How to Help Your Clients Calculate their Part D Late Enrollment Penalty
What Is the Medicare Part D Late Enrollment Penalty?
Also referred to as “LEP” or “Penalty”, the late enrollment penalty is an additional cost that may be added to a beneficiary’s monthly premium for Medicare drug coverage (Part D). Someone enrolled in a Medicare plan may be subject to a late enrollment penalty if they are without Part D or other creditable prescription drug coverage for a continuous period of 63 days or more following their Initial Enrollment Period (IEP) for Medicare Part D.
The penalty is commonly added to the beneficiary’s monthly part D premium for however long they have Medicare drug coverage, regardless of whether that person changes their Medicare plan. The penalty amount will change each year and the cost will depend on how long the person went without coverage under a Medicare Part D Prescription Drug Plan or other creditable prescription drug coverage.
Creditable prescription drug coverage (or “creditable coverage”) is comparable coverage to Medicare coverage in that it will pay, on average, at least as much as Medicare’s standard prescription drug coverage. Each year plans that offer prescription drug coverage, like those through employers and unions, are required to send Part D eligible members an annual notice outlining the comparison of their coverage to Medicare coverage, and if it’s classified as creditable coverage.
If a Medicare recipient does not receive a notice, they may need to check for this information in their plan’s benefits handbook. If the recipient doesn’t know if their drug coverage is creditable, they should contact their plan for more information.
How Can an Insurance Agent Help Clients Calculate Their Part D Late Enrollment Penalty?
To help clients figure out what their Penalty will be an Insurance agent will first need to know the national base beneficiary premium (or “base beneficiary premium”) for the plan year. For example, the base beneficiary premium for 2022 is $33.37.
Next, Insurance agents will need to determine if their client had a break in creditable prescription drug coverage and if so how long the break was. Medicare’s systems describe a break in coverage as 63 consecutive days or more a person goes without creditable coverage after first becoming eligible for Medicare Part D. If a break is detected, the number of full uncovered months without Medicare drug coverage or creditable coverage is necessary to calculate the client’s late enrollment penalty.
After finding both the national beneficiary base premium amount and the number of months gone without coverage, the late enrollment penalty is calculated by multiplying 1% of the national base beneficiary premium (or “base beneficiary premium”) by the number of full, uncovered months the individual did not have any type of Medicare drug coverage or other creditable coverage. The monthly penalty amount will be rounded to the nearest $0.10 and added to the monthly Part D premium.
2022 Penalty Calculation Example
The national base beneficiary premium for 2022 is $33.37.
If someone were to go without coverage for 10 months, after becoming eligible for Medicare Part D, 10 would be multiplied by 1% of the $33.37 2022 national base beneficiary premium to get the penalty amount added to the person’s monthly premium.
( 1% x $33.37 national base beneficiary premium ) x 10 months = $3.30 penalty
If someone were to have an $18 monthly premium in this scenario, with the penalty it would be $21.31.
Additional Information About the Part D Late Enrollment Penalty
An individual can be without creditable coverage for up to 63 days in a row after they were first eligible to enroll before becoming subject to a late enrollment penalty.
A beneficiary who qualifies for Extra Help under Part D will not be charged a late enrollment penalty when enrolling in a Medicare Part D Prescription Drug Plan. If someone disenrolls from a plan and goes 63 or more days without creditable coverage, they may be charged a late enrollment penalty if they choose to join a Medicare plan later and have lost eligibility for Extra Help.
A beneficiary may be able to ask Medicare to review its decision, referred to as a “reconsideration”, if they do not agree with the late enrollment penalty. A reconsideration decision will generally occur within 90 days.
A late enrollment penalty cannot be ignored in accordance with Medicare law. The late enrollment penalty is included as part of the premium and Medicare plans may disenroll members who do not pay their premiums including the late enrollment penalty.
The late enrollment penalty is an additional cost that is added onto a beneficiary’s monthly premium for Medicare drug coverage (Part D). The penalty is calculated by multiplying 1% of the national beneficiary base premium by the number of months gone without creditable coverage and rounding to the nearest 10 cents. Learn more about the Initial Enrollment period with our IEP Enrollment Chart.
If you are looking for more information on Medicare Part D or the Part D late enrollment penalty, Agent Pipeline is here to assist you. Give us a call at 866.562.8318 to see how we can help.