Calculating the Late Enrollment Penalty for Medicare Part D
No doubt a very confusing set up, this page will hopefully help clear up just what is going on.
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 Medicare recipients fall 2014(Medicare and You 2015).
| From page 104: "The late enrollment penalty is an amount that's added to your Part D premium. You may owe a late enrollment penalty if at any time after your Initial Enrollment Period is over, there's a period of 63 or more days in a row when you don't have Part D or other creditable prescription drug coverage. |
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. What counts is the one for next year.
| 2010 | 2011 | 2012 | 2013 | 2014 | |
| Part D National Base Beneficiary Premium | $31.94 | $32.34 | $31.08 | $31.17 | $32.42 |
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 1 % of the amount above (when this is written it's open period for 2014) and multiply it by the number of months you skipped, then rounded to the nearest $.10.
The table below shows an example if you were eligible for Part D in January of prior years, but didn't sign up until the 2013 open enrollment period (Nov.- Dec. 7, 2013) for coverage that begins in January 2014.
| 20109 | 2011 | 2012 | 2013 | |
|---|---|---|---|---|
| Months Late | 48 | 36 | 24 | 12 |
| Monthly Penalty | $15.56 | $11.70 | $7.80 | $3.90 |
So the applicable monthly penalty above will be added to whatever program you have for Part D prescription coverage. 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 doubles in 10 years to $64.84, and after 10 years of being eligible, you want in for Part D, your penalty would be $116.70 additional each month. Keeping it simple, assume your Part D plan would've cost you $48.63 per month on average for the 10 years you skipped (halfway between $32.42 and $64.84)(total $8,753). Your crossover point is out 75 months or so (i.e. you'd be saving by delaying until about six years later). You'd then be 81 years old. Of course 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.