Original Medicare benefits include Part A and Part B, but most Medicare recipient choose to enroll in Part D when they are first eligible for Medicare. Part D helps cover prescription drugs and is an optional plan available to Medicare beneficiaries. Although it is voluntary, a late penalty may be imposed if Part D is bypassed during the initial enrollment period.

Enrollment in a Medicare-approved drug plan
PDPs (Prescription Drug Plans) are stand-alone plans that Medicare recipients can join when they have Original Medicare, Medical Cost plans, Private Fee-for-Service plans or Medical Savings Account plans.

As an alternative, Medicare recipients can sign up for Medicare Advantage plan with prescription drug coverage. MA plans, also known as Part C, are offered by private insurance companies and are required to provide the same Part A and Part B benefits as Original Medicare. Most MA plans include additional benefits, such as vision and dental care, hearing exams, and fitness programs. A Medicare Advantage plan that includes prescription drugs is often referred to as an MA-PD plan. Purchasing an MA-PD plan is analogous to one-stop shopping in that parts A, B and D sit under one umbrella.

How to avoid the Part D late enrollment penalty
Even if you do not take prescriptions currently, enrollment is encouraged when you first qualify for Medicare. If you do not enroll in Part D coverage during your initial enrollment period and do not have other creditable drug coverage, you will have to pay a late enrollment penalty when you sign up for Part D later.

If you miss the initial enrollment period and go 63 or more consecutive days without creditable prescription drug coverage, you will likely have to pay a late enrollment fee for the duration of your time on Part D when you sign up. Creditable coverage is defined by Medicare as coverage “that’s expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage.” This may be a plan administered by your employer or an employee union, for example.

Once you join a Prescription Drug Plan or MA-PD, you’ll be able to switch plans during certain times of the year. If necessary, you can take advantage of the option to change your Medicare coverage plans between October 15 and December 7 every year during the Annual Election Period. You will have the opportunity to make one change in your MA plan during the Medicare Advantage Open Enrollment Period between January 1 and March 31.

Late penalty calculation
In calculating the penalty, Medicare takes into account the length of time in which there was no creditable prescription drug coverage and the current cost of the national base beneficiary premium. This premium is “based on bids submitted by both PDPs and MA-PDs,” according to KFF (Kaiser Family Foundation). For 2020, the base beneficiary premium is $32.74. The calculation is 1% of the base beneficiary premium multiplied by the number of full months during which you were eligible but neither enrolled nor had creditable coverage. The calculated amount is rounded to the nearest 10 cents.

For example, if the time period that lapsed without any drug coverage extends 30 full months, the penalty would be 30% of $32.74, which equals $9.82, rounded up to $9.90. In this case, $9.90 would be added to your plan’s monthly premium, which varies by plan and income level, for as long as Part D coverage continues. The penalty is recalculated annually, so if the national base beneficiary premium increases, the penalty increases accordingly.

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