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When you purchase a Medicare Supplement you also need to purchase a Medicare Part D prescription drug plan. Some people maybe under the impression that if they are not taking any prescription drugs, they do not need a prescription drug plan. Unfortunately, that is not the case.

The late enrollment penalty is an amount added to your Medicare Part D monthly premium.

You may owe a late enrollment penalty if you go without a Medicare Prescription Drug Plan, or without a Medicare Advantage Plan (Part C) or other Medicare health plan that offers Medicare prescription drug coverage, or without creditable prescription drug coverage (for example, from an employer, union or VA) for any continuous period of 63 days or more after your initial enrollment period is over.

The amount of the Part D late enrollment penalty will depend on how long you went without Part D drug coverage or other creditable coverage.

Medicare calculates the penalty by taking 1% of the “national base beneficiary premium,” which for 2016 is $34.10.  Medicare then multiplies that number by the number of months you didn’t have Part D or creditable coverage. That amount is then rounded to the nearest $.10 and added to your monthly Part D premium.

The national base beneficiary premium may increase each year, so your penalty amount may also increase each year.

Example

If you are without a prescription drug plan for 14 months, then Medicare will add a penalty of 14% of the national average premium to your drug plan monthly premium.

Here is the math:

.14 (14% penalty) x 34.10 (2016 average premium) = $4.77

$4.77 rounded to the nearest $0.10 = $4.80

You purchase a drug plan that has an $18.40 monthly premium; your adjusted monthly premium will be $23.20

$18.40 (plan monthly premium) + $4.80 (late enrollment penalty) = $23.20

Once Medicare determines a person’s penalty amount, the person will continue to pay the penalty for as long as he or she is enrolled in a Medicare drug plan.