The Medicare Part D Late Enrollment Penalty Explained

Medicare Part D prescription drug plans are generally affordable. The average premium for a Part D plan in 2021 is $41.64 per month. However, your monthly payments can increase if you’re charged the Part D late enrollment penalty.

If you do not sign up for a Medicare Part D prescription drug plan when you first become eligible for Medicare, you may be subject to a late enrollment penalty in the future if you choose to eventually sign up for a plan. 

Some exceptions to the Part D late enrollment fee can apply, and you can appeal to the Centers for Medicare & Medicaid Services (CMS) if you don’t think you should be charged the late enrollment penalty. Below is an overview of the Medicare Part D late enrollment penalty, how you can avoid it and how you can try to appeal it if it’s charged to you.

Is There a Penalty for Not Taking Medicare Part D?

The Part D late enrollment penalty only applies if you go without Medicare drug coverage or equivalent “creditable” drug coverage for a period of 63 consecutive days at any point after your Medicare Initial Enrollment Period ends and decide to join a Part D plan later on.

• If you’re eligible for Medicare because you’re about to turn 65, you will enter your Initial Enrollment Period (IEP) three months before you turn 65. Your IEP includes your birth month and lasts for another three months, for a total of seven months.
  
  
• If you’re under 65 and are eligible for Medicare because of a disability, your Initial Enrollment Period starts three months before your 25^th month of getting Social Security or Railroad Retirement Board disability benefits, includes your 25^th month and continues for another three months, for a total of seven months.

During your Initial Enrollment Period, you can sign up for Medicare Part A and/or Part B, and you can also sign up for a Medicare Part D prescription drug plan or a Medicare Advantage (Part C) plan that includes prescription drug coverage.

If you do not sign up for a Medicare drug plan during this enrollment period either through a Medicare Part D plan or a Medicare Advantage plan, and you go 63 consecutive days without any other creditable drug coverage after the enrollment period ends, you will be subject to the late enrollment penalty if you decide to sign up for a Part D plan in the future. 

What Is Creditable Drug Coverage?

Creditable drug coverage is a non-Medicare insurance that covers your prescription drug costs by paying, on average, at least as much as standard Medicare prescription drug coverage would.

Examples of creditable drug coverage include:

• Drug coverage from an employer-sponsored plan or union plan
• Drug coverage through TRICARE, the VA or the Indian Health Service
• Drug coverage from an individual marketplace plan

You may contact the Part D plan for which you want to enroll to verify if your current or former drug coverage is considered creditable and whether or not you will have to pay the late penalty. 

What Is the Part D Penalty for 2021?

The cost of the Part D late enrollment penalty is based on the “national base beneficiary premium,” which is essentially just a slightly different calculation of the average plan premium. For 2021, the national base beneficiary premium is $33.06 per month. 

The late enrollment penalty is 1% of the national base beneficiary premium multiplied by the number of months you did not have a Part D plan or other creditable drug coverage. That amount is then rounded to the nearest $0.10 and added to your monthly Part D plan premium. 

For example, let’s say you went 12 months without a Part D plan or other creditable drug coverage before deciding to enroll in a Part D plan. Your late enrollment penalty would be $4.00 per month (12% of $33.06 = $3.96, rounded to the nearest $0.10 = $4.00). This $4.00 would be added to your monthly Part D plan premium.

You must continue to pay the late enrollment penalty for as long as you remain enrolled in a Part D plan. The national base beneficiary premium can change every year, which means your applied penalty amount may also change each year. 

How Can I Avoid the Medicare Part D Penalty?

There are two major ways to avoid the Part D late penalty. 

• Sign up for a Part D or Medicare Advantage plan during your Initial Enrollment Period.
  
  
• Maintain other creditable drug coverage and do not allow 63 consecutive days to pass without having such coverage once you’re eligible for Medicare.

Also, you will not be subject to the Part D late enrollment penalty if you receive financial assistance for Part D coverage through the Medicare Extra Help program. You may also be exempt from the penalty if you enroll for Original Medicare (Part A and Part B) or Part D coverage during a Special Enrollment Period (SEP). 

How Do I File an Appeal About the Late Enrollment Penalty?

If you think you should be exempt from the Part D late penalty, you may ask your drug plan for a “reconsideration.”

Your drug plan will send you an appeal form which you will then fill out and return to the address listed on the form within 60 days. You must continue to pay the Part D late enrollment penalty until a decision is made about your appeal. 

When Can I Enroll in a Part D Plan?

There are three opportunities to enroll in a Medicare Part D plan.

• Initial Enrollment Period – As outlined above, this period begins three months before your 65th birthday month, includes the month of your birthday and continues for three additional months. Your Initial Enrollment Penalty will be different if you’re eligible for Medicare before age 65 due to a disability.
  
  
• Annual Enrollment Period – The Annual Enrollment Period, also called AEP or the fall Medicare Open Enrollment Period, takes place every year from October 15 to December 7. During this period, you can add a Part D plan or a Medicare Advantage Prescription Drug plan, switch from one plan to another, or disenroll from Medicare Advantage and return to Original Medicare.
  
  
• Special Enrollment Period – A Special Enrollment Period may be granted at any time throughout the year to people who experience qualified life changes such as losing employer insurance, moving to a new area and more. 

How Do I Enroll in a Part D Plan?

Medicare Part D plans are sold by private insurance companies. The easiest way to enroll is to contact a licensed insurance agent who sells Medicare Part D plans and discuss the plan options available in your area.