Part D Penalty: What It Is and How to Avoid It

man looks at papers over white background with word penalty in red

If you don’t enroll in a Medicare Part D prescription drug plan when you first become eligible, you could be subject to a penalty that you will need to pay in addition to your monthly premium. The penalty is based on the national base beneficiary premium, which is $35.02 in 2018. The penalty is 1% for each month you go without drug coverage, multiplied by the national base beneficiary premium, and rounded to the nearest $.10. For example, if you go 13 months without prescription drug coverage, the math would be as follows:

$35.02 (2018 national base beneficiary premium) x .13 (13% penalty) = $4.55 rounded to the nearest $.10 = $4.60 monthly penalty

The penalty will change if and when the national base beneficiary premium changes. 

Three ways to avoid penalties

  1. Enroll as soon as possible. You can avoid this penalty by enrolling in prescription drug coverage when it first becomes available to you. For most people, that is their Initial Enrollment Period: the three months leading up to your 65th birthday, the month of your birthday, and the following three months. If you miss enrolling during your Initial Enrollment Period, you will need to wait for the Open Enrollment Period, which is October 15 – December 7.
  2. Keep consistent coverage. Don’t go more than 63 consecutive days without creditable prescription drug coverage. Creditable coverage includes insurance through an employer, a spouse’s plan, TRICARE, Indian Health Services, or the Department of Veteran Affairs. If you’re not sure if your coverage is considered creditable, your local Medicare office will be able to tell you.
  3. Contest the penalty. If you would like to contest the penalty because you have creditable coverage, your drug plan can send you a form to fill out in order to do so. Fill out the form and return it within 60 days of receiving it. You may also include any proof of creditable coverage that you had in place of Part D coverage.

If you are penalized, you will have to pay this penalty the entire time you have prescription drug coverage, so it’s imperative that you enroll on time during your Initial Enrollment Period.

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