What is the Part D late enrollment penalty?

The late enrollment penalty is an amount that is added to a person’s Part D premium. A person enrolled in a Medicare drug plan may owe a late enrollment penalty if one of the following is true:

• He or she didn’t join a Medicare drug plan when first eligible for Medicare Part A and/or Part B, and he or she didn’t have other creditable prescription drug coverage that met Medicare’s minimum standards.
• He or she had a break in Medicare prescription drug coverage or other creditable coverage of at least 63 days in a row.

The late enrollment penalty (also called the “LEP” or “penalty”) is added to the person’s monthly Part D premium for as long as he or she has Medicare prescription drug coverage. This penalty is required by law and is designed to encourage people to join a Medicare drug plan when they’re first eligible or to keep other creditable prescription drug coverage. The late enrollment penalty amount changes every year. The person will have to pay it each month as long as he or she has Medicare prescription drug coverage, even if the person changes his or her Medicare drug plan.

What is creditable prescription drug coverage?

Creditable prescription drug coverage (also called “creditable coverage”) is coverage that meets Medicare’s minimum standards since it’s expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage. Most plans that offer prescription drug coverage, like plans from employers or unions, must send their members an annual notice explaining how their prescription drug coverage compares to Medicare prescription drug coverage and if it’s creditable coverage. If a person with Medicare doesn’t get a separate written notice, the person’s plan may provide this information in its benefits handbook. If the person doesn’t know if the prescription drug coverage he or she has is creditable, the person should contact the plan.

How is a person’s late enrollment penalty calculated?

The late enrollment penalty is calculated by Medicare, not the plan, when a person first joins a Medicare drug plan. Currently, the late enrollment penalty amount is 1% of the national base beneficiary premium (also called “base beneficiary premium”) for each full, uncovered month that the person was eligible to join a Medicare drug plan and didn’t. The monthly penalty is rounded to the nearest $.10. The national base beneficiary premium for 2014 is $32.34.  The national base beneficiary premium for 2015 is $33.13.

[Please note the following annual changes in the Medicare Part D National Base Premium]:

The Part D base beneficiary premium for 2006 was $32.20
The Part D base beneficiary premium for 2007 was $27.35
The Part D base beneficiary premium for 2008 was $27.93
The Part D base beneficiary premium for 2009 was $30.36
The Part D base beneficiary premium for 2010 was $31.94
The Part D base beneficiary premium for 2011 was $32.34
The Part D base beneficiary premium for 2012 was $31.08
The Part D base beneficiary premium for 2013 was $31.17
The Part D base beneficiary premium for 2014 was $32.41
The Part D base beneficiary premium for 2015 was  $33.13
The Part D base beneficiary premium for 2016 was $34.10
The Part D base beneficiary premium for 2017 was $35.63
The Part D base beneficiary premium for 2018 is $35.02

Example 1
Mr. Ray joined a Medicare drug plan before the end of his Part D initial enrollment period in February 2011. However, he disenrolled from that Medicare drug plan effective December 31, 2011. He later joined another Medicare drug plan in December 2013 during the fall Open Enrollment Period and his coverage with his new plan was effective January 1, 2014.

Since leaving his last Medicare drug plan and joining the new Medicare drug plan, there was a period of 24 full months in which he didn’t have other creditable coverage (January 1, 2011—December 31, 2013).  Therefore, effective January 1, 2014, he has to pay 24% (1% for each full, uncovered month that he was without creditable coverage since leaving his first Medicare drug plan and joining his current drug plan) of the base beneficiary premium for 20141 ($43.42). Mr. Ray’s penalty amount is $7.78 each month. Since the monthly penalty is always rounded to the nearest $0.10, he will be charged $7.80 each month in addition to his plan’s monthly premium in 2014.

