Part B Late Enrollment Penalty

What’s the Part D late enrollment penalty?

The late enrollment penalty (also called the “LEP” or “penalty”) is an amount that may be added to a person’s monthly premium for Medicare drug coverage (Part D). A person enrolled in a Medicare plan may owe a late enrollment penalty
if they go without Part D or other creditable prescription drug coverage for any continuous period of 63 days or more after the end of their Initial Enrollment Period for Part D coverage.

Generally, the late enrollment penalty is added to the person’s monthly Part D premium for as long as they have Medicare drug coverage, even if the person changes their Medicare plan. The late enrollment penalty amount
changes each year. The cost of the late enrollment penalty depends on how long the person went without Part D or other creditable prescription drug coverage.

What’s creditable prescription drug coverage?

Creditable prescription drug coverage (also called “creditable coverage”) is coverage that’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 Part D eligible members a yearly notice explaining how their drug coverage compares to Medicare 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 drug coverage, they have is creditable, they should contact the plan.

How’s the late enrollment penalty calculated?

Medicare, not the plan, calculates the late enrollment penalty when a person subject to the penalty first gets Medicare drug coverage (Part D). The late enrollment penalty amount typically is 1% of the “national base beneficiary premium” (also called the base beneficiary premium) for each full, uncovered month that the person didn’t have Medicare drug
coverage or other creditable coverage. The national base beneficiary premium for 2022 will be $33.37. The monthly penalty is rounded to the nearest $0.10 and added to the monthly Part D premium.

Example

Mr. Ray joined a Medicare plan before the end of his Part D Initial Enrollment Period in February 2019. However, he disenrolled from that Medicare plan effective December 31, 2019.

If he later joins another Medicare plan in Fall 2021 during the Open Enrollment Period, his coverage with his new plan will be effective January 1, 2022. Between leaving his last Medicare plan and joining the new Medicare plan, there will be a period of 24 full months in which he didn’t have creditable coverage (January 1, 2020–December 31, 2021).

So, starting January 1, 2022, he must pay 24% (1% for each full, uncovered month that he was without creditable prescription drug coverage since leaving his first Medicare plan and joining his current plan) of the base beneficiary premium for 2022 ($33.37). Mr. Ray’s penalty amount is $8.01 each month. Since the monthly penalty is always rounded to the nearest $0.10, he’ll pay $8.00 each month in addition to his plan’s monthly premium in 2022.

Here’s the math:

.24 (24% penalty) x $33.37 (2022 base beneficiary premium) = $8.01
$8.01 rounded to the nearest $0.10 = $8.00
$8.00 = Mr. Ray’s monthly late enrollment penalty

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