Calculating the LEP Medicare Part D

No doubt a very confusing set up, this page will hopefully help clear up just what is going on.

So you're turning 65, and the "Center for Medicare Services" (CMS) indicates you should sign up for Part D, prescription drugs, or else you'll get the "Late Enrollment Penalty" (LEP) if you sign up later. Here's a statement from their literature mailed to people approaching 65 (Welcome to Medicare).

From page 23: "If you don't join a Medicare drug plan when you're first eligible for Medicare, and you go without creditable prescription drug coverage for 63 days or more in a row, you may have to pay a late enrollment penalty to join a plan later. The penalty amount may change every year. In most cases, you will have to pay it as long as you have Medicare prescription drug coverage. You may also have to wait until open enrollment to sign up. Coverage would being January 1 of the next year."

Sounds rather ominous, doesn't it? My employer's "creditable" supplement plan runs $35/month just for me, a retired employee. With my spouse added, that jumps to $569. I have no option to add me but not my spouse. That works out to $6,800/year assuming it doesn't increase. Unless we're taking some expensive drugs, looks like something we should bypass--but what about that LEP?

CMS has a page that talks about the LEP. Here's my interpretation of what it's trying to say.

There's a number out there called the Part D "National Base Beneficiary Premium". The table below shows amounts for recent years.

	2010	2011
Part D National Base Beneficiary Premium	$31.94	$32.34
1% Penalty Calculation	$0.32	$0.33

Here's how it applies. For each month you were eligible for Part D and didn't sign up, but now you do, you take the amount above (when this is written it's 2011) and multiply it by the number of months you skipped.

The table below shows an example if you were eligible for Part D in January of prior years, but didn't sign up until January 2011.

	2007	2008	2009	2010
Monthly Penalty	$15.84	$11.88	$7.92	$3.96

Only CMS can calculate your LEP, so the above numbers can only be classed as estimates.

So if you're healthy should you bypass Part D?

For a simple calculation, say the National Base Beneficiary Premium triples in 10 years, and after 10 years you want in for Part D, you'd be paying $116.43 additional each month. Keeping it simple, assume your Part D plan would've cost you $50 per month on average for the 10 years you skipped, your crossover point is out 51 months or so. You'd be 79 years old. This doesn't count costs for drugs you paid for under either method.

And if you make more than $85K/annually or $170K filing joint? Other rules apply.