What is the Medicare Part D late enrollment penalty?

Medicare Part D prescription drug insurance is optional.

People who enroll when first eligible for coverage will pay less than someone who waits to enroll unless they have other drug coverage as good as Part D (known as “credible coverage”).

If you enroll in a Part D drug plan after your initial enrollment period and you have gone without credible coverage for at least 63 days, you will pay a penalty.

How the enrollment penalty is calculated

The Part D late enrollment penalty is equal to one percent of the national average drug plan premium for each month you delayed your enrollment (about 33 cents each month).

Here is an example.

Let’s assume you delayed your drug plan enrollment for 18 months after your initial Part D enrollment period, at which time you join a plan. You would pay a $5.94 penalty every month in addition to what you’d normally pay for your coverage.

The late enrollment penalty is automatically added to your monthly drug plan premium. You pay the penalty and premium to your insurance company. Your drug plan does not keep the penalty; they forward it to Medicare on your behalf.

The longer you go without credible drug coverage, the bigger the penalty if you choose to join a Part D plan later. And if you are subject to a penalty, it never goes away.

Medicare's definition of credible coverage

To count as being credible, a person's prescription drug coverage must be as good or better than Medicare Part D, which Medicare defines as paying on average as much as a standard Part D drug plan.

Veterans Affairs (VA) and many job-based or retiree health insurance plans count as credible coverage.

Prescription drug savings cards and programs (like GoodRx) are not considered credible drug coverage by Medicare.