The Medicare Late Enrollment Penalty, or LEP, is a permanent financial surcharge added to a beneficiary’s monthly premium for certain parts of Medicare. This fee is imposed when an individual fails to enroll in Medicare coverage during their designated initial enrollment period, assuming they did not have other qualifying health coverage. Understanding the rules that trigger this penalty is important because the resulting financial burden can last for the entire duration of a person’s Medicare coverage.
What Triggers a Late Enrollment Penalty
The Initial Enrollment Period (IEP) is a seven-month window that begins three months before the month an individual turns 65, includes their birthday month, and ends three months after their birthday month. Missing this deadline without having what Medicare considers “creditable coverage” in place is the primary trigger for the penalty. Creditable coverage is health or prescription drug insurance that is expected to pay out at least as much as Medicare’s standard coverage, typically from an employer or union.
If a person misses their IEP and does not qualify for a Special Enrollment Period (SEP), their next opportunity to sign up is during the General Enrollment Period (GEP), which runs from January 1 to March 31 each year. Enrollment during the GEP, or subsequent enrollment after a gap in creditable coverage, will typically result in the LEP being applied.
Calculating the Part B Penalty
The Late Enrollment Penalty for Medicare Part B is calculated based on the number of full 12-month periods an individual was eligible for Part B but did not enroll. The penalty is a permanent increase of 10% of the standard Part B premium for every full year of delayed enrollment. This percentage is added to the monthly premium for as long as the person has Part B coverage, whether through Original Medicare or a Medicare Advantage plan.
For example, if a person was eligible for Part B for 30 months but did not enroll, this represents two full 12-month periods of delay. The penalty would be 20% (10% multiplied by two) of the standard monthly premium. Since the standard Part B premium typically increases each year, the dollar amount of the penalty also rises annually, even though the percentage remains fixed.
Calculating the Part D Penalty
The Part D Late Enrollment Penalty is imposed if there is a continuous period of 63 days or more without creditable prescription drug coverage after the IEP ends. This penalty is calculated by multiplying 1% of the national base beneficiary premium (NBP) by the number of full, uncovered months the person should have had Part D or creditable coverage. The NBP is the national average of the Part D plan premiums, which changes every year.
The resulting dollar amount is rounded to the nearest ten cents and is then added to the monthly Part D plan premium. Because the NBP is recalculated annually, the Part D LEP amount changes each year, even though the calculation percentage remains constant. For instance, if an individual went 24 months without creditable coverage, the penalty percentage is 24%.
Avoiding or Appealing the Penalty
Beneficiaries can prevent the Late Enrollment Penalty by enrolling in Medicare Part B or Part D during an appropriate enrollment window, most notably the Initial Enrollment Period. If a person delays enrollment because they have health coverage based on current employment, they become eligible for a Special Enrollment Period (SEP). The SEP allows an individual to enroll in Part B without penalty up to eight months after their employment or the group health plan coverage ends, whichever occurs first.
If a Late Enrollment Penalty is assessed, the beneficiary has the right to file an appeal, or request for reconsideration, typically within 60 days of receiving the penalty notice. The appeal process requires submitting a formal request and providing documentation, such as letters from a former employer or insurer, to prove continuous creditable coverage during the time in question. Successfully demonstrating that a person had continuous creditable coverage, or that the penalty calculation was incorrect, can result in the penalty being removed or reduced. Individuals who qualify for Extra Help paying for Part D costs also do not pay the Part D Late Enrollment Penalty.