How to Avoid the Medicare Part D Late Enrollment Penalty
Key takeaways:
At age 65, people can enroll in Medicare Part D to get prescription medication coverage.
Waiting too long to choose a Part D plan may cost you a late enrollment penalty on top of your premium.
If you are eligible to receive Extra Help financial assistance from Medicare, you won’t face late enrollment penalties.
Table of contents
To get the most out of Medicare, understanding enrollment is key. Enrolling in Medicare makes you eligible to get three types of coverage. Two have been around since Medicare started: Part A pays for hospitalization, and Part B covers outpatient care. This combo is often referred to as “original Medicare.” Medicare Advantage is a private alternative to Parts A and B.
Since 2006, Medicare enrollees also have had access to Part D, which helps pay for prescription medications. But there’s a catch: The law requires Medicare enrollees to have a certain level of coverage for medications, whether or not you get it through a Medicare Part D policy. Otherwise, you will probably face a Part D late enrollment penalty.
What is the Part D late enrollment penalty?
Around the time you turn 65, you have a 7-month initial enrollment period to sign up for Medicare Parts A and B through Social Security. At that time, you’ll need to figure out how you will meet Medicare’s Part D medication coverage requirement.
Prescription Savings Are Just the Beginning
See what other benefits you qualify for—from cashback cards to cheaper insurance.
Once your initial enrollment period has ended, your Part D decision has a deadline. You should choose an acceptable prescription medication plan within 63 days — or you’ll have to pay a penalty. The average total monthly premium for Part D is projected to be about $55.50 in 2024.
Even if you’re healthy at age 65, it’s usually safer financially to make sure you have at least a low-cost Part D plan. Otherwise, you’ll be on the hook for 100% of your medication costs, which are much more costly without insurance coverage.
If you don’t sign up for Part D coverage when you’re eligible, it’s going to cost you more in the long run. In that scenario, when you eventually sign up for a Part D plan, you may have to pay an added charge on top of your monthly premium. That extra charge is the late enrollment penalty. And it’s not a one-time penalty: You’ll have to pay it each month for as long as you have Medicare Part D.
If you’re under age 65 and receive Social Security Disability Insurance (SSDI), you become eligible for Medicare after 24 months of disability benefits (or immediately if you have Lou Gehrig’s disease, known as ALS).
If you are under age 65, receive Medicare benefits through disability, and have to pay the penalty, you eventually have a chance to escape it. Here’s how: You get a second initial enrollment period when you turn 65. If you have a prescription medication plan at that point, your penalty goes away.
How is the Part D late enrollment penalty calculated?
The late enrollment penalty is based on two factors:
The first is the number of months of delayed proper medication coverage before enrolling in Part D.
The second is the amount of Medicare’s “national base beneficiary premium” when you sign up.
Read more like this
Explore these related articles, suggested for readers like you.
Medicare calculates this figure using a complex formula. It’s derived from the average amount insurance companies expect to spend on their plans in a given year. The Centers for Medicare & Medicaid Services (CMS) then uses that information to calculate the late enrollment penalty.
CMS does the math this way:
It calculates 1% of that year’s national base beneficiary premium ($32.74 in 2023 and $34.70 in 2024).
That result is multiplied by your number of full months without coverage.
CMS then rounds that number to the nearest $0.10.
For example, imagine that you went without Part D coverage for 2 full years (24 months). If you then enrolled in a Part D plan in 2023, your monthly late enrollment penalty would be:
0.01 (1%) x $32.74 = $0.33
$0.33 x 24 = $7.92
Rounded to the nearest $0.10 = $7.90
That amount would then be added to your Part D premium each month. In the first year, you’d end up paying an extra $94.80 in premiums. In other words, this 24-month lapse in coverage drives up your premium cost by roughly $100 a year for as long as you have Medicare Part D.
The Part D penalty amount you pay will change each year, as it relies on annual input from insurance plans. But it probably won’t change much. Data from the past decade shows that late enrollment penalty payments vary by only pennies from year to year.
Year | National base beneficiary premium |
|---|---|
2012 | |
2013 | |
2014 | |
2015 | |
2016 | |
2017 | |
2018 | |
2019 | |
2020 | |
2021 | |
2022 | |
2023 | |
2024 |
How can I avoid the Medicare Part D late enrollment penalty?
There are three main ways to avoid the Medicare Part D late enrollment penalty. Here are your potential options:
1. Sign up for a Medicare Part D plan within 63 days of becoming eligible.
If you enroll for Part D coverage during this period, you will not have to pay a penalty. This is the safest approach if you have existing medication coverage but don’t know if it is creditable coverage.
You can make any needed changes to your coverage during Medicare’s annual open enrollment period, which runs from October 15 to December 7. Those changes will take effect on January 1 of the following year. If you already have prescription medication benefits, in almost all cases your Part D plan will serve as secondary coverage to your existing health plan.
