Medicare Part D — prescription drug coverage — is optional, but delaying enrollment without a good reason comes with a permanent financial penalty. Many people skip Part D when they first become eligible because they don't take many prescriptions, or because they have drug coverage through an employer or VA. In some cases, that's fine. In others, it's an expensive mistake.
What Is the Part D Late Enrollment Penalty?
The late enrollment penalty (LEP) is calculated as 1% of the "national base beneficiary premium" for each month you were eligible but didn't have creditable drug coverage. In 2025, the national base premium is approximately $36.78. So for every month without coverage, your penalty increases by about $0.37.
That may sound small, but it's permanent. If you went 24 months without coverage, you'd pay a penalty of roughly $8.83/month — on top of your plan's regular premium — for the rest of your life in Medicare.
When Does the Penalty Clock Start?
The clock begins after your Initial Enrollment Period ends — that's the 7-month window around your 65th birthday. If you don't enroll in a Part D plan during your IEP and don't have other creditable coverage, the penalty begins accruing.
What Counts as Creditable Coverage?
"Creditable coverage" means drug coverage that is at least as good as Medicare's standard Part D benefit. Sources that typically qualify:
- Active employer-sponsored health insurance (including the drug benefit)
- Retiree drug coverage (only if the employer certifies it as creditable each year)
- VA drug benefits
- TRICARE (military coverage)
- FEHB (Federal Employee Health Benefits)
- COBRA drug coverage — only if the original plan was creditable
Important: Your employer or coverage provider must notify you annually whether your drug coverage is creditable. Keep that notice. You'll need to prove creditable coverage if you enroll in Part D later.
When COBRA Doesn't Protect You
If you leave employer coverage and elect COBRA, COBRA drug coverage continues only as long as your COBRA itself is active. When COBRA ends, your Part D enrollment window opens — and if you wait more than 63 days, the penalty clock starts. Don't assume COBRA protects you indefinitely.
How to Avoid the Penalty
- Enroll in a Part D plan during your Initial Enrollment Period, even if you take no prescriptions. A low-premium plan costs very little and protects you from the penalty.
- If you have other drug coverage, keep written proof that it's creditable.
- When your other drug coverage ends, enroll in a Part D plan within 63 days.
If you're unsure whether your current drug coverage is creditable, or you want to enroll in a Part D plan now, call us at (530) 395-5309. We'll help you get it right.