As background, if you are a Medicare beneficiary (eligible for Medicare Part A and/or Medicare Part B) - and without some form of "creditable" prescription drug coverage for a continuous period of 63 days or more after the end of your Medicare Part D drug plan Initial Enrollment Period - you may* incur a Part D late-enrollment penalty (LEP) that you will pay along with your monthly premium should you ever decide to join a Medicare drug plan (Medicare Part D PDP or Medicare Advantage MAPD).
(*You will not incur a late-enrollment penalty if you are eligible for Medicare Part D Extra Help program or the Low-Income Subsidy.)
So, when you join a Medicare Part D drug plan, the Medicare plan sponsor will determine if you have had any lapses in creditable drug coverage of 63 days or more. The plan then reports the number of months that you were without creditable drug coverage to the Centers for Medicare and Medicaid Services (CMS) and CMS then computes the amount of your LEP and reports this penalty amount back to the plan.
Your late-enrollment penalty is calculated as (the number of months without creditable drug coverage) * (1% of the annual national Part D Base Beneficiary premium). For example, the 2026 Base Beneficiary premium is $38.99 and if you have been without creditable drug coverage for 12 months, your 2026 late-enrollment penalty would be around $4.70 per month (12 x $0.3899).
The plan then bills you for your penalty in the same way as you pay the plan's monthly premium.
Payment by Direct-billing
For example, if you have chosen for your Medicare plan to bill you directly for your Medicare plan premiums, you may get a letter from your plan explaining your late-enrollment penalty and your rights regarding your LEP, finally noting: "Your premium bill will reflect this new amount [based on your calculated penalty]."
Payment by Social Security check deduction
If you have chosen to have your monthly Medicare plan premiums withheld from your Social Security check, your plan's letter may note: "We’ll continue to deduct your future monthly premium amount (including the monthly [Part D] late enrollment penalty amount) from your Social Security check."
When Social Security check deductions exceed $300.
However, if your monthly Medicare plan premium deduction exceeds $300, your Social Security deduction (or withholding status) will be changed to "direct-bill" status - meaning if your total premium is over $300, you will no longer to use automatic Social Security deductions to pay your monthly plan premiums.
The Medicare Manuals notes:
"The Part D plan sponsor shall not bill members who are in premium withhold status, but shall notify the member of the LEP amount, in accordance with §50 of this chapter. The Social Security Administration (SSA) will take the necessary actions to collect the LEP amount from the member who has elected the SSA premium withhold option. SSA accomplishes this by increasing the withhold amount by the amount of the LEP, unless this would cause the total amount to be withheld to exceed $300.00.Reference:
When a beneficiary’s LEP increases retroactively, causing the current month’s premium amount to exceed $300.00, the sponsor will direct-bill the retroactive [one-time, lump-sum] LEP amount. When the retroactive LEP amount is billed in a lump sum, the beneficiary will have the option of paying it over time, as outlined in 42 CFR 423.293 (a)(4).
If the beneficiary’s prospective monthly premium amount remains at or below $300.00, he or she will remain in SSA withhold status. Alternatively, if the beneficiary’s prospective monthly premium is above $300.00, he or she will be changed to direct-bill status."
Medicare Prescription Drug Benefit Manual, Chapter 4 - Creditable Coverage Period Determinations and the Late Enrollment Penalty
Updated: December 21, 2009 (Revised: January 5, 2018)