You will pay a
Part D late-enrollment penalty in the same way you would pay your Medicare plan's monthly premium (direct-bill or Social Security check deduction), unless your premium and penalty exceeds $300, and then you will be direct-billed by your Medicare plan.
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
2024 Base Beneficiary premium is $34.70 and if you have been without creditable drug coverage for 12 months, your 2024 late-enrollment penalty would be around $4.20 per month (12 x $0.3470).
The plan then bills you for your penalty in the same way as you pay the plan's monthly premium.
Payment by Direct-billingFor 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 deductionIf
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.
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."
Reference:
Medicare Prescription Drug Benefit Manual, Chapter 4 - Creditable Coverage Period Determinations and the Late Enrollment Penalty
Updated: December 21, 2009 (Revised: January 5, 2018)