In an effort to incentivize beneficiaries to enroll in the program as soon as they become eligible, Medicare levies late penalties against those who fail to do so. The amount of the penalty varies according to whether you were late enrolling in Part A, B, or D (or any combination of the three). Those penalties can add up quickly, especially considering the fact that you pay the Parts B and D penalties for as long as you have Medicare. The good news is, it’s easy to avoid the Medicare Part D late penalty.
Please note that Medicare beneficiaries who qualify for Extra Help do not have to pay a late penalty.
What Is the Medicare Part D Penalty?
You become eligible for Medicare Part D as soon as you enroll in Original Medicare (Parts A and B). If you fail to enroll in a Prescription Drug Plan during your Initial Enrollment Period (IEP) AND you do not have creditable drug coverage, you may have to pay a late penalty.
Creditable drug coverage is any plan expected to pay at least as much toward your costs as a Medicare Prescription Drug plan. Common examples are the health plans you have through an employer or union.
If you waited to enroll in Medicare Part D during your IEP because you had creditable drug coverage, you should qualify for a Special Enrollment Period (SEP). However, you may still face a late enrollment penalty if that coverage ends and you allow 63 days to pass without enrolling in a Part D plan.
How Much Is the Medicare Part D Late Penalty?
The Part D penalty is calculated as 1 percent of the “national base beneficiary premium.” That amount changes every year and is multiplied by the number of months you went without creditable prescription drug coverage, rounded up to the nearest 10 cents. This amount is added to your monthly Part D premium. You must pay this extra amount for as long as you have prescription drug coverage through Medicare.
In 2018, the base beneficiary premium is $35.02. If you went without creditable coverage for 26 months, the calculation looks like this:
Your Part D plan adds this amount to your monthly premium. And again, the amount changes yearly, because the base beneficiary premium changes yearly. It’s scheduled to decrease in 2019, to $33.19.
How to Avoid the Part D Penalty
There are three ways to avoid the Part D late penalty. The first, of course, is to join a Medicare drug plan as soon as you are eligible. Your Initial Enrollment Period consists of the three months before the month you turn 65, the month of your 65th birthday, and the three months following your 65th birthday.
The next way to avoid the penalty is to not go 63 days or more without creditable drug coverage. As long as you have creditable drug coverage, you qualify for an SEP once that coverage ends. The Special Enrollment Period lasts a full eight months for Medicare Parts A and B, but only 63 days for Part D. If you allow more than 63 days to pass, you’ll likely have a late penalty.
Finally, you can avoid the Part D penalty if you save the records that prove you had creditable drug coverage. Each year, your plan should send you a statement that your coverage is “creditable.” When you sign up for Part D, tell your plan about your previous coverage. Failure to do so may result in a penalty.
How to Challenge a Part D Late Penalty
If you disagree that you owe a late penalty, you can ask your drug plan for a reconsideration. The plan should send you a form. Complete it and, when you return it, include any proof that supports your challenge. This is why you need to save any notices of creditable drug coverage from your previous plan.
You have 60 days to complete and return the reconsideration form. The clock starts ticking on the date of the correspondence that informed you of your late penalty. Medicare’s contractor typically makes it decision within 90 days. While waiting, you must pay the late penalty, as it is considered part of your monthly premium. Failure to do so may result in your plan disenrolling you, adding to the length of time you go without creditable drug coverage.
Possible Reconsideration Outcomes
The Medicare contractor sends both you and your drug plan a letter detailing its decision. It may decide the late penalty should be removed entirely, that the amount of the penalty is wrong, or that the penalty is entirely correct. Your drug plan will make the appropriate changes to your premium, sending you a letter detailing the changes and whether you’ll see a refund.
If the Medicare contractor determines that the penalty is correct, you must pay it for the entire time that you have Medicare drug coverage. To do otherwise may result in loss of coverage.
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