Creditable Coverage and Late Enrollment Penalty

This page contains information and guidance for Part D plan sponsors and other parties interested in the policies and operations related to determination and application of Part D late enrollment penalties. 

NEW! Revisions to the Part D Late Enrollment Penalty Guidance for CY 2018

On January 5, 2018 CMS issued an HPMS memo “Part D Late Enrollment Penalty Guidance and Model Notice Adjustments Due to Systems Changes for Premium Withholding” outlining changes to conform with MARx systems edits implemented in 2017. The guidance provides instructions on how to appropriately bill a retroactive late enrollment penalty for members in premium withhold status and updates 5 model exhibits to appropriately convey the collection changes to members. The memorandum also clarifies that members in premium withhold status who are direct-billed the retroactive amount may not be involuntarily disenrolled for non-payment of premiums.

These revisions are in effect on April 5, 2018. As of this date, this guidance and the model exhibits must be in accordance with this guidance. Sponsors may implement these changes prior to this date.

Note: We updated some visual formatting in the guidance, such as how section headers appear, but did not make any content changes, except where noted in the memorandum and guidance.

General Information

Medicare beneficiaries may incur a late enrollment penalty (LEP) if there is a continuous period of 63 days or more at any time after the end of the individual's Part D initial enrollment period during which the individual was eligible to enroll, but was not enrolled in a Medicare Part D plan and was not covered under any creditable prescription drug coverage.

“Creditable prescription drug coverage” is coverage that meets Medicare's minimum standards since it is expected to pay, on average, at least as much as Medicare's standard prescription drug coverage. Creditable prescription drug coverage includes, but is not limited to: some employer-based prescription drug coverage, including the Federal Employees Health Benefits Program; qualified State Pharmaceutical Assistance Programs (SPAPs); military-related coverage (e.g., VA, TRICARE); and certain Medicare supplemental (Medigap) policies. As outlined at 42 CFR 423.56(c) and (d), with the exception of Prescription Drug Plan (PDP) Sponsors, Medicare Advantage (MA) Organizations, §1876 Cost-Based Contractors, and PACE organizations offering prescription drug plans, entities that offer prescription drug coverage must make an annual determination of creditable coverage status and provide a disclosure notice to Medicare eligible individuals.  

With limited exceptions (for example, beneficiaries who are receiving “extra help” from Medicare), the Part D LEP remains with the beneficiary for as long as he/she has Medicare prescription drug coverage.