About 68.5 million Americans are currently enrolled in some type of Medicare plan, with about 90% of enrollees being over age 65, according to the Centers for Medicare & Medicaid Services. When you sign up for Medicare, you’re eligible to enroll in Medicare Part D, an optional prescription drug plan that covers or reduces your out-of-pocket costs for all prescription drugs.
“It was established to help older adults and individuals with disabilities afford the medications they need to manage chronic conditions,” says Dee Chaudhary, a principal consultant with Clarivate. “Any medication that is self-administered — such as an insulin injection, a pill or an inhaler — is covered under Medicare Part D.”
Medicare Part D is either offered as a standalone plan or embedded into a Medicare Advantage plan.
While Medicare Part D can help cover your generic and brand-name drugs, each plan covers its own unique list of medications, also known as a formulary.
“Every single plan that a company offers has a different formulary than the other, and you need to check if your prescriptions are covered by the formulary,” explains Natasha McPherson, owner of the Medicare brokerage, Medicarerocks.com.
If your drugs aren’t covered or you’re not taking any medications, you might skip enrollment altogether. But doing so can lead to a lifetime penalty if you change your mind.
[READ How Much Does Medicare Part D Cost?]
What Is the Part D Late Enrollment Penalty?
Not signing up for Medicare Part D when you initially enroll in Medicare can have major consequences if you decide later to sign up for a drug plan.
“Anyone who didn’t enroll in Part D will incur a 1% penalty for every month they didn’t have coverage for the rest of their life,” McPherson says.
Once you decide to get coverage, that penalty is automatically added to your monthly Medicare bill.
[READ: How Medicare Might Change for 2026 and How It Will Affect Your Coverage]
When Is the Cut-Off to Sign Up?
You have 63 consecutive days after your initial eligibility to sign up for Medicare Part D. The Medicare open enrollment period is October 15 to December 7 each year.
You’re eligible for Medicare Part D if you don’t have another form of drug coverage that Medicare considers “creditable,” or as good as what Medicare Part D offers.
If you qualify for the federal Extra Help program, you’re exempt from the penalty. This rule applies when you first enroll or if you gain eligibility later on.
“Part D offers low-income subsidies through the Extra Help program, which can eliminate premiums and co-pays entirely for those who qualify,” Chaudhary says.
Without long-term creditable drug coverage or assistance from the Extra Help program, you will have to pay the monthly penalty if you miss this initial opportunity.
“As long as you pay the penalties, your coverage is not delayed,” says Amy Niles, the chief mission officer at the Pan Foundation.
[Read: Questions to Ask During Medicare Open Enrollment]
Can You Get the Part D Penalty Waived?
If you qualify for the Extra Help program or you’ve proven that you already receive drug coverage from another source, this penalty will be waived.
“You have the right to appeal a decision you believe to be incorrect about a late enrollment penalty,” Niles says.
Some potential situations where you may consider appealing include:
— You submitted information about other “creditable” drug coverage on time, but it wasn’t taken into consideration.
— Your plan miscalculated the number of months you went without “creditable” drug coverage.
— You did qualify for the Extra Help program, but your late enrollment monthly penalty wasn’t waived.
In addition, certain life events — such as losing job-based coverage — may allow you to use a special enrollment period. If you enroll during one of these periods, you can avoid the penalty.
Tips to Avoid the Penalty and Save on Drug Costs
Don’t wait to sign up for coverage. You can’t predict what the future will entail for you and your health. It’s better to be prepared so you don’t end up in a life-changing situation.
“If you have a health care crisis out of the blue and must start taking medications and you don’t have a prescription drug plan, you would have to pay out of pocket until the next enrollment date for the prescription drug plan comes around,” McPherson says. “There are drugs out there that cost thousands of dollars out of pocket — this situation could ruin someone financially.”
Follow these tips to prevent the Medicare Part D penalty and save money on your prescriptions each year.
1. Enroll on time during your initial enrollment period
The best way to make sure you don’t get hit with a penalty is to sign up for the optional prescription drug plan when you sign up for Medicare. Whether you need it at the moment or not, if you think you could need it in the future, you must sign up for it when you enroll in Medicare to avoid a lifetime penalty.
Remember, you have up to 63 days to sign up after Medicare enrollment.
2. Maintain creditable drug coverage
Your current drug plan is considered “creditable” if it’s expected to pay at least as much as a standard Medicare drug plan. This type of coverage can come from various sources, including:
— Current or former employers
— Unions
— TRICARE (for U.S. Armed Forces military personnel, military retirees and their dependents)
— The Department of Veterans Affairs (VA) (for military veterans and their families)
— The Indian Health Service (for American Indians and Alaska Natives)
3. Qualify for a special enrollment period or Extra Help
Certain instances serve as exceptions to the rule. For example, if you suddenly lost prescription drug coverage through your employer (or former employer), you may be eligible for a special enrollment period that waives the penalty.
Additionally, if you qualify for the federal Extra Help program, you’re not only excused from the penalty, but you may not even have to pay co-pays or premiums on your prescriptions. Even if you don’t qualify upon Medicare enrollment, you may become eligible later.
4. Work with a noncaptive Medicare agent
Working with a Medicare agent can help you evaluate the different plans in your area to understand what plans cover every drug that you take and which ones offer the lowest price. However, it’s important to note there are two kinds of insurance agents: captive agents and noncaptive (or independent) agents.
A captive agent is an insurance agent who can only sell plans from one insurance company and receives a salary, commission or both from that company. A noncaptive agent, on the other hand, is an independent insurance agent who can sell plans from any company.
Choosing to work with a noncaptive agent is important because they don’t have a personal agenda to sell you insurance, as a captive agent might. Working with a noncaptive agent means you’re working with an independent seller who may be more likely to find you the best deal.
5. Take the time to review your plan’s benefits thoroughly each year
Don’t rush choosing a prescription drug plan, and don’t let anyone tell you there aren’t better options available for you.
“No one on Medicare should be complacent,” Niles says. “Everyone should take time to evaluate plans and take into consideration their own health and financial circumstances, preferences for how they get medical care, which providers they see and their prescription drug needs.”
She recommends considering the following details before committing to a Part D plan:
— Deductibles
— Cost-sharing requirements
— Whether your medications are listed on the formulary and which ones are excluded
— Prior authorization and step therapy requirements for medications
“What companies don’t want you to know is that every year, they offer your same plan but make it cheaper or enhance it,” McPherson says. “If you aren’t doing your due diligence and reviewing your Medicare choices each year to make sure you’re still in the best and most affordable plan for yourself, you are probably losing hundreds of thousands over your lifetime.”
Bottom Line
When enrolling in a Medicare plan, it’s essential to also sign up for Medicare Part D so that your prescriptions now and in the future can be covered without having to pay a monthly penalty. Exceptions to this include having consistent drug coverage through an employer or another benefit. You can also have the penalty waived if you are eligible for the Extra Help program upon enrollment or become eligible later on. When in doubt, talk with a professional and consider exploring your options with a noncaptive Medicare agent.
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What Is the Medicare Part D Penalty? originally appeared on usnews.com
