What Happens If You Miss Your Deadline for Medicare Part D? - dummies

What Happens If You Miss Your Deadline for Medicare Part D?

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Part D prescription drug coverage is voluntary. But it, too, comes with consequences if you enroll in a Part D drug plan later than you should. If you miss your deadline, both of the following will occur:

  • You won’t be able to enroll in a drug plan until open enrollment, which runs from October 15 to December 7 each year, and your coverage won’t begin until the following January 1.

  • You’ll be penalized for every month that you didn’t have either Part D or alternative creditable coverage after becoming eligible for Medicare at age 65 or through disability at a younger age.

There are two consequences of missing your Part D deadline in more detail.

Being without drug coverage

Pay attention to the fact that, after your personal deadline has expired, your opportunity for getting Part D drug coverage will likely come only once a year — during open enrollment in the fall — and benefits won’t begin until January.

Being without coverage when you need it is the real cost of missing your deadline. Illness and injury can strike out of the blue, without any regard for enrollment periods. If this situation happens, and you suddenly find yourself in need of really expensive drugs when you have no coverage, the damage to your finances and/or your health may be catastrophic.

For example, Michael was diagnosed with cancer in March. The drugs his doctor said would be most effective to treat him cost more than $3,000 a month. Michael, who hadn’t enrolled in Part D but assumed he could join at any time, was shocked to find that he’d have to wait until the late fall to enroll and couldn’t get coverage until January 1. Without Part D he couldn’t afford the drugs his doctor had prescribed.

You may think that this scenario is an off-the-wall example: $3,000 a month? Sadly, many of the newest drugs used to treat the most serious health conditions cost much more — tens of thousands of dollars a month. But even drugs that are older and more reasonably priced ($300 a month, say) may still be too expensive for many people who don’t have insurance.

How Part D late penalties are calculated

The other consequence of enrolling in Part D later than you should is getting penalties that are added to your Part D premiums according to how many months you’ve been without creditable coverage since becoming eligible for Medicare — that is, since turning 65 or starting to receive Medicare benefits due to disability at an earlier age.

The basis of the Part D late penalty is something called the national average premium (NAP). Every fall, Medicare works out the average of all the premiums that Part D plans nationwide will charge during the following year.

This dollar amount becomes the NAP for that next year. If you incur the late penalty, you pay 1 percent of the NAP for every month you were without creditable coverage or Part D. This formula works out at 12 percent a year.

Here’s what else you should know about Part D penalties:

  • They’re permanent. The penalties are added to all future Part D premiums for as long as you’re in the program.

  • The amount represents 1 percent of the NAP in any particular year. So if the NAP goes up or down from year to year, so does the penalty. For example, in 2006, the NAP was $32, but it went down for the next four years, rising again to $32.34 in 2011 and settling back to just over $31 in 2012 and 2013. The penalties changed accordingly.

  • The longer you fail to sign up for Part D when you have no other creditable drug coverage, the more the penalties will mount. In most cases, enrollment can take place only once a year, so every extra year of delay adds a further 12 percent to the penalty.

Check out the following examples to see the math for yourself:

  • Rebecca turned 65 in March 2007. But by the time her personal enrollment period ended at the end of June, she hadn’t signed up for Part D and had no other creditable drug coverage. She did enroll during open enrollment in fall 2007, and her coverage began on January 1, 2008. By then she was six months over her deadline (July through December).

    So her late penalty was 6 percent (1 percent x 6 months) of the NAP. In 2008, the NAP was $27.93, and 1 percent of that amount was 28 cents. So Rebecca’s late penalty in 2008 was calculated at 28 cents multiplied by her six months without coverage, which came to $1.68. Medicare rounds the penalty to the nearest ten cents, so Rebecca actually paid $1.70 a month in 2008, or $20.40 for the whole year, on top of her plan’s premiums.

    By 2013, the NAP had increased to about $31, so in that year her penalty was 31 cents multiplied by six, adding up to an extra $1.90 a month (rounded from $1.86), or $22.80 for the whole year.

  • Brad was 70 years old and already in Medicare when Part D drug coverage began in 2006. Because the program was just starting, the initial enrollment period for that year was extended into May. But Brad had some drug coverage under a Medigap policy and he opted to keep it instead of going to the trouble of grappling with the new Part D.

    By law, this policy could no longer be sold after Part D took effect, and over the years its premiums became ever more costly as the pool of people who had it became ever smaller. Finally, Brad decided to switch to a Part D plan. But because his Medigap policy wasn’t considered creditable coverage, he had to pay late penalties for a total of six years and seven months stretching from June 2006 to December 2012.

    When his Part D coverage began in January 2013, his penalty was calculated at 79 months without coverage multiplied by 31 cents (1 percent of the 2013 NAP). This penalty added an extra $24.50 a month to his Part D plan’s premiums, or an extra $294 over the whole year.

If you receive low-cost Part D drug coverage under the Extra Help program, you won’t pay any late penalties.