Medicare Part D (also called Medicare Prescription Drug Plan or PDP) is the part of Medicare that involves your prescription drug coverage. Medicare Part D is administered by private insurance companies that have been approved by the Federal Government to offer this type of coverage. Eligibility in a Medicare Part D plan coincides with your Initial Enrollment Period for original Medicare Part A (hospital) and Medicare Part B (medical). Your Initial Enrollment Period starts three months before the month of your 65th birthday and ends three months after, for a total enrollment period of seven months. While enrollment in Medicare Parts A and Medicare Part B are automatic, enrollment in Part D is not. You must enroll in a Medicare Part D Prescription Drug Plan (also known as a “PDP”) during your Initial Enrollment Period to avoid late enrollment penalties.
The prescription drug plan does not have to be separate or a “stand-alone” plan. If you enroll in a Medicare Advantage plan that has a built in Part D Prescription Drug Plan (also known as an MAPD Plan) during your initial enrollment period then the penalties do not apply because you chose a plan that included Medicare Part D drug coverage. If you would choose to drop your Medicare Advantage plan and enroll in a “stand-alone” Medicare Part D Drug Plan there would be no penalties added to your monthly premium because you had continuous creditable coverage. It is months that you do not have creditable prescription drug coverage that is used in calculating late enrollment penalties.
There are exceptions to the Medicare Part D Penalty
One exception is if you choose to remain on your current, prior, or spouse’s employer group coverage after you enroll in Medicare. If you remain on your employer’s group coverage plan then you may be considered to have continuous creditable prescription drug coverage and the penalty for enrolling beyond your Initial Enrollment Period will not apply. Your employer or union plan will tell you each year if your prescription drug coverage is creditable prescription drug coverage. If you drop an employer’s group coverage plan, or coverage in an employer’s group coverage plan is terminated upon retirement, this triggers a Special Enrollment Period. This special enrollment period allows you to enroll in a Medicare approved Prescription Drug Plan without being subject to penalty as long as you have had continuous creditable prescription drug coverage. However, if you drop your employer’s group coverage plan, or the coverage is terminated, and do not enroll in a Medicare approved Prescription Drug Plan within 63 days of the date of last coverage, the penalty for late enrollment in a Medicare approved Prescription Drug Plan will begin calculating based on the date of last creditable coverage. Another exception to the late enrollment penalty is if you receive assistance through the State (such as Medicaid), or are enrolled in TRICARE, Indian Health Service, the Department of Veterans Affairs, or health other credible insurance coverage.
How is the Medicare Part D Penalty Calculated?
The penalties that are imposed due to not timely enrolling in a Medicare approved Part D Prescription Drug Plan are calculated based on the number of months you were eligible to enroll in a Medicare Part D Prescription Drug Plan, but did not. The late penalty is calculated by multiplying 1% of the “national base premium” times the number of full months that you were not covered by a Medicare Part D Prescription Drug plan, or other creditable coverage, but were eligible to be enrolled in a Medicare Drug plan. The national base premium in 2012 is $31.08. The penalty is added to your Prescription Drug Plan monthly and continues for as long as you have Medicare Part D.
The significance of the monetary penalty and its effects on your premium is illustrated in the following scenario:
If you were eligible for Medicare Part D for ten months, but chose not to enroll, then 1% of the national base premium, which is $31.08 for the year 2012, will be added to your monthly premium for every month you were not enrolled in a Medicare Part D plan. One percent of $31.08 is approximately thirty-one cents. You must then multiply the thirty-one cents by the number of months you were eligible for Medicare Part D coverage but did not enroll in a plan. This equals approximately $3.10 additional premium every month for as long as you have Medicare Part D. For example, if you enroll in a Medicare Part D plan ten months after eligibility and the premium is $18.00, then $3.10 would be added to the $18.00 for a total of $21.10 premium for your Prescription Drug Plan premium.
How Can I Avoid the Medicare Part D Penalty?
Simply put, the 1% late enrollment penalty, or thirty-one cents for 2012, is added to your monthly premium for your Medicare Part D Prescription Drug Plan for every month that you were eligible for enrollment in a Medicare Part D Prescription Drug plan, but were not enrolled. While thirty-one cents does not seem like much it can quickly add up and significantly increase your monthly premium the longer you wait. Therefore, to avoid late enrollment penalties associated with Medicare Part D you should enroll in a Medicare approved Prescription Drug Plan during your Initial Enrollment Period, or if a Special Enrollment Period is established, within the time allotted for the special enrollment.