If you experience certain situations, such as an error from Medicare or your Medicare Advantage plan or changes to your Part D coverage, you will have a 2-month special enrollment period from the time you are notified about the mistake or change.
2. If your current prescription medication coverage is creditable, stick with it.
Your current coverage is considered creditable if, on average, it covers as much as Medicare plans do. Many widely available plans are considered creditable by CMS. These include:
Affordable Care Act marketplace plans
Many employer-based health insurance plans
Indian Health Service benefits
You may have employer-based creditable coverage that ends or that you choose to drop after your initial Medicare Part D enrollment window has closed. If so, you can still avoid the late enrollment penalty. On the date your old coverage ends, you enter a 63-day special enrollment period. If you sign up for a Part D plan during that time, you won’t face the late enrollment penalty.
Employer, union, and other group health plans send a notice of creditable coverage each year, typically in September. If you get a letter or other message from your insurer confirming that your plan is creditable, hang on to it. Later, when you enroll in a Part D plan, that letter could help you prove you had creditable coverage in the past.
3. Qualify for Medicare’s low-income subsidy program, also known as Extra Help.
You may be eligible for Extra Help if you meet income and asset limits. To find out if you qualify, you can fill out an online form at the Social Security website.
If you do get Extra Help, you can sign up for Part D without any late enrollment penalty, no matter when your initial or special enrollment period ended. Extra Help is financial assistance for Part D monthly premiums, deductibles, and copayments.
The bottom line
To avoid the Medicare Part D late enrollment penalty, you must decide promptly how you will get prescription medication coverage. If you have sufficient coverage through your existing health plan, you can keep that plan without a penalty. If you don’t have coverage that qualifies, you’ll typically have 2 months to choose and enroll in a Part D plan. And if you haven’t signed up within 2 months and don’t receive Medicare subsidies through the Extra Help program, you’ll face a permanent late enrollment penalty.
Why trust our experts?
References
CMS.gov. (2011). Annual release of Part D national average bid amount and other Part C & D bid related information. U.S. Department of Health and Human Services.
CMS.gov. (2012). Annual release of Part D national average bid amount and other Part C & D bid related information. U.S. Department of Health and Human Services.
CMS.gov. (2013). Annual release of Part D national average bid amount and other Part C & D bid related information. U.S. Department of Health and Human Services.
CMS.gov. (2014). Annual release of Part D national average bid amount and other Part C & D bid information. U.S. Department of Health and Human Services.
CMS.gov. (2015). Annual release of Part D national average bid amount and other Part C & D bid information. U.S. Department of Health and Human Services.
CMS.gov. (2016). Annual release of Part D national average bid amount and other Part C & D bid information. U.S. Department of Health and Human Services.
CMS.gov. (2017). Annual release of Part D national average bid amount and other Part C & D bid information. U.S. Department of Health and Human Services.
CMS.gov. (2018). Annual release of Part D national average bid amount and other Part C & D bid information. U.S. Department of Health and Human Services.
CMS.gov. (2019). Annual release of Part D national average bid amount and other Part C & D bid information for 2020. U.S. Department of Health and Human Services.
CMS.gov. (2020). 2021 Part D Income-Related Monthly Premium Adjustment. U.S. Department of Health and Human Services.
CMS.gov. (2021). Annual release of Part D national average bid amount and other Part C & D bid information. U.S. Department of Health and Human Services.
CMS.gov. (2022). Annual release of Part D national average bid amount and other Part C & D bid information. U.S. Department of Health and Human Services.
CMS.gov. (2023). Annual release of Part D national average bid amount and other Part C & D bid information. U.S. Department of Health and Human Services.
CMS.gov. (2022). The Part D late enrollment penalty. U.S. Department of Health and Human Services.
Center for Medicare Advocacy. (n.d.). Part D / prescription drug benefits.
Indian Health Service. (n.d.). Health care.
Medicare.gov. (n.d.). 3 ways to avoid the Part D late enrollment penalty.
Medicare.gov. (n.d.). Avoid late enrollment penalties.
Medicare.gov. (n.d.). Help with drug costs.
Medicare.gov. (n.d.). How Part D works with other insurance.
Medicare.gov. (n.d.). Notice of creditable coverage.
Medicare.gov. (n.d.). Part D late enrollment penalty.
Medicare Interactive. (n.d.). Creditable drug coverage.
Medicare Interactive. (n.d.). Part D late enrollment penalties.
Social Security Administration. (n.d.). Apply for Medicare Part D Extra Help program.
Social Security Administration. (n.d.). Disability benefits.
Social Security Administration. (n.d.). Medicare information.
Social Security Administration. (n.d.). Plan for Medicare.
Social Security Administration. (2023). Understanding the Extra Help with your Medicare prescription drug plan.
Tricare. (2023). Health plans.
U.S. Department of Veterans Affairs. (2023). CHAMPVA.
U.S. Department of Veterans Affairs. (2023). VA health care.
U.S. Office of Personnel Management. (n.d.). The Federal Employees Health Benefits (FEHB) program.
