May 31st 2024
By Ari Parker
Learn about the Medicare Part D penalty, who it applies to, and how you can avoid this lifetime charge.
By Ari Parker
It’s important to keep track of your Medicare Initial Enrollment Period and your eligibility for Special Enrollment Periods to avoid Medicare’s late enrollment penalties. There are three different late enrollment penalties. In this piece, we’ll focus on the Medicare Part D penalty. If you don’t enroll in Part D during your Initial Enrollment Period and don’t have creditable prescription drug coverage 63 consecutive days after your Initial Enrollment Period ends, you’ll have to pay a penalty.
In this guide, we’ll help you understand how much you may have to pay for the Part D penalty, how to calculate the fee, and how you can avoid it.
You can face the Medicare Part D penalty if you go without creditable coverage for more than 63 days after the end of your Initial Enrollment Period.
How much you pay for the Part D penalty depends on how many months you went without drug coverage.
The Medicare Part D penalty is a monthly fee you have to pay alongside your premiums. It lasts for as long as you have Medicare drug coverage.
Medicare Part D is your prescription drug coverage. It’s a very valuable part of your health insurance, and every Medicare beneficiary should make sure that their regular medications are included in their plan’s drug formulary (list of covered drugs). The best time to enroll in Medicare Part D is during your Initial Enrollment Period. If you’re unsatisfied with your plan or you miss your Initial Enrollment Period, you can switch or enroll every year during the Annual Open Enrollment Period.
You’re responsible for paying a penalty if you go without creditable prescription drug coverage for 63 consecutive days after your Initial Enrollment Period ends.
→ Read more about Medicare Part D in our guide.
“Creditable prescription drug coverage” refers to any insurance that covers prescription drugs at least as much as Medicare would. You could have creditable drug coverage from employer health insurance, FEHB, Tricare, the VA, or private health insurance. You’ll know if your drug coverage is creditable by receiving a notice of creditable coverage from your employer or other group health plan. You should get a notice of creditable coverage every September.
How much you pay for the Part D penalty depends on how long you didn’t have Part D or creditable prescription drug coverage. The calculations for the penalty can get pretty complicated. If you have any questions about a Medicare Part D penalty, you can reach out to a licensed Chapter Medicare Advisor.
Medicare will multiply the number of months you go without creditable drug coverage by 1%. Then, this gets multiplied by the “national base beneficiary premium,” which is $36.78 in 2025 (this number can change from year to year). That number is then rounded to the nearest ten cents.
Let’s say your IEP ended at the end of August and you went without creditable prescription drug coverage from August 2021 to December 2023. This means you went 29 months without enrolling in Part D or having creditable drug coverage. Here are your numbers and calculations broken down:
1% (Medicare’s penalty calculation) x 29 (number of months without coverage) = 29%
.29 (29% penalty) x $36.78 (national base beneficiary premium) = $10.67
$10.67 rounded to the nearest ten cents = $10.70
$10.70 is what your monthly Part D penalty would be in 2025 (This amount could be different in the following years.)
Note: if you qualify for the Extra Help program, you won’t have to pay the late enrollment penalty.
Enrollment penalties for Medicare occur because of the way insurance works. Everyone’s cost of insurance would be too high if we only enrolled in a plan when we needed it. We need healthy people to pay premiums to balance the cost of people who use medical services more frequently. Medicare penalties ensure that people enroll in a timely fashion to maintain this balance.
The Part D penalty lasts as long as you have Medicare drug coverage. In the example above, you would have to pay the penalty for the year on top of your monthly premium for as long as you have Medicare Part D coverage. The penalty and coverage is tied to Part D coverage, which is included in a Part D plan or a Medicare Advantage plan that includes Part D.
We don’t recommend it, but there is no penalty for choosing to opt out of Medicare Part D. However, if you drop your prescription drug coverage for more than 63 consecutive days and then choose to enroll in Part D again, you will face the Part D penalty.
There are two sure-fire ways to avoid the Medicare Part D penalty:
Make sure you sign up for Part D during your Initial Enrollment Period. This is the best way to secure your drug coverage without any hassles and penalty fees. Even if you don’t have any active prescriptions when you first sign up for Medicare, you can enroll in a low-cost drug plan, which can save you money in the long term.
Don’t go 63 days without creditable drug coverage. Enroll in Part D as soon as you lose other drug coverage, and keep a record of your documents to show evidence that you had creditable drug coverage.
There are so many dates to keep track of when it comes to Medicare. It’s easy to be confused and frustrated by the deadlines and penalties, but we’re here to help you avoid them. Call a Chapter Medicare Advisor at 855-900-2427 or schedule a time to chat to ensure that you enroll when you need to and choose the best coverage.
