Medicare Part D, the prescription drug coverage, is optional. Similar to Parts A and B of Medicare, it is available to beneficiaries during their Initial Enrollment Period (IEP), when they are first turning 65, and they can enroll for up to three months after the 65th birthday month. Medicare also allows for Special Election Periods (SEPs) for people who don’t need Medicare’s Part D drug coverage when they are turning 65 allowing them an opportunity to enroll in a prescription drug plan at a later date. In our experience, SEPs are most commonly used when they have worked past 65 years of age and they no longer have access to their group health insurance during retirement.
Even though Medicare Part D’s coverage is optional, there is a late enrollment penalty if a beneficiary does not enroll during their Initial Eligibility Period and goes without creditable prescription drug coverage for more than 63 days. “Creditable” drug coverage means that the coverage is at least as good as what Medicare provides.
Note: Prescription discount programs or savings cards do not count as creditable coverage, even if they seem adequate to the beneficiary.
The Medicare Part D late enrollment penalty is a surcharge on the plan’s premium. It is calculated by multiplying the national base premium for Part D plans, which is $35.63 in 2017, by 1% for each full month that the enrollee went uncovered by creditable prescription drug coverage, and rounding that amount to the nearest $0.10. That amount is added on to the premium for the Part D prescription drug plan that the enrollee has chosen, and as long as that enrollee is paying their own Part D premiums, they will have to pay that extra percentage.
For example, Mrs. Smith is currently eligible for Medicare and her initial Enrollment Period ended on May 31, 2013. She doesn’t have prescription drug coverage from any other source. She didn’t enroll in a Part D prescription drug plan by May 31, 2013; instead enrolling during the Annual Enrollment Period (AEP) that ended on December 7, 2015. Her drug coverage was effective January 1, 2016.
2016: Since Mrs. Smith was with out creditable drug coverage from June 2013 – December 2015, her penalty was 31% (1% for each of the 31 months) of $34.10 (the national base premium for 2016) or $10.57. Since the monthly penalty is always rounded to the nearest $0.10, she paid $10.60 each month in addition to her plan’s monthly premium.
2017: Medicare will recalculate Mrs. Smith’s penalty using the 2017 base beneficiary premium ($35.63). In 2017, Mrs. Smith’s new monthly penalty in 2017 is 31% of $35.63 or $11.05 each month. Since the monthly penalty is always rounded to the nearest $0.10, she pays $11.10 each month in addition to her plan’s monthly premium.
Update for 2018: Medicare’s base beneficiary premium took a 1.71% decrease to $35.02.
Below is an updated example for Mrs. Smith for 2018:
2018: Medicare will recalculate Mrs. Smith’s penalty using the 2018 base beneficiary premium ($35.02). For 2018, Mrs. Smith’s new monthly penalty is 31% of $35.02 or $10.86 each month. However, since the monthly penalty is rounded to the nearest $0.10, she can expect to pay $10.90 each month in addition to her plan’s premium.
For information about the Medicare late enrollment penalty for Part B, click here.