How to avoid the Part D penalty

October 6, 2021

Late penalties apply to two Medicare programs: Medicare Part B and Medicare Part D.

Sometimes, enrolling late in either of these Parts can lead to penalties — some are even permanent. When it comes to Part D, there is a monthly penalty that can last the entire time you are enrolled in Medicare! Fortunately, there are a few ways to avoid this extra cost.

Medicare Part D Penalty

The Medicare Part D enrollment penalty is an added monthly cost to your Part D premium. This penalty is for beneficiaries who enroll late to Medicare Part D.

  • If you are enrolled in Medicare without a Part D plan or
  • You Don’t Have Part C (HMO or PPO) or
  • You don’t have any other type of Medicare plan that covers prescription drugs, or
  • You don’t have a creditable prescription drug coverage for 63 days, continuously after your Initial Enrollment Period ends.
  • The Part D late enrollment will not affect beneficiaries who receive Extra Help from Medicare.

Cost Of The Part D Penalty

The cost of the Part D penalty is not the same for all enrollees. Instead, it is a calculation of how long you went without having Part D (or any of the other similar plans highlighted above). The formula to calculate the penalty works by multiplying 1% of the national base beneficiary premium by the number of months you have gone without Part D (or other creditable prescription drug coverage).

The national base beneficiary premium is likely to increase each year. If you must pay a Part D penalty, you will see rising premium costs plus the penalty for as long as you have Part D coverage.

Here is an example of how the Part D penalty is totaled:

Mr. Smith does not have any type of prescription drug coverage and his Initial Enrollment Period ended on January 31, 2020. He later signed up for Part D during the Open Enrollment Period in December 2020. He began receiving coverage in January 2021.

His penalty is: 12% (1% for 12 months) of $33.06 (the national base beneficiary premium for 2021).

12% of $33.06 = $3.97 per month

Mr. Smith will pay $37.03 per month in 2021. Again, this will increase as the national beneficiary base premium increases. 

How To Avoid The Part D Penalty

There are three surefire ways to avoid the Part D late enrollment penalty. 

  1. Enroll in Part D as soon as you are eligible

If you are enrolled in Original Medicare (Part A and Part B), you should immediately enroll in Part D during your Initial Enrollment Period. The IEP runs for 7 months surrounding your 65th birthday. You should enroll early during the IEP to not only avoid the penalty, but to receive drug coverage as soon as possible.

  1. Avoid being without a drug plan for 63 days

Make sure that you do not go 63 days without a drug plan, be it Medicare or otherwise, after the end of your Initial Enrollment Period. If you choose a drug plan outside of Medicare, it must be a creditable one. Examples of creditable drug coverage include employer or union coverage, TRICARE, Indian Health Service, and the Department of Veterans Affairs. Keep the documents that denote your plan is creditable for later use when you decide to enroll in Part D.

  1. Inform Medicare about prior drug coverage

When you join a Medicare prescription drug plan like Part D, you will receive a letter from the plan if it detects that you have gone at least 63 days in a row without creditable drug coverage. This letter provides a form to describe the drug coverage you’ve received in the 63-day period. Disregarding this letter may result in a penalty!

Paying For The Penalty If You Don’t Agree

If you don’t believe you should be paying the Part D penalty, you can contest it by completing a reconsideration form and providing proof that you have had creditable coverage.

In short, the Part D penalty affects those who either sign up late for Part D or go without any prescription drug coverage 63 days after their IEP. The longer you go without drug coverage, the higher the penalty! 

If you need help finding a Part D plan or are unsure when the next enrollment window begins, SmartMatch can help! Give us a call at (888) 411-7647 or visit our Plan Comparison tool to get in touch with one of our licensed insurance agents.

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