There’s something comforting about covering yourself in a warm blanket. You feel comfortable, safe, even protected. If you need to take medications, you want to feel that way about your prescription drug coverage too. You want to have affordable creditable coverage so you don’t get fleeced by a hefty price tag.

The High Cost of Medications

Medication costs continues to skyrocket. According to the Centers for Medicare & Medicaid Services, prescription drugs cost the U.S. health system $338.1 billion in 2019 ($348.4 billion in 2020). Looking closer at the 2019 data, the U.S. spent more than twice per capita on drugs than most other developed nations, even after rebates. Is it any surprise that more than 5 million Medicare beneficiaries were unable to afford their medications that year?

It is important to set yourself up with good prescription drug coverage to take off as much of the burden as possible. Medicare Part D has led the way since 2006, but if you have benefits from another plan, you may decide to hold onto them instead.

What is Creditable Coverage?

If you are on Medicare, you can get prescription drug coverage by signing up for a stand-alone Part D plan (i.e., you have to also be signed up for Part B) or for a Medicare Advantage plan with prescription drug benefits, known as an MA-PD plan (i.e., you have to be signed up for both Part A and Part B). If you don’t have creditable coverage from another source, you could face Part D late penalties if you wait too long to sign up.

Creditable coverage means that your current prescription drug coverage is as good as a standard Part D plan. With that in mind, both Part D and MA-PD plans are required to cover all drugs in each of six drug classes — anticonvulsants, antidepressants, antipsychotics, cancer drugs, HIV/AIDS drugs, and immunosuppressants. They also cover at least 2 drugs in most other drug categories. For Part D coverage, all drugs need approval by the U.S. Food & Drug Administration.

Examples of creditable coverage include:

• Federal employee health benefits program (FEHBP)
• Indian Health Service
• Medicaid
• TRICARE
• Veteran’s (VA) benefits

There may be many other sources of creditable coverage. All heath plans must send you a written notice once a year to let you know if their coverage is creditable or not. Hold onto that notice because you may need to show it to Medicare down the road. It is your proof that you had creditable coverage.

Part D Late Penalties

You can sign up for Part D coverage during the Medicare Initial Enrollment Period but you can wait to sign up if you have creditable coverage from another source. You can hold off until you lose that plan’s coverage. Then you have 63 days to take action.

Simply put, you get a 63-day enrollment period to sign up for a Part D plan when you go without creditable coverage. Depending where you are in the calendar year or any Special Enrollment Periods you may qualify for, you could opt to sign up for an MA-PD plan instead. Otherwise, you may have to wait until the Medicare Open Enrollment Period to change from a Part D plan to an MA-PD plan.

Signing up after 63 days will subject you to late penalties. The Part D late penalty is calculated off of the national base beneficiary premium, $33.37 in 2022, not the actual premium you pay. This allows the penalty to be standardized nationwide, so that you do not pay more simply because you need to take more medications than someone else. Any amount you pay in IRMAA is not included in the penalty.

The Part D late penalty charges you 1% for every month (not year) you were eligible and did not have creditable coverage from another source. The amount is rounded off to the nearest $0.10 and is added to your monthly premium.

Removing the Part D Late Penalty

Part D late penalties generally last as long as you have Medicare. CMS will remove them in the following circumstances:

• Your Part D penalties started when you were under 65, and you turn 65.
• You qualify for the Extra Help Part D Low Income Subsidy (LIS).

The Centers for Medicare & Medicaid granted a Special Enrollment Period in 2006 to people impacted by Hurricanes Katrina, Wilma, or Rita and from March to July 2020 for people affected by COVID-19. This gives hope that they could consider a Special Enrollment Period in the case of other natural disasters or public health emergencies.

 

Creditable Coverage. (2021). CMS.gov. https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage

How do prescription drug costs in the United States compare to other countries?. (2022). Peterson-KFF Health System Tracker. https://www.healthsystemtracker.org/chart-collection/how-do-prescription-drug-costs-in-the-united-states-compare-to-other-countries/

Medicare Advantage and Part D Drug Pricing Final Rule (CMS-4180-F). (2019). CMS.gov. https://www.cms.gov/newsroom/fact-sheets/medicare-advantage-and-part-d-drug-pricing-final-rule-cms-4180-f

Medicare Managed Care Manual: PDP Guidance Eligibility, Enrollment and Disenrollment. CMS.gov. https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/-PDP_EnrollmentGuidance+Exhibits_Sep082006.pdf

Prescription drug expenditure U.S. 1960-2020. Statista. https://www.statista.com/statistics/184914/prescription-drug-expenditures-in-the-us-since-1960/

Mulcahy, J. (2020). Special Enrollment Period (SEP) for Individuals Affected by a FEMA-Declared Weather-Related Emergency or Other Major Disaster: Applicable for COVID-19. CMS.gov. https://www.cms.gov/files/document/special-enrollment-period-sep-individuals-affected-fema-declared-weather-related-or-other-major.pdf

Prescription Drug Affordability among Medicare Beneficiaries | ASPE Office of Health Policy. (2022). aspe.hhs.gov. https://aspe.hhs.gov/sites/default/files/documents/1e2879846aa54939c56efeec9c6f96f0/prescription-drug-affordability.pdf