Beware Part D Late Enrollment Penalties

The Part D Late Enrollment penalty is a penalty for not having a prescription drug plan (Medicare Part D) or some equivalent prescription drug coverage for more than 63 days any time after your initial enrollment period for Medicare is over. The late enrollment penalty will hit you if you have chosen not to obtain a Part D plan for some period of time after your initial enrollment period (perhaps due to a perceived lack of need), if your employer stops providing a plan with equivalent prescription drug coverage and you do not obtain another plan within 63 days, or even if you simply forget to or choose not to get a Part D plan in a given year.

The Part D late enrollment penalties will kick in when you (re)obtain Medicare Part D coverage. At that point, the penalty will be added to your Part D premium for the rest of eternity. The penalty is calculated as following:

(number of months without Part D coverage)*1%*(national base beneficiary premium)

The national base beneficiary premium is $32.42 in 2014, and it is projected to increase every year. Hence, the longer one waits, one will not only have to pay a higher percentage of the premium, but the higher percentage of a higher premium.

Let’s give an example: Mrs. Smith’s initial enrollment period for Medicare Part D ended January of 2009. However, she decides in January 2014 that she wants to get a Part D plan. Since she went for 5 years (60 months) without adequate prescription drug benefits, her penalty will be 60% of $32.42: this amount is $19.45. However, the late enrollment penalty is rounded to the nearest ten cent increment, so she will actually pay $19.50 per month. This amount will be added on to her Part D monthly premium perpetually.

The Medicare website gives a few tips on how to avoid a late enrollment penalty:

1.      Sign up for a Part D plan during your initial enrollment period.

2.      Don’t go for more than 63 days without a Part D plan or creditable coverage. Your plan must tell you each year if your drug coverage is creditable coverage.

3.      If you change plans, make sure to tell your new plan about all coverage, especially drug coverage, that you have had.

You do not have to pay a late enrollment penalty if you qualify for the Low Income Subsidy (LIS) program, also known as Extra Help. This is a program that provides people with low incomes with subsidies for drug plan premiums, deductibles, and copayments. For example, drug costs for LIS beneficiaries in 2013 were no more than $2.65 for a generic drug or $6.60 for a brand name covered drug.

You will automatically get Extra Help if you have both Medicare and Supplemental Security Income or both Medicare and Medicaid. If you automatically get Extra Help under these situations, your insurance provider should send you an LIS rider around September.

If you do not automatically get Extra Help, you can still complete an application if you fit the following criteria:

1.      You have Medicare Part A and/or Medicare Part B insurance.

2.      You live in one of the 50 states or in the District of Columbia.

3.      You have:

a.       Less than $26,580 in combined real estate, savings, and investments (not including your house, vehicles, personal possessions, life insurance) if married and living with your spouse.

b.      Less than $13,300 in combined real estate, savings, and investments (not including your house, vehicles, personal possessions, life insurance) if unmarried or if not living with your spouse.
c.   An income lower than 150% of the Federal Poverty Level ($17, 235 individually or $23,365 if married and living with your spouse).
 

If you meet the above criteria, you may apply for Extra Help at this site.

            It is ultimately your decision whether you obtain a Medicare Part D prescription drug plan. If you feel it is not beneficial at the time, you can save money on premiums in the short-term scope. However, you are likely to have heavier penalties if you delay getting a prescription drug plan for a significant period of time. It is also important to note that whatever penalty you may accrue would need to be paid every month perpetually.

Until next time,

Andrew Herman, President

AH Insurance Services, Inc.