Medicare imposes premium penalties on people who don’t follow the program’s health insurance coverage rules. You can avoid penalties by signing up for Medicare Part D—prescription drug coverage—when you first become eligible. However, not everyone needs Medicare at age 65, and in many cases, a person might have insurance or prescription coverage through work.
If you have the privilege of postponing your Part D enrollment because you have a better prescription coverage option, you’ll need to pay special attention to how to avoid penalties later. If you make a mistake and go too long without signing up, you’ll have to pay premium penalties every month for as long as you stay on Medicare—which could be 20 years or longer.
- For every month when you don’t have Medicare Part D or creditable coverage, a penalty of 1% of the national base beneficiary premium will be assessed.
- Those who enroll in Part D too late will pay the penalty indefinitely.
- The penalty can be avoided by signing up for Part D during the initial enrollment period.
- If you’re not yet ready to get Medicare, be sure not to go more than 63 days without Part D or creditable prescription drug coverage after your initial enrollment period is up.
What Is the Medicare Part D Premium Penalty?
To avoid Medicare premium penalties, it’s important to know when your initial enrollment period begins. Your initial enrollment period for Medicare starts three months before you turn age 65 and ends three months after you turn 65. That means you have seven months, including your birthday month, to enroll penalty free. For example, if your birthday is in April, then your initial enrollment period runs from Jan. 1 through July 31.
From that point on, you can’t go without prescription drug coverage for more than 63 days, or you’ll owe a penalty. The penalty is a lifetime surcharge on your Part D premiums once you enroll.
How the Penalty Is Calculated
Every month without coverage, a penalty of 1% of the national base beneficiary premium is assessed, which will be about $33 in 2021. The dollar amount of the penalty will change each year when the base premium changes.
To see how much the penalty could cost you, let’s suppose you weren’t covered for all of 2020, but you’re going to enroll, and you’ll have Part D starting Jan. 1, 2021. Your penalty for 2021 would be 33 cents × 12 (for the 12 months of 2020 when you weren’t covered), or $3.96. Medicare rounds up this amount to the nearest $0.10, then adds it to your monthly Part D premium. You’ll pay an extra $4 a month for Medicare Part D throughout 2021. For 2022, your penalty will be recalculated on the new national base beneficiary premium.
What Your Premium + Penalty Will Cost
This doesn’t mean that your premium will necessarily be $37 per month in 2021. Instead, it will be the monthly cost of whatever plan you choose plus the $4 penalty. Bear in mind that the national base beneficiary premium is an average plan price. Each state can have 25 to 35 Part D plans, and their premiums and benefits can vary.
As of Sept. 30, 2021, the Centers for Medicare & Medicaid Services announced that Medicare Part D will cost an average of $33 per month in 2022 vs. $31.47 per month in 2021. For those enrolled in a Medicare Advantage plan, the average monthly premium will be $19 in 2022, compared to a monthly average of $21.22 in 2021.
The penalty is not necessarily a big deal, especially if you only go without coverage for a few months. But it’s an enduring penalty. No insurance plan can afford to let people go without coverage until they need it. Insurers can’t stay solvent by only covering people who are filing claims.
Initial enrollment is not necessarily your only opportunity to enroll without paying premium penalties. Here are some scenarios where you might be able to postpone enrollment without foregoing coverage.
Do You Have Creditable Prescription Drug Coverage?
A creditable prescription drug plan is one that provides coverage that’s at least as good as Medicare Part D.
You may have creditable coverage through a current or former employer or trade union. These entities also offer creditable coverage:
- Federal Employee Health Benefits (FEHB) Program
- Veterans Benefits
- TRICARE (military health benefits)
- Civilian Health and Medical Program of the U.S. Department of Veterans Affairs (CHAMPVA)
- Indian Health Services
You also might have creditable coverage if you get health insurance coverage through your spouse’s employer or if you’re on a COBRA (Consolidated Omnibus Budget Reconciliation Act) plan.
Make sure to get proof of your creditable coverage in writing. Hang onto it in case you need to prove that you don’t owe penalties later.
What Happens If You Lose Your Creditable Prescription Drug Coverage?
If you retire or are laid off, or your spousal coverage ends, then your days of having creditable prescription drug coverage are numbered. However, you’ll have access to a special enrollment period to sign up for Medicare, including Part D, without penalty. This period lasts for two full months from when your coverage ends.
This special enrollment period will also apply when COBRA runs out if you enroll in COBRA and retain your former employer’s creditable coverage.
If your employer’s coverage changes and is no longer creditable, you’ll also have a two-month special enrollment period to sign up for Part D without penalty.
Requirements to Enroll in Medicare Part D
Medicare Part D is not a stand-alone policy; you can only sign up if you have Part A and/or Part B.
Medicare Part A and Part B
Medicare is available for people age 65 or older. Medicare Part A pays for inpatient hospital stays and nursing care. The annual deductible for Part A is $1,484 for 2021 and $1,556 for 2022. Many people don’t need to pay a monthly premium for Part A, and there are no co-insurance costs for hospital stays of 60 days or less.
Medicare Part B covers doctor visits, tests, physical therapy, flu shots, and chemotherapy. The monthly premium for many Part B participants is $148.50 for 2021 and $170.10 for 2022. The Part B deductible is $203 for 2021 and $233 for 2022.
Signing Up for Medicare
One option is to sign up during your initial enrollment period. You can also sign up during Medicare’s general enrollment period, which runs from Jan. 1 through March 31 and gives you coverage starting July 1. If you sign up for medical coverage during general enrollment, you’ll be able to enroll in Part D from April 1 through June 30, and your prescription coverage will start July 1.
If you miss that window, the next one is during the Medicare open enrollment period, which runs from Oct. 15 through Dec. 7 and gives you prescription coverage starting Jan. 1.
Are Medicare Part D penalties for life?
Yes, the Part D premium penalties are permanent, meaning that you will be paying them for as long as you have Medicare.
How do I avoid getting a late enrollment penalty for Medicare Part D?
First, you should try to sign up during the enrollment period, which starts three months before you turn age 65 and lasts three months after your birthday. Second, if you lose other credible drug coverage, make sure to sign up for Part D within 63 days. Lastly, make sure to have proof of credible drug coverage in your records so you can prove that you do not deserve a penalty.
How do I get Medicare Part D?
After you’ve done your research and chosen a plan, you have a few options to sign up:
- You can enroll on the Medicare Plan Finder or on the plan’s website.
- You can complete a paper enrollment form or call the plan directly for assistance.
- You can call Medicare at 1-800-MEDICARE (1-800-633-4227); TTY: 1-877-486-2048.
The Bottom Line
Part D premium penalties are easy to avoid if you sign up for Medicare during your initial enrollment period and never go off Medicare. Everyone else needs to be aware of the creditable coverage rules and special enrollment periods that apply to their circumstances. The Medicare website describes many common scenarios. If it doesn’t describe yours, a benefits counselor may be able to help.