

The national base beneficiary premium may differ each year, so your penalty amount may also change each year. Here is an example using a realistic scenario for 40 months of penalty time:

.40 (40% penalty) × $33.06 (2021 base beneficiary premium) = $13.22

$13.22 rounded to the nearest $0.10 = $13.20

$13.20/month = the monthly penalty for late enrollment in 2021

You will indeed be automatically enrolled in a Medicare drug plan. However, if you decline coverage or join a plan yourself, you will not automatically be enrolled.

In almost every scenario, the penalty will have to be paid every month for the entire duration that your Medicare plan is active. If the reason you are enrolled in Medicare is due to a disability, and you currently pay a premium penalty, you won’t have to pay the penalty once you turn 65. But in most cases, Medicare Part D penalties are considered “lifelong expenses”.

Even if you don’t take drugs now, you should consider joining a Medicare drug plan or a Medicare Advantage Plan with drug coverage in order to avoid a penalty. You may be able to find an adequate plan that meets your needs with little to no monthly premiums.

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

Creditable Prescription Drug Coverage can include drug 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 has to tell you each year if your non-Medicare drug coverage is considered creditable coverage. If you go 63 days or more in a row without Medicare drug coverage or other creditable prescription drug coverage, you might have to pay a penalty if you sign up for Medicare drug coverage later.

If you don’t tell your Medicare plan about your previous creditable prescription drug coverage, then you may have to pay a substantial penalty for as long as you have Medicare drug coverage.

Medicare Extra Help is a federal assistance program that helps people with limited income and resources pay for Medicare prescription drug expenses. Those enrolled in the Extra Help program don’t have to pay a late enrollment penalty.

If unaware of this part of their plan, sometimes new Medicare recipients don’t enroll in a prescription drug plan when they first become eligible because they’re under the impression that they don’t need to. But the permanent late enrollment penalty and any potential gaps in their coverage that may occur due to a health issue they don’t yet know about could easily spell big trouble for them when it comes to Part D. Some individuals know this may happen and are still willing to risk having to pay a Part D penalty. Nonetheless, we recommend that you consider enrolling in a low-cost Part D plan at the very least. This can help you to avoid penalties in the future and to reduce any risk that you haven’t yet considered.

RELATED: Medicare Part B Penalty for Late Enrollment