Here’s the math:
0.24 (24% penalty) x $32.42 (2014 base beneficiary premium) = $7.78
$7.78 rounded to the nearest $0.10 = $7.80
$7.80 = Mr. Ray’s late enrollment penalty for 2014

Example 1 [Older Example]

Mrs. Smith is currently eligible for Medicare, and her initial enrollment period ended on May 15, 2006. She has never had creditable prescription drug coverage from any other source. She didn’t enroll by May 15, 2006. Instead, she enrolled when she was next eligible to join (the fall annual enrollment period between November 15 through December 31, 2006 [now October 15 through December 7]). Her drug coverage was effective January 1, 2007. In 2007, the national base beneficiary premium was $27.35. Since Mrs. Smith was without creditable prescription drug coverage from June through December 2006, her penalty in 2007 was 7% of $27.35 (1% for each of the 7 months from June through December) or $1.91. The monthly penalty was rounded to the nearest $.10, so she was charged $1.90 each month in addition to her plan’s monthly premium in 2007.

Each year, Mrs. Smith’s penalty will change since the current year’s national base beneficiary premium is used to recalculate the penalty. In 2009, Mrs. Smith will pay 7% of $30.36 or$2.13. This amount is rounded to the nearest $.10, so she will be charged $2.10 each month in addition to her plan’s monthly premium in 2009.

The base beneficiary premium will change each year. This means that each year Medicare will use the current coverage year’s amount to recalculate a person’s penalty to determine the new amount. In 2014, the base beneficiary premium was $32.42. In 2015, the base beneficiary premium will be $33.13.

Example 2

Mrs. Martinez is currently eligible for Medicare, and her initial enrollment period ended on May 15, 2010. She doesn’t have prescription drug coverage from any other source. She didn’t join by May 15, 2010 and instead joined during the fall Open Enrollment Period that ended December 31, 2012. Her drug coverage was effective January 1, 2013.

2013
Since Mrs. Martinez was without creditable prescription drug coverage from June 2010 until December 2012, her penalty in 2013 was 31% (1% for each of the 31 months) of $31.17 (the national base beneficiary premium for 2013) or $9.66. The monthly penalty was already rounded to the nearest $.10, so she was charged $9.70 each month in addition to her plan’s monthly premium in 2013.

Here’s the math:
0.31 (31% penalty) x $31.17 (2013 base beneficiary premium) = $9.66
$9.66 rounded to the nearest $0.10 = $9.70
$9.70 = Mrs. Martinez’s late enrollment penalty for 2013

2014
In 2014, Medicare recalculated Mrs. Martinez’s penalty using the 2014 base beneficiary premium ($32.42). Therefore, Mrs. Martinez’s new monthly penalty in 2014 is 31% of $32.42 or $10.05 each month. Since the monthly penalty is always rounded to the nearest $0.10, she will be charged $10.10 each month in addition to her plan’s monthly premium.

Here’s the math:
0.31 (31% penalty) x $32.42 (2014 base beneficiary premium) =$10.05
$10.05 rounded to the nearest $0.10= $10.100
$10.10 = Mrs. Martinez’s late enrollment penalty for 2014

Example 2 [Older Example]
Mr. Ray doesn’t have creditable prescription drug coverage. His initial enrollment period ended on May 15, 2006. He waited to join a Medicare drug plan until December 2008. His coverage was effective January 1, 2009. He wasn’t enrolled for 7 months in 2006 (June through December), all 12 months in 2007, and all 12 months in 2008. In 2009, he will have to pay 31% (1% for each full, uncovered month that he was eligible to enroll in a Medicare drug plan but didn’t) of the national base beneficiary premium for 2009 ($30.36). Mr. Ray will be charged $9.40 ($9.41rounded to the nearest $.10) each month in addition to his plan’s monthly premium. This amount will change each year when the national base beneficiary premium changes.

In general, once a person’s penalty amount is determined by Medicare, the person will continue to owe a penalty for as long as he or she is enrolled in a Medicare drug plan. This means that even if the person decides to join another Medicare drug plan, he or she will still have to pay a penalty when they join a new plan. This also means that if a person joins a plan that has a $0 monthly premium [such as with a Medicare Advantage plan that also offers prescription drug coverage], he or she will still owe a penalty.

If Medicare’s systems show that a person has a break in creditable coverage, will the person have an opportunity to tell the plan about his or her prior drug coverage?

Yes.  When a person joins a Medicare drug plan, the plan will review Medicare’s systems to see if the person had a break in creditable coverage for 63 days or more. If so, the Medicare drug plan will send the person a notice asking for information about prior prescription drug coverage. This notice is called the “Declaration of Prior Prescription Drug Coverage.” It’s very important that the person completes this form and returns it by the date stated on the form, because this is the person’s chance to let the plan know about prior coverage that might not be in Medicare’s system. The person can also send any proof of his or her prior coverage, like a copy of the “Notice of Creditable Prescription Drug Coverage” from an employer or union plan. If the plan allows the person to provide this information over the phone instead, he or she must do so by the date stated on the form.

