As with Medicare Parts A and B, the cost of your penalty depends on how long you delayed enrollment in Part D or failed to have creditable coverage. Unlike A and B, your penalty accumulates monthly. You pay a 1 percent penalty for every month you go without prescription drug coverage. So, 1 percent for one month, 2 percent for two months, etc.

The penalty is calculated using the national base beneficiary premium, which may change every year. In 2025, this is $36.78. The percentage is multiplied by the base beneficiary premium and rounded to the nearest $0.10 to arrive at the penalty.

For example, if you became eligible for Part D in February 2023 but did not enroll until June 2024, and did not have creditable coverage through another source, that represents a 17 percent penalty (17 months without Part D).

The calculation: $36.78 (2025 base beneficiary premium) x 0.17 (17 percent penalty) = $6.253

Rounded to the nearest $0.10, a penalty of $6.25 will be added to your 2025 monthly premium. If the base beneficiary premium changes, your penalty also changes.

When you join a Medicare drug plan, it will inform you whether you owe a penalty and what your premium will be. If you disagree with the penalty, you may request a reconsideration. If you do, the drug plan will send the required form and instructions.

What is Creditable Coverage?

Beneficiaries who have other sources of drug coverage, such as through a current or former employer or union, may stay in that plan and choose not to enroll in a Medicare drug plan as long as the coverage is creditable, meaning it’s at least as good as the Medicare drug benefit.

If you don’t have creditable drug coverage when you’re eligible for Medicare and delay enrolling in Part D, you may be subject to the late enrollment penalty.

If you have prescription drug coverage through an employer or union plan, the Medicare Modernization Act requires your insurance carrier to notify you whether it is creditable (called the notice of creditable coverage). You should receive this when you first join the plan and then every year thereafter prior to the Annual Enrollment Period (October 15 through December 7).

Changes to Creditable Coverage in 2025

In 2025, updates to Medicare Part D under the Inflation Reduction Act will likely change what is considered “creditable coverage.” One of the biggest changes, the introduction of a $2,000 annual cap on out-of-pocket costs for Medicare Part D, may require employers and insurers to adjust their current drug plans to meet the new creditable coverage criteria.

Additionally, expanded prescription drug price negotiations and reduced costs for high-expense medications could impact how drug plans compare to Medicare standards.

While these changes aim to make prescription drugs more affordable, they also require individuals to re-evaluate their current health plans to ensure they remain creditable under Medicare guidelines. If not, you could face a late enrollment penalty if don’t enroll with a Medicare Part D plan.