Medicare Part D provides prescription drug coverage for people on Medicare. Part D plans are provided by private insurance companies who meet minimum standards of coverage outlined by the government.
Nobody is required to buy a Medicare Part D prescription drug plan (“PDP”), but you need to be aware of the potential penalties involved if you choose not to buy a plan when you first become eligible.
Who Owes a Part D Late Enrollment Penalty?
You will owe this penalty if you do not enroll in a Part D drug plan within your initial enrollment period (i.e. when you first become eligible for Medicare – usually when you turn 65 or when you first leave an employer-sponsored health plan after age 65) and have no creditable drug coverage elsewhere.
“Creditable coverage” is prescription drug coverage that expects to pay, on average, the standard Medicare Part D coverage as outlined by the federal government.
How Much Is the Part D Late Enrollment Penalty?
The late enrollment penalty is 1% of the national average of the cost of a Part D prescription drug plan for every month you did not enroll in a plan.
So, for example, let’s suppose that 1% of the national average cost is $.10 (10 cents – just keeping the numbers round for our example!). If you go 10 months without enrolling, that’s $.10 x 10 months = $1/month late enrollment penalty you’d pay.
It doesn’t seem like much, but it can add up quickly… and you never stop paying it. Generally speaking, the penalty is in force as long as you have a Medicare Part D plan.
Note: Medicare beneficiaries who qualify for a low-income subsidy do not have to pay the Part D late enrollment penalty.