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How to avoid the Part D penalty
When you hear about Medicare penalties, there are two relevant Medicare programs that may come to mind: Medicare Part B and Medicare Part D.
You may have known that enrolling late yields higher costs, but in certain cases, they can be permanent. In the case of Part D, there is a monthly penalty that can span for as long as you are enrolled in Medicare! But there are also ways to avoid it.
The Medicare Part D Penalty
The Medicare Part D enrollment penalty is an added monthly cost to your Part D premium. This penalty is for beneficiaries who enroll late to Medicare Part D.
- If you are enrolled in Medicare without a Part D plan or
- You Don’t Have Part C (HMO or PPO) or
- You don’t have any other type of Medicare plan that covers prescription drugs, or
- You don’t have a creditable prescription drug coverage for 63 days, continuously after your Initial Enrollment Period ends.
- The Part D late enrollment will not affect beneficiaries who receive Extra Help from Medicare.
Cost Of The Part D Penalty
The cost of the Part D penalty is not a universal cost for all enrollees. Instead, it is a calculation of how long you went without having Part D or any of the other similar plans highlighted above. The formula to calculate the penalty works by multiplying 1% of the national base beneficiary premium by the number of months you have gone without Part D or other creditable prescription drug coverage.
The national base beneficiary premium was $34.10 in 2016 and is $35.63 in 2017. This premium is likely to increase with each year and if you are penalized in regards to Part D, you will see rising premium costs plus the penalty for as long as you have Part D coverage.
Here is an example of how the Part D penalty is totaled:
Mr. Smith does not have any type of prescription drug coverage and his Initial Enrollment Period ended on January 31, 2016. He later signed up for Part D during the Open Enrollment Period in December 2016. He began receiving coverage in January 2017.
His penalty is: 12% (1% for 12 months) of $35.63.
12% of 35.63= 4.275
Rounded to the nearest $0.10= $4.3
Mr. Smith will pay $39.93 based on his late enrollment.
How To Avoid The Part D Penalty
There are three surefire ways you can avoid the Part D late enrollment penalty if you plan on signing up for Part D. Choose from one of the following solutions and you won’t incur any penalty, saving money in the process.
1. Enroll in Part D as soon as you are eligible
If you are enrolled in Original Medicare (Part A and Part B), you should immediately enroll in Part D during your Initial Enrollment Period. The IEP runs for 7 months surrounding your 65th birthday. You should enroll early during the IEP so as to not only avoid the penalty but to receive drug coverage as soon as possible.
2. Avoid being without a drug plan for 63 days
Make sure that you do not go 63 days without a drug plan, be it a Medicare one or otherwise, after the end of your Initial Enrollment Period. If you choose a drug plan outside of Medicare, it must be a creditable one. Examples of creditable drug coverage include employer or union coverage, TRICARE, Indian Health Service, and the Department of Veterans Affairs. Keep the documents that denote your plan is creditable for later use when you decide to enroll in Part D.
3. Inform Medicare about prior drug coverage
When you join a Medicare prescription drug plan like Part D, you will receive a letter from the plan if it detects that you have gone at least 63 days in a row without creditable drug coverage. This letter provides a form to describe the drug coverage you’ve received in the 63-day period. Disregarding this letter may result in a penalty.
Paying For The Penalty If You Don’t Agree
If you don’t believe you should be paying the Part D penalty, you can contest it by completing a reconsideration form and providing proof that you have had creditable coverage after the 63 days following the Initial Enrollment Period, or whatever your case may be.
In short, the Part D penalty affects those who either sign up late for Part D or go without any prescription drug coverage 63 days after the IEP. The penalty is higher for those who have gone without creditable drug coverage for longer. The penalty can be avoided by following one of the three methods above.