What is Medicare Part D?
Medicare Part D is the Medicare prescription drug benefit. It is an optional program to help seniors pay for self-administered, over the counter, prescription drugs. This coverage is available in different way. It can be purchased as a stand-alone Medicare drug plan (usually to go along with Original Medicare or a Medigap plan) or your Part D coverage is included as part of an Advantage plan. The drug coverages all work using the same basic stages of coverage because all Part D drug plans are built on a standard platform overseen by CMS (the Centers for Medicare and Medicaid services). The difference in the plans is in the list of covered drugs and the drug tiers the drugs falls under in the formulary, drug co-pays, and the plan’s premium cost. But all plans must cover at least 2 drugs in the most commonly prescribed categories and classes.
What is a Part D Late Enrollment Penalty (LEP)?
Part D coverage is said to be optional, however if you do not sign up when you are first eligible or when your credible drug coverage ends, and you decide to sign up later, you will pay a higher price each month for your coverage going forward. The increased price you would pay under these circumstances is referred to as a Part D Late Enrollment Penalty. The amount of the Penalty is 1% of the cost of the national base plan, which equals to around a .33 cent penalty (this amount varies based on the annual national average price), for each month you went without credible drug coverage. That penalty follows you for as long as you keep a Part D drug plan.
Here is an example on how the Medicare Part D penalty works:
For example, if you turned 65 and became Medicare Eligible on February 1st, and your previous qualified health insurance ended on January 31st, your creditable drug coverage would end on February 1st. And you decide not to purchase a Part D plan because you do not take any prescription drugs, or you only take a cheap drug. But then 18 months later you need to start taking an expensive drug. You will not have any coverage to help pay for that drug, even if you decided that you wanted to purchase a drug plan, until the follow January. That is because you will not be able to sign up for a Part D drug plan until the following Open Enrollment period, which is October 15-December 7th of each year and has an effective date of the following January 1st. Then because you went 23 months without a creditable drug plan you would pay a penalty somewhere around .33 cents a month for each month you went without drug coverage, .33 cents x 23 months = $7.59 a month. You will pay that increased amount, plus the cost of the drug plan monthly premium, for the rest of your life (or as long as you keep a drug plan). I find that most people in Georgia can find a suitable Part D drug plan for under $30 a month, so percentage wise, that is quiet a large penalty. Plus, the monthly cost incurred of going without insurance coverage to help pay for the high cost drug used in my example.
Group Health Insurance vs Medicare Part D
Something else people do not realize when they leave employer group coverage is that a Medicare Part D drug plan does not always pay as well for their prescriptions as their past group health plan did. This is true whether you are getting your Part D coverage in the form of a stand-alone Medicare drug plan (usually to go along with Original Medicare or a Medigap plan) or your Part D coverage is included as part of an Advantage plan.