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The Medicare Part D Penalty
Just like with Part B, Part D also has a penalty. If you don't enroll for prescription drug coverage when you are first eligible, you start to accrue a Part D penalty. The longer you go without prescription drug coverage, the higher the penalty will be. The penalty will be triggered when you finally enroll in a Medicare Part D plan. It is added on whether you have a Medicare Advantage Plan with prescription drug coverage or a separate Medicare Part D plan.
The Part D penalty is 1% of the national average cost of
drugs ($32.74 in 2023) for every month you have gone without creditable prescription drug coverage. The penalty will be added to all the other premiums you are paying and it is paid monthly for as long as you have your prescription drug plan.
Let's look at a couple of examples:
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John didn't take many prescriptions at first, but around his 70th birthday he decides that it's better to be safe than sorry and signs up for prescription drug coverage. John has went 5 years without coverage.
5 years = 60 months, and $32.74 x 60% = $19.64. John will pay a penalty of $19.64 every month on top of all the other premiums he pays for other parts of his health plan.
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Susan was in perfect health on her 65th birthday so she decided she didn't need prescription drug coverage. When Susan turns 81 her doctor informs her that she is going to need life saving medication so Susan decides she finally needs to enroll in a prescription drug plan. It has been 16 years since Susan originally enrolled in Medicare.
16 years = 192 months, and $32.74 x 192% = $62.86. Susan will pay a penalty of $62.86 every month on top of all the other premiums she pays for other parts of her health plan.
Creditable Coverage
To avoid accruing the Part D penalty, Medicare says that you have to have "creditable" prescription drug coverage. Creditable means that the coverage you have is equal to or better than the coverage offered by Medicare prescription drug plans. For example, many people have prescription drug coverage through an employer they are still working for, a retirement plan, or the VA, and because of this, they don't accrue a Part D penalty.
We strongly advise getting prescription drug coverage as soon as you are eligible to do so!
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