Updated June 25, 2014.

Be careful to avoid the Medicare Part D late enrollment penalty!

Medicare Part D, an outpatient prescription drug benefit, is offered to everyone with Medicare. To get Part D drug coverage, you have to join a plan run by a private insurance company that has been approved by Medicare or enroll in a Medicare Advantage plan that includes drug coverage.

How to Join, Switch, or Drop a Medicare Drug Plan

Medicare has specific rules about when and how you can join, switch, or drop a Medicare Part D drug plan.

You can join a Part D drug plan:

• When you first become eligible for Medicare (the seven-month period that begins three months before the month you turn 65, includes the month you turn 65, and ends three months after the month you turn 65).
• If you get Medicare due to a disability, you can join during the three months before to three months after your 25th month of disability.

You can join, switch, or drop a Medicare Part D drug plan:

• Between November 15–December 31 in 2010. Your drug coverage will begin on January 1, 2011, as long as the plan you have chosen gets your enrollment information by December 31.
• In 2011, the annual enrollment period for Part D will change to October 15, 2011-December 7, 2011. If you decide to change your drug plan during this period, your new coverage will begin on January 1, 2012.
• Anytime, if you qualify for Extra Help from Medicare.

Medicare requires that once you enroll in a Part D drug plan, you must stay enrolled for the calendar year which starts the day your coverage begins.

However, you may be able to join, switch, or you’re your Medicare drug plans at other times:

• If you move out of your Part D plan’s service area, such as relocating to another state.
• If you lose other creditable prescription drug coverage.
• If you live in an institution such as a nursing home or other long-term care facility.

Medicare’s Definition of Creditable Prescription Drug Coverage: Prescription drug coverage (for example, from an employer or union) that is expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage. People who have this kind of coverage when they become eligible for Medicare can generally keep that coverage without paying a penalty, if they decide to enroll in Medicare prescription drug coverage later.

The Medicare Part D Late Enrollment Penalty

Medicare’s late enrollment penalty is an amount that is added to your Part D monthly premium. You may owe a late enrollment penalty due to the one of the following:

• You didn’t join a Medicare Part D drug plan when you were first eligible for Medicare, and you didn’t have other creditable prescription drug coverage.
• You didn’t have Medicare prescription drug coverage or other creditable prescription drug coverage for 63 days or more in a row.

Note: If you get Extra Help, you don’t pay a late enrollment penalty.

You can avoid paying a penalty by:

Joining a Part D drug plan when you’re first eligible for Medicare.

Not going 63 days or more in a row without a Medicare Part D drug plan or other creditable coverage. According to Medicare: Creditable prescription drug coverage could include drug coverage from a current or former employer or union, TRICARE, Indian Health Service, Department of Veterans Affairs, or health insurance coverage. Your plan will tell you each year if your drug coverage is creditable coverage. This information may be sent to you in a letter or included in a newsletter from the plan. Keep this information, because you may need it if you join a Medicare drug plan later.

Making sure to tell your plan about any drug coverage you had if they ask about it: When you join a plan, and they believe you went at least 63 days in a row without other creditable prescription drug coverage, they will send you a letter. The letter will include a form asking about any drug coverage you had. Complete the form. If you don’t tell the plan about your creditable coverage, you may have to pay a penalty.

The Penalty Can Add Up!

How much the late enrollment penalty will cost you depends on how long you did not have creditable prescription drug coverage. The late enrollment penalty is calculated by multiplying 1% of the “national base beneficiary premium” ($32.34 in 2011) times the number of full, uncovered months that you were eligible but didn’t join a Medicare drug plan and went without other creditable prescription drug coverage.

The final amount is then rounded to the nearest $.10 and added to your monthly premium. Since the “national base beneficiary premium” may increase each year, the penalty amount may also increase every year. You may have to pay this penalty for as long as you have a Medicare drug plan.

Example 1: Mrs. Jones did not join a Part D plan when she was first eligible (by May 15, 2006). She joined a Medicare drug plan during the 2009 enrollment period (November 15—December 31, 2009), for an effective enrollment date of January 1, 2010. Since Mrs. Jones did not join when she was first eligible and went without other creditable drug coverage for 43 months (June 2007–December 2010), she will be charged a monthly penalty of $13.90 in 2011 ($32.34 x.01 = $.3234 x 43 = $13.90) in addition to her plan’s monthly premium. If Mrs. Jones continues with her Part D drug plan for the next five years, her penalty will cost her over $800.00

Example 1: Mr. Smith did not join a Part D plan when he was first eligible (by January 15, 2010). He joined a Medicare drug plan during the 2010 enrollment period (November 15—December 31, 2010), for an effective enrollment date of January 1, 2011. Since Mr. Smith did not join when he was first eligible and went without other creditable drug coverage for 11 months (February 2010-December 2010), he will be charged a monthly penalty of $3.60 in 2011 ($32.34 x.01 = $.3234 x 11 = $3.0) in addition to his plan’s monthly premium. If Mr. Smith continues with his Part D drug plan for the next five years, his penalty will cost him over $200.00