Part D late penalty could get you if enrolling after age 65

Part D can catch you off guard if you work past 65. Even with employer health care coverage, some people still end up having to pay Part D late enrollment penalties. Let’s look at a scenario to help us understand why.

Meet Mike. He’s just retired from work and is getting ready to enroll in Medicare at age 68.

Mike already has Medicare Part A (hospital insurance). He signed up for premium-free Part A when he first became eligible for Medicare at age 65. He didn’t get full Medicare coverage yet because he was still working and had employer health coverage. Mike’s plan benefits manager at work confirmed that Mike had creditable coverage and would qualify for a Medicare Special Enrollment Period when he retired and his employer coverage ended. He was told he could get additional Medicare coverage then.

Now, Mike is at the start of his 8-month Special Enrollment Period. He has to complete his Medicare enrollment during this time or else he could face late enrollment penalties.

Mike enrolls in Medicare Part B (medical insurance) right away and then starts shopping for a Part D prescription drug plan. He compares Part D and Medicare Advantage plans, finally chooses a plan. Mike is now in month 5 of his Special Enrollment Period.

Mike goes to enroll in the Part D plan. He feels satisfied and relieved that he’s taken care of his Medicare coverage within his 8-month enrollment period limit.

But, soon after enrolling, Mike faces an unpleasant surprise. He is shocked to hear that he will be charged a Part D late enrollment penalty that he will have to pay every month for as long as he has Part D.

What happened? Let’s find out.

Medicare offers qualified individuals who work past age 65 an 8-month Special Enrollment Period for Part B – and for Part A if not already enrolled – but Part D has its own rule. 

With Part D, you only have about the first two months (63 days to be exact) after losing employer coverage to get Part D coverage without penalty. The short timeframe is due to a Medicare rule that says you can’t go more than 63 days without Part D or creditable drug coverage after you are enrolled in Part A and/or Part B. This means, that if you want to get a Part D plan or a Medicare Advantage plan with drug coverage, you have to enroll within two months of your Special Enrollment Period beginning. See a helpful visual below.

This is an important detail that often catches people off guard.

So with this rule in mind, let’s look at Mike’s situation again.

• Mike already has Part A.
• Mike’s employer plan satisfied the creditable coverage requirement.
• Mike enrolled in Part B immediately.
• He waited 5 months to get Part D.

So why is Mike having to pay the Part D late enrollment penalty? Mike is faced with the penalty because he did not enroll in Part D coverage within the 63-day timeframe (first two months) required by the unique Medicare Part D rule. He should have shopped for a plan earlier.

Now, let’s look at something we mentioned above – the creditable coverage requirement. What does that mean and why is it important?

Medicare has another rule when it comes to Part D. Let’s look at the following situation as an example.

Kate works for an employer with 500 employees. She has health care from her employer including prescription drug coverage. When Kate turns 65, she decides to delay Medicare believing she’s qualified to do so because her employer meets the “20 or more employees” rule. Kate doesn’t ask her employer if her health plan’s prescription drug coverage is considered creditable.

Fast forward five years. Kate, now 70, retires and enrolls in Medicare Parts A, B and D within 30 days of leaving her job. But, she is soon surprised to learn she must pay the Part D late enrollment penalty. When she asks why, Kate is informed that her employer’s drug coverage was not considered creditable.

This is where the rule of creditable coverage comes in.

Medicare has a rule that your employer drug coverage must be considered creditable in order to delay Part D enrollment without penalty. This means that the employer drug coverage must be as good as or better than Medicare Part D.

Thus, because Kate did not actually have creditable coverage, even though she had health care through an employer with 20 or more employees, she now has to pay the Part D penalty.

This happens a lot, so if you are planning to work past 65 and delay Medicare, make sure to first check with your employer that your health coverage is considered creditable. You should do this each year you delay Medicare. Employer and union health plans are required to provide a notice of creditable drug coverage each fall to plan members who are working and eligible for Medicare. Ask your plan administrator for a copy if you did not get a notice in the mail. Keep the document with your important papers. You may need it if you decide to enroll in a Part D plan when you retire.

Don’t get caught off guard by Part D like Mike or Kate. Keep these three tips in mind to avoid the Part D late enrollment penalty.

1. Make sure that your employer coverage is considered creditable and get a notice of creditable coverage from your employer. 
2. Know your Special Enrollment Period dates and clearly mark your calendar for when you must enroll in Parts A, B, C and/or D by. 
3. Start research your Medicare options before your Special Enrollment Period begins.

As a final note, if you are confused or worried about your options, it’s always a good idea to talk to employer’s benefits administrator when you become Medicare eligible.