The truth about paying the Medicare Part D penalty

During a recent workshop with seniors at my church, a debate broke out concerning Medicare Part D.

That’s the program that helps pay for prescription drugs. Medicare offers the coverage to all enrollees, and if you elect to get it, you pay a monthly premium.

If you do not sign up for Part D when you’re first eligible for Medicare Part A and/or Part B, and you didn’t have prescription drug coverage that met Medicare’s minimum standard, you may have to pay a late enrollment penalty if you eventually decide to join the plan.

Some of the seniors, concerned about facing that penalty, said they had enrolled in Part D even though they already had drug coverage as part of another plan, some with their former employers.

“I’m not going to pay a penalty,” one woman argued, with several others agreeing with her.

But another senior tried to tell her that she wouldn’t face a penalty if she later needed Part D. He was right: You don’t incur a late penalty if you opt out of getting Plan D because you already have creditable prescription coverage or if you participate in the government program called Extra Help. (This is a Medicare program that assists people with limited incomes and financial resources to pay for their prescriptions.)

The key word here is “creditable,” which means that your plan’s coverage is expected to pay on average as much as the standard Medicare prescription drug coverage. If you have drug coverage from an employer, union or other group health plan, you should get a notice every year letting you know whether your drug coverage is creditable.

“Keep that letter in a safe spot,” said Nicole Duritz, AARP’s vice president for health, education and outreach. “It can be difficult to get a copy of the letter if the business that was covering you closes down.”

The bottom line is if you have creditable prescription coverage, you don’t need to double up on coverage by signing up for Plan D out of fear you’ll get hit with a penalty, Duritz said.

The late enrollment penalty is calculated by figuring 1 percent for every full month that you were eligible but went without Plan D and didn’t have other creditable coverage. That total percentage is then multiplied by what’s called called the “national base beneficiary premium,” which for 2014 is $32.42. The resulting amount is rounded to the nearest 10 cents and added to your monthly premium.

Medicare.gov gives an example of how the penalty is imposed. Let’s say you didn’t join a prescription drug plan when you became eligible by June 2011. You didn’t have any other creditable prescription coverage. You decide to join a plan this year during the open enrollment, which runs until Dec. 7. Your coverage would then begin on Jan. 1.

Your penalty in 2014 is 30 percent (1 percent for each of the 30 months between July 2011 and December 2013) of $32.42 (the national base beneficiary premium for 2014), which is $9.73. The penalty is rounded to $9.70, which you’ll pay along with your premium each month. The late enrollment penalty is added to your monthly Part D premium for as long as you have Medicare prescription drug coverage.

You may decide not sign up because you aren’t taking medication. Although you save now, weigh that against a future penalty and whether you can afford it.

Let’s say you lose your creditable prescription coverage and want to enroll in Plan D. Don’t panic, but you do have to act fast. You have a small window to sign up. Be sure you don’t have a break in creditable coverage for 63 days or more.

That’s because when you join a Medicare drug plan, the plan will review Medicare’s systems to see you had a break in creditable coverage. If there is a break, the plan will send you a notice asking for proof of prior prescription drug coverage. This is an important form and should be returned by the deadline date because it’s your opportunity to let the plan know about prior coverage that might not be in Medicare’s systems.

If you have concerns about Part D, go www.Medicare.gov or call (800) 633-4227. You can also talk to a counselor in your state who can help you get the answers you need through the State Health Insurance Counseling Assistance Program (SHIP). You can also call (800) 633-4227 to find the number of the SHIP in your state.

Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.