Before You Drop Your Medicare Prescription Drug Plan: Understand the Part D Penalty

If the cost of your Medicare prescription drug plan is going up for 2027, you may be wondering whether you really need to keep it—especially if you don't take many prescriptions.

We hear this question all the time:

“Why should I pay for a prescription drug plan when I don't take any medications?”

It can be tempting to cancel your Medicare Part D plan and save the monthly premium. But before you do, there is something very important you need to understand: Medicare has a late enrollment penalty for going without prescription drug coverage in certain situations.

And unlike many penalties, this isn't necessarily a one-time fee.

For most people who owe the Medicare Part D late enrollment penalty, it is added to their monthly prescription drug plan premium for as long as they have Medicare drug coverage.

Here's what you need to know before deciding to drop your Part D plan.

What Is the Medicare Part D Late Enrollment Penalty?

Medicare Part D prescription drug coverage is optional. However, Medicare encourages people to enroll when they first become eligible or maintain other prescription coverage that Medicare considers creditable coverage.

If you don't enroll in Medicare drug coverage when you're first eligible and later and go 63 consecutive days or more without Medicare drug coverage or other creditable prescription drug coverage, you may have to pay a Part D late enrollment penalty if you enroll later.

The longer you go without coverage, the larger the penalty can become.

What Is Creditable Prescription Drug Coverage?

Creditable prescription drug coverage is coverage that is expected to pay, on average, at least as much as Medicare's standard prescription drug coverage.

Examples can include certain prescription coverage through:

• A current or former employer or union

• TRICARE

• The Department of Veterans Affairs (VA)

• Indian Health Service

• Other qualifying prescription drug coverage

If you have prescription coverage outside of Medicare, you should receive information telling you whether your coverage is considered creditable.

Keep those notices with your important Medicare documents. You may need to show that you had creditable coverage later.

How Is the Medicare Part D Penalty Calculated?

This is where people are often surprised.

The Part D late enrollment penalty is generally calculated by taking 1% of the national base beneficiary premium for each full month you were eligible for Medicare drug coverage but did not have Part D or other creditable prescription drug coverage.

For 2027, the national base beneficiary premium is $41.33.

The penalty is calculated using the national base beneficiary premium for the current year, multiplied by the percentage of months you went without creditable coverage. The result is rounded to the nearest $0.10.

Let's look at a simple example.

Example: Going Two Years Without Medicare Part D

Suppose you were eligible for Medicare Part D but decided not to enroll because you didn't take any medications. You then went 24 full months without Medicare Part D or another form of creditable prescription drug coverage.

Your penalty percentage would be:

1% x 41.33 x 24 months = $9.92

Rounded to the nearest $0.10, your late enrollment penalty would be approximately:

$9.90 per month for life

That amount would be added to the monthly premium of the Medicare drug plan you eventually enroll in.

And remember—this generally isn't just for one year.

For most people, the penalty continues for as long as they have Medicare prescription drug coverage.

The Penalty Can Change From Year to Year

Another thing many people don't realize is that the dollar amount of your Part D penalty can change.

That's because the calculation is tied to Medicare's national base beneficiary premium, and that amount can change each year.

Your number of uncovered months determines your penalty percentage, but the dollar amount of the penalty can increase or decrease when the national base beneficiary premium changes.

So if you have a 24% penalty, for example, that percentage is applied to the applicable national base beneficiary premium—not permanently locked into the original dollar amount you paid when you first enrolled.

What If I Go Without Part D for Five Years?

This is where the penalty can become much more noticeable.

If someone went 60 full months without Medicare Part D or other creditable prescription drug coverage, the penalty would generally be:

60 months × 1% = 60%

Using the 2027 national base beneficiary premium of $41.33:

$41.33 × 60% = $24.80

That would mean approximately $24.80 per month added to the person's Part D premium.

That's nearly $300 per year in additional premium based on this 2027 example—and the penalty can continue for as long as the person has Medicare drug coverage.

This is why dropping a prescription drug plan to save money today can have consequences years down the road.

“But I Don't Take Any Prescriptions”

This is probably the most common reason someone considers going without Medicare Part D.

Maybe you're healthy.

Maybe you only take an inexpensive generic medication.

Maybe you don't take any prescriptions at all.

It can feel unnecessary to pay a monthly premium for something you're not currently using.

But Medicare drug coverage isn't only about the prescriptions you're taking today. It's also protection for medications you may need in the future.

None of us know what our medication needs will look like six months—or six years—from now.

A new diagnosis, illness, surgery or other change in your health could suddenly require expensive prescription medications.

And you generally can't simply enroll in a Part D plan whenever you decide you need one. Medicare has specific enrollment periods and Special Enrollment Period rules.

Is a Prescription Discount Card the Same as Part D Coverage?

This is another important area of confusion.

Prescription discount cards and programs can sometimes help you find lower prices on individual medications.

However, a prescription discount card is not the same thing as Medicare Part D insurance.

Simply having access to a prescription discount program does not mean you have creditable prescription drug coverage.

So don't cancel your Medicare Part D plan because you found inexpensive prescriptions through a discount card without first understanding how going without creditable coverage could affect you.

A discount program can potentially be a useful tool for saving money on certain prescriptions, but it shouldn't automatically be viewed as a replacement for Medicare Part D.

Do I Have to Pay a Penalty If I Have Employer Drug Coverage?

Not necessarily.

If you have prescription drug coverage through an employer, union or another source, that coverage may be considered creditable prescription drug coverage.

If it is creditable, you can generally maintain that coverage without accumulating a Part D late enrollment penalty.

The important thing is to verify that your coverage is actually considered creditable.

Employers and other coverage providers generally send Medicare-eligible members a Notice of Creditable Coverage explaining whether their prescription coverage meets Medicare's standards.

Keep that notice.

If you later enroll in Medicare Part D, you may need to provide information showing that you had creditable prescription drug coverage during that time.

What If I Qualify for Extra Help?

There is an important exception for people who qualify for Medicare's Extra Help program.

Extra Help assists people with limited income and resources with Medicare prescription drug costs.

People who qualify for Extra Help don't pay a Part D late enrollment penalty.

If you're struggling with the cost of your prescription drug plan, it's worth checking whether you qualify for Extra Help before deciding to drop your coverage.

Your Part D Premium Went Up. Should You Cancel It?

If you opened your 2027 Annual Notice of Change and discovered that your prescription drug plan premium increased significantly, don't automatically assume that dropping Part D is your best solution.

Instead, review your options.

There may be another Part D plan available with a lower monthly premium. Your prescriptions may cost less under another plan. A different pharmacy could reduce your costs. You may qualify for Extra Help. Or another type of Medicare coverage may make more sense for your situation.

For someone who doesn't take any medications, finding a lower-cost Part D option may also allow them to maintain prescription drug coverage without paying as much as they would for their current plan.

Talk to a Local Medicare Agent Before Dropping Your Drug Coverage

At Utah Avenue Insurance, we understand why someone who takes few or no prescriptions might question paying an increasing Part D premium.

But canceling your prescription drug coverage can have long-term consequences that aren't always obvious when you're looking only at this year's premium.

Our local Medicare agents can help you review your current plan, medications and pharmacies and compare your Medicare prescription drug options for 2027.

If your Part D premium is going up, let us help you look for a more affordable option before you decide to go without coverage altogether.

Schedule an appointment with a local Utah Avenue Insurance agent today and let us help you understand your Medicare options.

Better coverage starts here.