The late enrollment penalty is an amount that’s added to a person’s monthly Part D premium. A person enrolled in a Medicare drug plan may owe a late enrollment penalty if one of these is true:
- They didn’t join a Medicare drug plan when first eligible for Medicare Part A and or Part B, and they didn’t have other creditable prescription drug coverage that met Medicare’s minimum standards.
- They had a break in Medicare prescription drug coverage or other creditable coverage of at least 63 days in a row.
The late enrollment penalty (also called the “LEP” or “penalty”) is added to the person’s monthly Part D premium for as long as they have Medicare prescription drug coverage. This penalty is required by law and is designed to encourage people to join a Medicare drug plan when they’re first eligible or to keep other creditable prescription drug coverage. The late enrollment penalty amount changes each year. The person will have to pay it each month as long as they do have Medicare prescription drug coverage, even if the person changes their Medicare drug plan.
Creditable prescription drug coverage (also called “creditable coverage”) is coverage that meets Medicare’s minimum standards since it’s expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage. Most plans that offer prescription drug coverage, such as plans from employers or unions, must send their customers an annual notice explaining how their prescription drug coverage compares to Medicare prescription drug coverage and if it’s creditable coverage. If a person with Medicare doesn’t get a separate written notice, the person’s plan may provide this information in its benefits handbook. If the person doesn’t know if the prescription drug coverage they have is creditable, the person should contact the plan.
The late enrollment penalty is calculated by Medicare, not the plan, when a person first joins a Medicare drug plan. The late enrollment penalty amount is 1percent of the national base beneficiary premium (also called “base beneficiary premium”) for each full, uncovered month that the person was eligible to join a Medicare drug plan and didn’t. The monthly penalty is rounded to the nearest $0.10. The national base beneficiary premium for 2015 is $33.13.
Mrs. Martin didn't join a drug plan when she was first eligible—by July 2012. She doesn't have prescription drug coverage from any other source. She joined a Medicare drug plan during the 2014 open enrollment period, and her coverage began on January 1, 2015.
Since Mrs. Martin was without creditable prescription drug coverage from August 2012 through December 2014, her penalty in 2015 is 29 percent (1 percent for each of the 29 months) of $33.13 (the national base beneficiary premium for 2015), which is $9.61. The monthly penalty is rounded to the nearest $.10, so she'll be charged $9.60 each month in addition to her plan's monthly premium in 2015.
Here's the math:
.29 (29% penalty) × $33.13 (2015 base beneficiary premium) = $9.61
$9.61 (rounded to the nearest $0.10) = $9.60
$9.60 = Mrs. Martin's monthly late enrollment penalty for 2015
In general, once a person’s penalty amount is determined by Medicare, the person will continue to owe a penalty for as long as he or she is enrolled in a Medicare drug plan. This means that even if the person decides to join another Medicare drug plan, they will still have to pay a penalty when they join a new plan. This also means that if a person joins a plan that has a $0 monthly premium, they will still owe a penalty.
If Medicare’s reports a person has a break in creditable coverage, will they have a chance to tell the plan about their prior drug coverage?
Yes. When a person joins a Medicare drug plan, the plan will review Medicare’s systems to see if the person had a break in creditable coverage for 63 days or more. If so, the Medicare drug plan will send the person a notice asking for information about prior prescription drug coverage. This notice is called the “Declaration of Prior Prescription Drug Coverage.” It’s very important that the person complete this form and return it by the date stated on the form, because this is the person’s chance to let the plan know about prior coverage that might not be in Medicare’s systems. The person can also send any proof of their prior coverage, such as a copy of the “Notice of Creditable Prescription Drug Coverage” from an employer or union plan. If the plan allows the person to provide this information over the telephone instead, they must do so by the date stated on the form.
The information provided to the plan will help the plan tell Medicare whether there was a gap of 63 days or more in creditable coverage. If the person doesn’t provide this information to the plan by the date stated on the form, the plan will tell Medicare how many full, uncovered months the person was eligible to join a Medicare drug plan and didn’t. Then Medicare, not the plan, will determine the penalty amount using the calculation method described above.
If you are affected, the Social Security Administration (not your Medicare Part D plan) will send you a letter telling you what the amount will be and how to pay it. This extra amount must be paid separately and cannot be paid with your monthly Part D premium.
If a person doesn’t agree with the late enrollment penalty, they may be able to ask Medicare to review its decision. This is called “reconsideration.” The person’s drug plan will send information about how to request reconsideration, including a “Late Enrollment Penalty Reconsideration Request Form.” The form lists the reasons a person can ask for and get a review of their case.
If the person wants a review of their case, they should complete the form and return it to the address or fax number listed on the form, and a Medicare contractor will review the case. The form must be mailed or faxed within 60 days from the date on the letter stating that the person had to pay a late enrollment penalty. The person should also send any proof that supports their case, such as information about previous creditable coverage. For example, if the person had drug coverage from an employer or union plan, they may provide a copy of the “Notice of Creditable Prescription Drug Coverage” from the employer or union plan.
In general, reconsideration decisions are made within 90 days. Medicare’s contractor will try to make a decision as quickly as possible. However, because of the large number of requests being filed and the time required to get information to verify whether a person had prior creditable coverage, it may take longer for a person’s case to be resolved.
Is there a late enrollment penalty if a person waits one month after he or she was first eligible to enroll in a Medicare drug plan?
No. A person must be without creditable coverage 63 days or more any time after they were first eligible to enroll to be charged a late enrollment penalty. Since the person only had one month without coverage, they wouldn’t have to pay a penalty.
Anyone who qualifies for Extra Help under Part D may join a Medicare drug plan with no penalty. If the person disenrolls from his or her Medicare drug plan and goes at least 63 days without other creditable coverage, he or she may be charged a late enrollment penalty if the person later joins a Medicare drug plan and isn’t eligible for Extra Help. However, any uncovered months from before the person became eligible for Extra Help won’t be counted in determining the person’s late enrollment penalty.
If Medicare’s contractor reviews a case and decides that all or part of the late enrollment penalty is wrong, the Medicare contractor will send the person and their drug plan a letter explaining its decision. The Medicare drug plan will remove or reduce the late enrollment penalty and will send the person a letter that shows the correct premium amount and explains whether there will be a refund.
If Medicare’s contractor reviews a case and decides that the late enrollment penalty is correct, the person will get a letter explaining the decision, and the person must pay the penalty.