The information provided to the plan will help the plan tell Medicare whether there was a gap of 63 days or more in creditable coverage. If the person doesn’t provide this information to the plan by the date stated on the form, the plan will tell Medicare how many full, uncovered months the person was eligible to join a Medicare drug plan and didn’t [join a plan]. Then Medicare, not the plan, will determine the penalty amount using the calculation method described above.

Do some people have a special opportunity to join a Medicare drug plan without having to pay a late enrollment penalty?

Yes. Certain people who qualify for extra help under Part D may enroll in a Medicare prescription drug plan with no penalty. Once they enroll in a Medicare drug plan, they won’t be charged a late enrollment penalty as long as they stay continuously enrolled in a Medicare drug plan. However, if they disenroll from their Medicare drug plan, and don’t have creditable prescription drug coverage for a continuous period of 63 days or more, they may later be charged a late enrollment penalty if they join a Medicare drug plan.

For example, back in 2006, Medicare didn't collect a late enrollment penalty for certain people affected by Hurricane Katrina who enrolled in a Medicare drug plan. As long as they stay continuously enrolled in a Medicare drug plan, they were not charged a late enrollment penalty. However, if they disenrolled from their Medicare drug plan, and didn’t have creditable prescription drug coverage for a continuous period of 63 days or more, they may have been charged a late enrollment penalty if they later joined another Medicare drug plan.

Is there a late enrollment penalty if a person waits 1 month after he or she was first eligible to enroll in a Medicare drug plan?   (or will someone who didn’t enroll in a plan until one month after he or she was first eligible to join have a penalty?)

No. A person must be without creditable prescription drug coverage for a continuous period of 63 days or more after their initial enrollment period to be charged a late enrollment penalty.  Since the person only had 1 month without coverage, he or she wouldn’t have to pay a penalty.

[Please note that, after the initial enrollment period, most people won’t have another opportunity to enroll in a Medicare Part D drug plan until October 15 through December 7 each year during the annual Open Enrollment Period, with their Part D coverage effective January 1st of the following year.

Are there some situations when a person could enroll in a Medicare drug plan other than October15 through December 7 each year?

Yes. In certain situations, people with Medicare may be eligible for a special enrollment period that allows them to make changes to their Medicare drug coverage outside of general enrollment periods (like if the person moves out of the service area or lives in a nursing home).  However, even if the person enrolls during an SEP, they may still owe a penalty. For more information about general and special enrollment periods, visit www.cms.hhs.gov/partnerships/ downloads/ 11219_P.pdf to view the tip sheet “Information Partners Can Use on: Understanding Medicare Enrollment Periods” (CMS Publication No. 11219-P).

Is there a late enrollment penalty if a person gets Extra Help and had a break in [prescription drug] coverage?

Anyone who qualifies for Extra Help under Medicare Part D may join a Medicare drug plan with no penalty. If the person disenrolls from his or her Medicare drug plan and goes at least 63 days without other creditable coverage, he or she may be charged a late enrollment penalty if the person later joins a Medicare drug plan and isn’t eligible for Extra Help. However, any uncovered months from before the person became eligible for Extra Help won’t be counted in determining the person’s late enrollment penalty.

Example 3
Mrs. Kim didn’t join a Medicare drug plan before her initial enrollment period ended in July 2012. In December 2012, she enrolled in a Medicare drug plan (effective January 1, 2013). She qualified for Extra Help, so she wasn’t charged a late enrollment penalty for the uncovered months in 2012.  However, Mrs. Kim disenrolled from her Medicare drug plan effective June 30, 2013. She later joined another Medicare drug plan in December 2013 during the fall Open Enrollment Period, and her coverage with the new plan was effective January 1, 2014. She didn’t qualify for Extra Help when she enrolled in December 2013.

