Medicare imposes penalties on people who don’t sign up for the program’s health insurance before enrollment deadlines by charging them higher premiums, often permanently. You can avoid penalties by signing up for Medicare Part D—prescription drug coverage—when you first become eligible. However, not everyone needs Medicare at age 65, and in many cases, a person might have insurance or prescription coverage through work.
If you postpone your Part D enrollment because you have a better prescription coverage option, you’ll need to sign up promptly once that coverage ends to avoid penalties should you sign up for Medicare Part D later. If you go too long before signing up, you’ll have to pay premium penalties every month for as long as you stay on Medicare—which could be 20 years or longer.
Key Takeaways
- For every month when you don’t have Medicare Part D or creditable coverage, a penalty of 1% of the national base beneficiary premium will be assessed.
- Those who enroll in Part D too late will pay the penalty indefinitely.
- The penalty can be avoided by signing up for Part D during the initial enrollment period.
- If you’re not yet ready to get Medicare, be sure not to go more than 63 days without Part D or creditable prescription drug coverage after your initial enrollment period is up.
What Is the Medicare Part D Premium Penalty?
The Medicare Part D late enrollment penalty is a permanent premium surcharge added to the bills of those who go too long before signing for coverage. The simplest way to avoid this surcharge is to enroll in Medicare Part D during Medicare’s initial enrollment period. This starts three months before the month of your 65th birthday and ends three months from the end of the birthday month. That means you have seven months, including your birthday month, to enroll without a penalty. For example, if your birthday is in April, then your initial enrollment period runs from Jan. 1 through July 31.
From that point on, you can’t go without prescription drug coverage for more than 63 days in a row, or you’ll owe a penalty. The penalty is a lifetime surcharge on your Part D premiums once you enroll.
How the Penalty Is Calculated
For every month without prescription drug coverage under Medicare or a creditable alternative, Medicare adds a penalty of 1% of the “national base beneficiary premium” to the monthly premiums of those who do eventually enroll. The national base beneficiary premium is $32.74 for 2023, down from $33.37 in 2022. The dollar amount of the penalty will change each year with the base beneficiary premium.
To see how much the penalty could cost you, let’s suppose your initial Medicare enrollment period ended at the end of 2021, you were not covered for all of 2022, but planned to enroll in Part D starting Jan. 1, 2023. Your penalty for 2023 would be $0.3274 × 12 (for the 12 months of 2022 when you weren’t covered), or $3.93, rounded to $0.01. Medicare rounds the penalty to the nearest $0.10, then adds it to your monthly Part D premium. You’d pay an extra $3.90 a month for Medicare Part D throughout 2023. For 2024, your penalty would be recalculated based on the national base beneficiary premium for that year.
What Your Premium + Penalty Will Cost
This doesn’t mean that your premium will necessarily equal the national base plus the penalty. Instead, it will be the monthly cost of whatever plan you choose plus the $3.90 penalty. Bear in mind that the national base beneficiary premium is an average plan price. Each state can have 25 to 35 Part D plans, and their premiums and benefits can vary.
The Centers for Medicare & Medicaid Services estimates the average basic monthly premium for standard Medicare Part D coverage will drop to $31.50 in 2023, from $32.08 in 2022.
The penalty is not necessarily a big deal, especially if you only go without coverage for a few months. But you would need to keep paying it for as long as you maintain coverage. No insurance plan can afford to let people go without coverage until they’re about to incur significant expenses.
Do You Have Creditable Prescription Drug Coverage?
A creditable prescription drug plan is one that provides coverage that’s at least as good as Medicare Part D.
If you have one, you don’t need to enroll in Medicare Part D during the initial enrollment period around your 65th birthday to avoid a subsequent penalty.
You may have creditable coverage through a current or former employer or labor union. These entities also offer creditable coverage:
- Federal Employee Health Benefits (FEHB) Program
- Veterans Benefits
- TRICARE (military health benefits)
- Civilian Health and Medical Program of the U.S. Department of Veterans Affairs (CHAMPVA)
- Indian Health Service
You also might have creditable coverage if you get health insurance coverage through your spouse’s employer or if you’re on a COBRA (Consolidated Omnibus Budget Reconciliation Act) plan.
Make sure to get proof of your creditable coverage in writing. Hang onto it in case you need to prove that you don’t owe penalties later.
What Happens If You Lose Your Creditable Prescription Drug Coverage?
If you retire or are laid off, or your spousal coverage ends, then your days of having creditable prescription drug coverage are numbered. However, you’ll have access to a special enrollment period to sign up for Medicare, including Part D, without penalty. This period lasts for two full months from when your coverage ends.
This special enrollment period will also apply when COBRA runs out if you enroll in COBRA and retain your former employer’s creditable coverage.
If your employer’s coverage changes and is no longer creditable, you’ll also have a two-month special enrollment period to sign up for Part D without penalty.
Requirements to Enroll in Medicare Part D
Medicare Part D is not a standalone option; you can only sign up if you have Part A and/or Part B, or by joining a Medicare Advantage (Part C) Plan with Part D coverage.
Medicare Part A and Part B
Medicare is available for people age 65 or older, those receiving disability benefits, and patients with end stage renal disease. Medicare Part A pays for inpatient hospital stays and nursing home care. The deductible per benefit period for Part A is $1,556 for 2022 and $1,600 for 2023. Many people don’t need to pay a monthly premium for Part A, and there are no co-insurance costs for hospital stays of 60 days or less.
Medicare Part B covers doctor visits, tests, physical therapy, flu shots, and chemotherapy. The monthly premium for most Part B participants is $164.90 for 2023, down from $170.10 for 2022. The annual Part B deductible is $226 for 2023, down from $233 in 2022. The co-insurance for Part B is 20% of Medicare-approved cost for most covered services.
Signing Up for Medicare
One option is to sign up during your initial enrollment period. You can also sign up during Medicare’s general enrollment period, which runs from Jan. 1 through March 31 and gives you coverage starting July 1. If you sign up for medical coverage during general enrollment, you’ll be able to enroll in Part D from April 1 through June 30, and your prescription coverage will start July 1.
If you miss that window, the next one is during the Medicare open enrollment period, which runs from Oct. 15 through Dec. 7 and gives you prescription coverage starting Jan. 1.
Are Medicare Part D Penalties for Life?
Yes, the Part D premium penalties are permanent, meaning that you will be paying them for as long as you have Medicare.
How Do I Avoid Getting a Late Enrollment Penalty for Medicare Part D?
First, you should try to sign up during the initial enrollment period, which starts three months before the month you turn 65 and lasts three months after the end of that month. If you have creditable drug coverage under a plan other than Medicare, make sure to sign up for Medicare Part D within 63 days after the creditable drug coverage ends. Lastly, make sure to have proof of creditable drug coverage to avoid a late enrollment penalty.
How Do I Get Medicare Part D?
After you’ve done your research and chosen a plan, you have a few options to sign up:
- You can enroll on the Medicare Plan Finder or on the plan’s website.
- You can complete a paper enrollment form or call the plan directly for assistance.
- You can call Medicare at 1-800-MEDICARE (1-800-633-4227); TTY: 1-877-486-2048.
The Bottom Line
Part D late enrollment penalties are easy to avoid if you sign up for Medicare during your initial enrollment period and maintain coverage. Otherwise, you’ll need to understand the creditable coverage rules and know the special enrollment periods applicable to your circumstances. The Medicare website describes many common scenarios. If it doesn’t cover yours, a benefits counselor may be able to help.