How to avoid paying more for prescription drug coverage

Published by Medicare Made Clear®

If you’ve got a chronic condition that requires a lot of medication, chances are you’ve got your eyes on Medicare prescription drug coverage – either a stand-alone Part D plan or a Medicare Advantage plan. If you’re in tip-top shape and don’t take a single pill, what’s the point in getting Medicare Part D? Well when it comes to prescription drug coverage and Medicare, if you don’t sign up when you’re first eligible, you could pay more down the road through penalties.

Let’s quickly look at what the Part D penalty is, and then talk about when you need to get Part D to avoid it and what your options are for coverage.

The Part D penalty

Regardless of if you choose a stand-alone Part D plan or a Medicare Advantage plan that includes prescription drug coverage, the Part D penalty is 1% of the average Part D premium. 

The way the penalty is calculated is based on a few factors. The formula includes the current average Part D premium, the amount of time you are late and a fixed percentage. The penalty is 1 percent of the average Part D premium for each month past your eligibility date. 

You pay this amount on top of your monthly plan premium, and you pay 1% for every month you delay enrolling. For example, if you delayed enrolling for 10 months you’d pay an extra 10% of the average Part D premium on top of your prescription drug plan premium.

You pay the Part D penalty as long as you have Medicare prescription drug coverage (with either a Part D or a Medicare Advantage plan).

You can learn more about the Part D late enrollment penalty here, and if you’re unsure whether or not you may need to enroll immediately when you turn 65 or if you can delay, it’s always best to talk with Medicare directly.

When should you get Part D to avoid the penalty?

The simple answer is that most people should get Medicare Part D coverage during their Medicare Initial Enrollment Period.

The more complicated answer is that if you have creditable drug coverage through an employer or qualify for Extra Help, you may delay without penalty. If you have creditable coverage with an employer, you’ll get a Special Enrollment Period and will need to enroll in Part D within 63 days of losing your creditable coverage.

Quickly understanding creditable coverage

What are those minimum standards for creditable prescription coverage? Creditable coverage means that the coverage is expected to pay on average as much as the standard Medicare prescription drug coverage.

If you have drug coverage through a group plan, that plan is required to tell you if your coverage is considered creditable. Medicare requires your plan to send you this information at least once a year. It may come in a standalone notice or in a letter or newsletter. Keep this information; you might need to provide it when you sign up for a Medicare drug plan later.

Your options for Medicare Part D

You can get Part D in two different ways – a stand-alone part D plan or a Medicare Advantage plan that includes prescription coverage.

If you want a stand-alone Part D plan, you need to have Medicare Part A and/or Part B first. A Part D plan can be paired with Original Medicare (Parts A & B) and some Medicare Advantage plans, as well as other supplemental plans.

If you want a Medicare Advantage plan that includes prescription drug coverage, you will need to have both Medicare Part A and Part B first. Medicare Advantage plans with included drug coverage are known as MAPD plans. They are all-in-one plans that include Part A, Part B and Part D coverage as well as often also covering other health benefits such as dental or vision.

No matter what you decide, the bottom line is to know when you need to enroll. Again, if you have drug coverage that meets Medicare’s minimum standards you won’t pay a penalty for not signing up for Part D when you become eligible. If you don’t, you need to enroll in either a stand-alone Part D plan or a Medicare Advantage plan with drug coverage during your Initial Enrollment Period. A final reminder: people who qualify for Extra Help, a Social Security program for people with limited resources and income, will not be penalized.

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