Since leaving her first Medicare drug plan in June 2013 and joining the new Medicare drug plan in December 2013, there was a period of 6 full months in which she didn’t have other creditable prescription coverage (July 1, 2013 through December 31, 2013). Therefore, effective January 1, 2011, she has to pay 6% of the base beneficiary premium for 2011 (1% for each full, uncovered month that she was without creditable coverage since leaving her first Medicare drug plan and joining her current drug plan). The uncovered months from 2012, before Mrs. Kim became eligible for Extra Help, aren’t counted in determining her late enrollment penalty. The base beneficiary premium for 2014 is $32.42, so Mrs. Kim's penalty amount is $1.95 each month. Since the monthly penalty is always rounded to the nearest $0.10, she will be charged $2.00 each month in addition to her plan’s monthly premium in 2014.

Here’s the math:
0.06 (6% penalty) x $32.42 (2014 base beneficiary premium) = $1.95
$1.95 rounded to the nearest $0.10 = $2.00
$2.00 = Mrs. Kim's late enrollment penalty for 2014

Example 3 [Older Example]
Mrs. Jones moved into a nursing home and, therefore, had a special opportunity to enroll in a Medicare drug plan for coverage effective October 1, 2007. However, she didn’t have creditable prescription drug coverage for the months February through September 2007 and had to pay a late enrollment penalty. Since the national base beneficiary premium in 2007 was $27.35, her penalty in 2007 was $2.20 per month (or 8% of $27.35, rounded to the nearest $.10). Each year, the current year’s national base beneficiary premium is used to recalculate the penalty.  In 2009, Mrs. Jones will pay $2.40 per month (8% of $30.36, rounded to the nearest $.10). She will pay this penalty in addition to her plan premium each month.

What if a person doesn’t agree with the late enrollment penalty?

If a person doesn’t agree with the late enrollment penalty, he or she may be able to ask Medicare to review its decision. This is called a “reconsideration.” The person’s drug plan will send information about how to request a reconsideration, including a “Late Enrollment Penalty Reconsideration Request Form.” The form lists the reasons a person can ask for and get a review of his or her case. If the person wants a review of his or her case, the person should complete the form and return it to the address or fax number listed on the form, and a Medicare contractor will review the case.

The form must be mailed or faxed within 60 days from the date on the letter stating that the person had to pay a late enrollment penalty. The person should also send any proof that supports his or her case, such as information about previous creditable coverage. For example, if the person had drug coverage from an employer or union plan, he or she may provide a copy of the “Notice of Creditable Prescription Drug Coverage” from the employer or union plan.

Can a person who doesn’t agree with the late enrollment penalty pay only the premium and ignore the penalty?

No.  According to Medicare law, the late enrollment penalty is part of the premium, so a person who has a penalty must pay it with the premium. A person with a penalty must also pay the penalty even if he or she asked Medicare’s contractor to review its decision.  Some Medicare drug plans have a policy to disenroll members who don’t pay their premiums. These plans can disenroll a person if they don’t pay the late enrollment penalty portion of the premium.

How soon will a person get a reconsideration decision?

In general, reconsideration decisions are made within 90 days. Medicare’s contractor will try to make a decision as quickly as possible. However, because of the large number of requests being filed and the time required to get information to verify whether a person had prior creditable coverage, it may take longer for a person’s case to be resolved.

What happens if the late enrollment penalty reconsideration decision is favorable?

If Medicare’s contractor reviews a case and decides that the late enrollment penalty is wrong, in whole or in part, the Medicare contractor will send the person and his or her Medicare Part D drug plan a letter explaining its decision. The Medicare drug plan will remove or reduce the late enrollment penalty and will send the person a letter that shows the correct premium amount and explains whether there will be a refund.

What happens if the late enrollment penalty reconsideration decision is unfavorable?

If Medicare’s contractor reviews a case and decides that the late enrollment penalty is correct, the person will get a letter explaining the decision, and the person must pay the penalty.


[highlighting, comments, and updated premium information added throughout]

TIP SHEET
Information Partners Can Use on:
Calculating the Late Enrollment Penalty
Medicare Prescription Drug Coverage As of January 2014
CMS Publication No. 11222-P

(Updated Tuesday 07.31.2014)

See Late Enrollment Penalty (LEP) Calculation TIP Sheets from other years in our FAQ:
How do I calculate my Medicare Part D Late Enrollment Penalty?