Medicare Part D Penalty

Medicare Part D plans are available through private insurers. Coverage is optional for Medicare beneficiaries, but choosing to opt out of prescription drug coverage could prove costly.

Beneficiaries who didn’t sign up for a Part D or similar prescription drug plan during their initial enrollment period become responsible for monthly penalty fees if they do eventually choose to enroll.

These Part D late enrollment penalty fees go into effect if at any point after initial enrollment you go 63 consecutive days without prescription drug coverage. The penalty — a 1% surcharge on the national base beneficiary premium for each month you go without coverage after first reaching eligibility — has the potential to become significant for beneficiaries who go years without prescription drug coverage.

Consider the following scenario: A healthy 66-year-old Medicare enrollee pays for his few medications out-of-pocket instead of enrolling in a prescription drug plan. At age 70, doctors diagnose the same man with a chronic heart condition and he decides that enrolling in Part D will save him money on his prescriptions each month. Because he chose not to enroll in a plan when he was first eligible, he now has to pay a hefty monthly premium penalty surcharge for prescription drug coverage for the rest of his life.

Once penalized, there is typically no way to remove the penalty for as long as you have Medicare. Even if you eventually switch to another Part D plan, you will still have to pay the penalty in the form of higher monthly premiums. This could amount to 20 to 30 years of monthly penalty payments in some cases.

The Part D late enrollment penalty began when Part D prescription drug plans first became available to Medicare beneficiaries in 2006.

There are similar Part A and Part B late enrollment penalties for beneficiaries who didn’t sign up for Original Medicare when they first became eligible.

The easiest way to avoid paying a penalty for Part D coverage is to sign up for a prescription drug plan as soon as you are initially eligible. The penalty fee does not come into play until you have gone 63 consecutive days of being eligible without coverage, so you will have just over two additional months after your initial enrollment period ends to compare Part D plans and join one without being penalized.

You can also avoid the penalty without signing up for Part D by having creditable drug coverage from another source. According to AARP, this can include drug coverage from an employer or a spouse’s plan.

For your drug coverage to be considered creditable for Medicare Part D, it must cover at least everything that a Part D plan would. As long as you have creditable coverage, you won’t be penalized — even if you didn’t sign up for Part D when you became eligible.

While creditable coverage can keep you from being penalized, it’s important to remember that not all forms of prescription drug coverage are ‌creditable. Your plan is required to tell you if it is creditable or not.

If you lose your creditable coverage, the 63-day countdown begins and you will have to find another source of creditable coverage or sign up for Part D to avoid the penalty. Missing your window and being penalized will immediately increase your Part D costs.

In order to calculate your Part D premium penalty, you need to know the national base beneficiary premium. This number changes every year and is essentially the average premium for a Part D plan across the country. In 2023, the base beneficiary premium is $32.74.

To figure out your penalty, take 1% of the base beneficiary premium and multiply it by the number of months that you were eligible for Part D but didn’t have a plan. The resulting figure is rounded to the nearest $.10 and is the surcharge added on to your plan’s premium each month.

It’s important to remember that your penalty amount may change each year even after you have coverage. This is because the base beneficiary premium is updated annually and Medicare will recalculate your penalty surcharge using the latest figure.