Thursday, December 20, 2012

Penalty for Delaying Enrollment in Part D

Photo by NVinacco
When beneficiaries new to Medicare investigate Part D prescription drug coverage, some decide to go without that insurance.  Because the premiums for prescription drug coverage average $30 a month, I can see how declining coverage would tempt some beneficiaries.

Those who decline Part D insurance are most often not taking any prescription drugs or they are taking generics that only cost them around $10 a month--even with no insurance.  They say to me, “Why would I pay a premium that cost more than I spend in a month without any insurance?”


However, those beneficiaries who procrastinate enrolling in a prescription drug plan start accruing penalties that they must pay once they decide to sign up for Medicare Part D.  Depending on how long they procrastinate, these penalties can increase to (for example) an additional $4, $25, $60 for each month between eligibility and enrollment. 



The penalty is calculated by multiplying 1% of the national base premium by the number of months of their delay and then rounded to the nearest ten cents. This is not a one-time penalty; this is a lifetime penalty.  When beneficiaries say, "No, thank you," I explain how the penalty is calculated so they can make an informed choice if they initially decline to enroll.


If the beneficiary has credible coverage through an employer, the VA or another program, the penalty does not apply.  But Medicare beneficiaries should confirm that their prescription plan does count as “credible” in order to avoid future penalty.  Some people purchase discount drug plans, but these do not count as insurance; they are more like shoppers club cards.  Before declining to enroll in a Part D plan, ask a SHIP counselor about penalties. Many SHIP counselors work at an Area Agency on Aging office.

Because Medicare Part D is a government-sponsored insurance program, it operates--like any insurance plan--under the concept of pooled risk.   Do auto insurance companies only cover people who regularly get into fender benders?  No.  Auto insurers draw premiums from a variety of drivers, not just those who are accident prone or unlucky. In the same way, Part D policies encourage younger, healthier Medicare beneficiaries to enroll in order to pool risks from a variety of beneficiaries, not just from the oldest and those taking the most medications.

Note: there are some plans with premiums under $20 a month. Also, some beneficiaries qualify for low-income subsidies. If you had extenuating circumstances that led to a delay in enrolling, you can appeal the penalty.

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