No one likes to pay penalties, especially with Medicare. The problem with Medicare penalties is that many are lifetime penalties. If you don’t follow the correct signup procedures in a timely fashion and check all the appropriate boxes, you could end up with a penalty you pay each month the rest of your life.
We’ve recently written about the multiple penalties you can incur with the various parts of Medicare. In this article, we will focus on how to avoid the Medicare Part D penalty.
We will review the basics of Part D, how much the Part D penalty is and how to avoid the penalty.
Basics of Medicare Part D
Medicare Part D is just one of the Medicare components. You probably know it as Medicare’s Prescription Drug Coverage.
Part D is provided by private companies following guidelines and rules established by the federal government. Each plan must meet a minimum level of coverage established by the government.
The good news is if you are over 65, you are entitled to a Part D plan regardless of income. No physical exams are required. You cannot be denied for health reasons.
One of the biggest benefits of being part of Medicare Part D is that plans can not change the middle of the year. Whichever plan you sign up for will lock you in for the entire year. Costs will be set and the rules will not change.
Is Medicare Part D Mandatory, Or Optional?
Are you wondering if you really need Medicare Part D if you don’t take any drugs? This is the most common question we get about Part D. While many seniors take regular medications, some are not currently on any medication. This does not mean you will not need prescriptions in the future, which is why it is always smart to have insurance for when it will occur.
You’ve seen how much prescription drugs can cost. Costs continue to rise.
In a sense, Part D is optional. You can go without it or you can rely on private insurance via your spouse or employer. But there may be penalties if you decide to sign up for Part D later.
What happens if you don’t sign up for Medicare Part D?
There could be penalties if you don’t sign up for Part D when you are eligible. If you have drug coverage elsewhere, those penalties can be avoided, but the plans must be considered creditable coverage.
When Can You Enroll in Medicare Part D?
You must enroll in Medicare Part D during that special seven-month window around your 65th birthday. The window begins 3 months before the month you turn 65 and ends 3 months after you turn 65.
Each year, there is also an Annual Enrollment Period (AEP). This begins on Oct 15 and ends on Dec 7 each year. Any changes you make will take effect on Jan 1 of the following year.
There is also a Special Enrollment period (SEP). The SEP allows you to join, switch or drop a Part D plan under special circumstances. You qualify for the SEP if:
- You recently returned to the U.S. after permanently living outside the country.
- You have both Medicare and Medicaid or get Extra Help paying for your drug coverage.
- You recently lost your creditable drug coverage. For example, if your employer or spouse plan expired.
These are the most common reasons for being eligible for the SEP. There are other circumstances. If you think you may be eligible, one of our experienced agents at Medicare Nationwide can help you sort through your specific circumstances.
Can you opt out of Medicare Part D?
You can opt out of Medicare Part D. There is no mandatory requirement to enroll in Part D. But unless you have creditable coverage, there will be a penalty if you decide to enroll in the future after you are eligible.
Do you need to enroll in Medicare Part D every year?
You do not need to enroll in Medicare Part D every year. Your Medicare Part D will automatically renew each year. The only exception is if your insurance company decides to no longer offer the plan. If that happens, you will be notified, and you will need to find a replacement for your current Part D coverage.
You can shop your Part D coverage every year, even if you are set to renew with your current carrier. This is good to do from time to time, just to make sure you are getting the best value for your coverage.
Our agents can shop your Part D from over 100 companies to find you the best pricing and save you time searching among multiple companies.
Medicare Part D Enrollment Penalty
When did the Medicare Part D Penalty start?
Medicare instituted the penalty from the start of Part D coverage. The primary reason is to spread the cost of risk among more people. The fewer people who are insured will increase pricing for those who have coverage. Having a penalty creates an incentive for everyone to have coverage, which lowers overall prescription drug coverage costs.
How Much is the Part D Penalty?
Medicare calculates the penalty by multiplying 1% of the “national base beneficiary premium” times the number of months you didn’t have drug coverage. The penalty is then added to your monthly Part D premium.
What is the “national base beneficiary premium”?
This can change each year, but in 2020 the monthly premium is $32.74 and in 2021 the amount will be $33.06.
Because the national base beneficiary premium may change each year, your penalty amount will change when calculated off that base.
Here is how it looks in real life:
Mrs. Johnson is eligible for Medicare, but she doesn’t enroll in Part D before her enrollment period closed in May 2017. She waited to join during the open enrollment period in 2019, which ended in December 2019. After enrolling, her coverage was effective on Jan 1, 2020.
Mrs. Johnson went without coverage from June 2017 through Dec 2019. That’s a total of 31 months. Her penalty will be 31%. In 2020 the base premium is $32.74. A 31% penalty x $32.74 base premium = $10.15. The penalty is always rounded to the nearest $.10. Her monthly penalty will be $10.20.
Once 2021 rolls around, the penalty will be calculated on the new base premium of $33.06. A 31% Penalty x $33.06 = $10.25, which is rounded to $10.30 per month.
How Long Does the Medicare Part D Penalty Last?
The Part D penalty will last as long as you have Medicare. This is why it is critical to avoid the penalty. You don’t want that extra charge to be part of your ongoing premiums for the rest of your life.
How to Avoid the Medicare Part D Penalty
There are 3 ways to avoid the Part D penalty.
- Enroll when you are eligible.
- Enroll in creditable prescription drug coverage.
- Enroll if you lose your creditable plan
What is Creditable Prescription Drug Coverage?
Throughout the article, we have mentioned “creditable” prescription drug coverage.
If you don’t enroll in Part D, having creditable coverage allows you to waive Part D without a penalty.
Multiple plansare considered creditable.
- A drug plan from your current or former employer (or spouse’s plan).
- Government drug programs such as TRICARE, the Indian Health Service or the Veterans Administration.
- Individual private health coverage.
If you think you have creditable coverage, make sure you tell your Medicare plan about this coverage. It is the only way to avoid the penalty unless you sign up for Part D.
Disputing the Part D Penalty
What happens if you get charged the penalty but feel you were wrongly charged. You can dispute it.
You will be notified by letter that you are going to be charged a penalty. Along with that letter, you will receive a reconsideration request form. You have 60 days from the date of the letter to provide proof to support your case. Proof of creditable prescription drug coverage should be sufficient.
If you question whether you have sufficient proof, we have Medicare experts that can help you determine proof to avoid the penalty.
It Is Easy to Avoid Medicare Penalty
The Part D penalty is real and applies throughout your life. It is easy to avoid if you sign up for Medicare properly.
At Medicare Nationwide, we have agents that help you enroll and determine whether you have creditable coverage. We are able to shop your Part D coverage and find the best value for you prescription drug needs.
Contact one of our agents today.
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