Three ways to avoid paying a late penalty

Part D Late Enrollment Penalty

If you do not get Medicare Part D drug coverage when you are first eligible, you will likely have to pay a late enrollment penalty. However, if you have employer or union drug coverage, you can enroll in a Medicare drug plan later and not pay a late penalty. You can avoid paying a Part D penalty in the following three ways:

  1. Enroll in Medicare drug coverage when you are first eligible. 
  2. Enroll in Medicare drug coverage after you lose other creditable coverage.
  3. Keep records of other creditable drug coverage and tell Medicare when they ask about it.

When am I first eligible for Medicare drug coverage?

You are first eligible for Medicare drug coverage when you turn age 65 or have a disability such as ALS (Lou Gehrig’s disease). After you enroll in Medicare Part A, you can enroll in a Medicare Part D prescription drug plan. Otherwise, after you sign up for Medicare Parts A and B, you can join a Medicare Advantage Plan with drug coverage.

Senior birthday party balloons

When do I owe a Part D late enrollment penalty?

You owe a late enrollment penalty if you do not have creditable prescription drug coverage 63 days or more past your Initial Enrollment Period. For example, you turn age 65 on July 4. Your initial enrollment period starts April 1 (3 months prior) and ends on October 31 (3 months after your birthday month). You will owe a late penalty if you do not have creditable drug coverage by January 2.

Furthermore, if you involuntarily lose your drug coverage, you may qualify for a Special Enrollment Period. For example, you lose your employer insurance coverage. In this case, you can join a Medicare Advantage Plan with drug coverage or a Medicare Prescription Drug Plan. You will have two full months to sign up after you lose creditable coverage.

Senior concerned about Part D late enrollment penalty
Senior loses creditable drug coverage

How much is Medicare Part D late enrollment penalty?

Luke Skywalker Medicare Part D late enrollment penalty

Your late enrollment penalty starts the month after your Initial Enrollment Period ends. For example, Luke’s 65th birthday is May 4, 2020, and you did not sign up for drug coverage 63 days after August 31. In other words, you did not have creditable coverage by November 3.

Luke joined a Medicare drug plan during the Annual Election Period ending December 7, 2021. As a result, Luke’s drug coverage effective start date is January 1, 2022. Thus, Luke was without creditable drug coverage from June 2020 – December 2021.

The Part D penalty is 1% of the “national base beneficiary premium” times the number of full, uncovered months you did not have creditable coverage. Furthermore, the calculation is rounded to the nearest ten cents and added to your monthly Part D premium. Moreover, you will have to pay the penalty every month for as long as you have Medicare drug coverage.

Late Enrollment Penalty Calculation

Luke was without creditable coverage for 19 months. Thus, his late enrollment penalty is 19%. In 2020, Luke’s penalty is .19 x $32.74 (base beneficiary premium in 2020) equals $6.22 rounded to $6.20. The following year Luke’s penalty is .19 x $33.06 (base beneficiary premium in 2021) equals $6.28 rounded to $6.30. 

The national base beneficiary premium can change every year. Thus, your late enrollment penalty can also vary each year. Luke owes a $6.30 late penalty every month in 2021.

Seniors calculate late enrollment penalty

Enroll in a Part D Drug Plan

You can enroll in a Medicare Advantage Plan with drug coverage or stand-alone Medicare Part D drug plan. Senior Healthcare Direct can help you find the most cost-effective drug plan. When you fill out Drug Plan Finder, a licensed agent can help you shop drug plans that cover all your prescriptions.