Even if you do not take prescription medications when you enroll in Original Medicare, enrolling in a Medicare Part D plan is strongly recommended. Medicare Part D prescription drug plans help cover the cost of your prescription medications. If you do not enroll when you are first eligible, you may need to pay a lifelong penalty.
Thus, not enrolling in Medicare Part D can become a costly mistake. Continue reading to learn more about the Medicare Part D penalty, how it works, and what you can do to avoid it.
How Does the Medicare Part D Penalty Work?
The Medicare Part D penalty increases your monthly Medicare Part D premium by 1% of the national average Medicare Part D premium cost for each month you go without creditable coverage.
Before you are eligible for Medicare, it is important to understand how enrollment periods work. When you first become eligible, you enter your Initial Enrollment Period. During this time, you can also enroll in a Medicare Part D plan.
If you choose to delay Medicare Part D enrollment, it is essential to have creditable drug coverage in place. If not, you must pay the Medicare Part D penalty when you enroll in the future.
Even if you are still employed or have another form of drug coverage, you should check with your plan administrator to verify the creditability of your coverage for Medicare. Not all drug coverage is considered creditable.
Keep in mind, if you choose to delay Medicare Part D benefits without creditable coverage, you will need to wait until the Annual Enrollment Period in the fall to enroll in drug coverage. Then, your policy will begin on January 1 the following year. Your penalty will be assessed starting on your plan’s effective date, not the date you enroll in Medicare Part D coverage.
How to Calculate the Medicare Part D Penalty?
Each month you go without creditable drug coverage, 1% of the national average Medicare Part D premium is added to your monthly Medicare Part D premium.
For example, in 2022 the national average Medicare Part D premium is $33.37. If you delay Medicare Part D coverage for 12 months, your penalty is calculated as 12 x 0.3337. The number of months you went without creditable coverage is 12 and 0.3337 is 1% of the national average premium cost.
This would mean you pay an additional $4.00 per month on top of your Medicare Part D premium. If you delay coverage for five years, that means you pay an additional $20.02 each month. Thus, your penalty will be lower the earlier you enroll.
Keep in mind, the average premium cost changes each year. Therefore, your penalty will be assessed according to the average price from the year you enroll.
Medicare Part D Penalty and Social Security Disability Income
If you enroll in Medicare before age 65 due to Social Security Disability Income (SSDI) but delay prescription drug benefits, you can still be responsible for the Medicare Part D penalty.
However, the penalty accrued under the age of 65 is not indefinite. Once you turn 65, any Medicare penalties you were required to pay are reset. This is a special benefit for those on SSDI.
How to Avoid the Medicare Part D Penalty
There are three ways to avoid the Medicare Part D penalty. The first way is to enroll in Medicare Part D when you first become eligible.
The second is by having creditable coverage when delaying Medicare Part D. Once you lose your creditable drug coverage, you receive a Special Enrollment Period to enroll in a Medicare Part D plan without penalty.
Lastly, if you are approved for the Medicare Part D Extra Help program, you will not need to pay the Medicare Part D penalty.
If you are unsure if your drug coverage is creditable for Medicare, it is always recommended to speak with your plan’s administrator or your local Social Security office. The Social Security Administration assesses the penalty. Before you delay enrolling in Medicare Part D, it is important to understand the consequences that come with not having creditable coverage.