The Part D Late Enrollment Penalty is applied whenever a Medicare recipient delays enrollment in a prescription drug plan. If you go without creditable coverage for 63 days (according to Medicare's records) they will send you a late enrollment penalty letter, a reconsideration notice and a reconsideration request form. You can fill out this form and provide copies of written documentation to refute the application of the Part D Penalty. Notice that this is a request. You will only have 60 days to respond and there isn't a second chance to respond or appeal. The documentation that you provide with the request needs to be as clear as possible to increase your chances of having the penalty removed. On average it will take 90 days for you to get a decision and then the amount that you have paid in error will be refunded.
What the Part D Late Enrollment Penalty Will Cost
Currently the Late Enrollment Penalty is 1% per month based on Medicare's base-rate of $32.34 for each month that a person is not enrolled in a Part D Plan. This penalty amount is then rounded to the nearest .10 and is added to the plan's monthly premium. The premium increase is paid every month for the lifetime of the plan and is added on top of regular premium increases. It will change on an annual basis.
The penalty is only applied when you were eligible for coverage. This means that if you were in an institution of any kind or out of the country for a certain period of time, those months can be excluded from the calculated total. If you have either of these situations send in the reconsideration form with documentation explaining why (with proof) and for exactly how many months the penalty has been calculated in error.
An Example of how the Late Enrollment Penalty is Used
Jerry has an Attained-age rated plan and is eligible for a Part D Prescription Drug Plan. He was eligible for a Part D Plan in January 2009. He signs up for a Part D plan in October of 2011. His plan coverage will begin January 1, 2012. So he has a total of 36 months during which time he did not have coverage.
The CMS establishes the national base beneficiary premium rates for every year.
- For 2009 this was: $30.36
- For 2010 this was: $31.94
- For 2011 this was: $32.34
Each year take the 1% calculation:
- For 2009 the monthly penalty is: $0.30
- For 2010 the penalty is $0.32
- For 2011 the penalty is: $0.32
This is the multiplied by the 36 months and rounded to the nearest $.010.
- For 2009: $3.60
- For 2010: $3.84
- For 2011: $3.84
Total: $11.30 per month is Jerry's penalty. This is then added monthly to his premium.
According to the CMS, the national average bid amount for a Part D plan in 2011 is about $87.00
So his yearly premium total with the penalty is: $1,179.60
Without it, it would have been $1,044.00 a difference of $135.60 per year.
Jerry would have spent roughly $2820 in premiums over the last three years if he had signed up. During the 3 years he spent $630 dollars on prescription drugs. In 16 years Jerry will have paid an equal amount in penalty to the amount he has saved by not signing up for Part D when he was eligible. However, if his prescription drug costs had been equal to the premium amounts in ten years he will spend an additional $1350.60 in premiums for signing up late.