How to Avoid the Medicare Part D Penalty

Question: In your article about Medicare, you mentioned the penalty for Part B if you don’t sign up when you’re first eligible. Isn’t there also a penalty if you don’t sign up for Part D prescription-drug coverage?

Answer: You’re right. You generally must sign up for Medicare Part D prescription-drug coverage when you first become eligible for Medicare at age 65 (the three months before through the three months after your 65th birthday). You can sign up for Part D through a stand-alone plan or through a Medicare Advantage plan. But you aren’t required to sign up if you have “creditable” coverage from another source, such as drug coverage from an employer or retiree health insurance plan or from Tricare.

If you go for more than 63 days without creditable coverage, you’ll have to pay a late-enrollment penalty for every month you delay. The penalty equals 1% of the “national base beneficiary premium” ($35.63 in 2017) times the number of months you didn’t have Part D or creditable coverage. This penalty is added to your monthly Part D premium for as long as you have a Medicare drug plan. For example, if you didn’t have Part D or creditable coverage for two years, your penalty would be $8.55 every month in 2017 (24% of $35.63). The national base premium changes every year, so your penalty can increase over time.

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If you have other drug coverage, that plan must tell you whether your coverage is considered to be creditable, which means that it is expected to pay, on average, at least as much as Medicare standard drug coverage. Keep records of the creditable coverage, in case you need to appeal a penalty later.

For more information and an example of the calculation, see Medicare.gov’s Part D Penalty factsheet. See FAQs about Medicare for more information about Medicare sign-up and coverage rules. For more information about shopping for a Medicare Part D plan, see Guide to Medicare Open Enrollment for 2017.