One of the less-than-ideal aspects about Medicare and various types of health insurance is that there can be penalties associated with it. You might not always be making the decision that suits your needs the best, when you’re also forced to factor in considerations about penalties. Sometimes, these penalties make sense and exist for practical reasons, but other times they just feel more predatory.

Today, let’s look at the penalty for not having prescription drug coverage. The best way to avoid penalties is to understand them and to stay on top of your dates, while ensuring that you’re getting the coverage you need.

What is a late enrollment penalty? 

A late enrolment penalty is an additional fee that may be added to your Medicare Part D premium if you have a lapse in coverage that lasts a period of 63 days or more following your Initial Enrolment Period (IEP). You can avoid a late enrolment penalty by: 

  • Enrolling in a Medicare prescription drug plan (Part D) or Medicare Advantage (Part C) plan that includes prescription drug coverage during your IEP
  • Maintaining creditable prescription drug coverage for a minimum of 63 consecutive days (and keep records, Medicare may ask for proof if you choose to enroll later) 

What is creditable prescription drug coverage?

To be considered creditable prescription drug coverage, the plan must meet or exceed the coverage offered through Medicare Part D. This includes most group health plans, individual health plans, student health plans, and government-sponsored health plans.

Creditable prescription drug plans must meet the following criteria:

  • Provides coverage for brand and generic prescription medication
  • Offers access to a variety of providers or mail-order prescription service 
  • Pays a minimum of 60% of the cost of prescription expenses
  • No annual benefit maximum or alternatively, a low deductible 

How much does the penalty cost?

The cost of the penalty is based on the length of time you went without Part D or other creditable prescription drug coverage. 

According to Medicare, this amount is calculated by multiplying 1% of the current National Base Beneficiary Premium ($32.74 as of 2020) by the number of full months without coverage. This amount is rounded to the nearest $0.10 and will be added to your monthly Part D premium.

For example: 

Let’s say you forgot to enroll during your IEP and didn’t have valid prescription drug coverage for 18 months. Based on Medicare’s calculations, you would owe an additional $5.90 on top of your monthly Part D premium. 

0.3274 x 18 = $5.89 (rounded to the nearest $0.10 for $5.90) 

Note: If the National Base Beneficiary Premium changes, Medicare will automatically adjust your penalty amount. You will be required to pay a penalty for the duration of your plan even if you switch plans or choose a plan without a monthly deductible. 

How do I know if I will pay a late enrolment penalty? 

If you aren’t sure about owing a penalty, Medicare will let you know. They will calculate the cost of the penalty for you and include it automatically on your monthly premium.

In the event you don’t agree with the penalty, you can ask for a reconsideration from your prescription drug plan. If accepted, your plan will mail out a form that needs to be completed and sent back (mail or fax) within 60 days. Along with the form you will need to send any proof that will help support your claim like a notice of credible prescription drug coverage from a group health plan. You should receive an official decision within 90 days.

See also: How to qualify for Part D Prescription Drug Coverage

It’s required by law that you pay the late enrolment penalty as it’s included in your plan’s premium. If you don’t receive a reconsideration and you choose to not pay your monthly premium, you will lose your prescription drug coverage.

Final Thoughts on Prescription Drug Coverage Penalties

Penalties are never fun, but you’ve got to play by the rules of the system you’re using. It’s important to keep on top of enrolment dates to ensure you are able to get your coverage in a timely manner without having to pay any additional penalties. Visit this page to learn more about prescription drug coverage in general. If you need help applying for Medicare or exploring your options, don’t hesitate to reach out to us.