Thinking About Dropping Your Medicare Drug Coverage During Open Enrollment? Think Again.

The Open Enrollment Period is the time that Medicare beneficiaries can make changes in their drug coverage. Sometimes the change may not be the right thing to do. My company, 65 Incorporated, received this email from David.

“It’s crazy that I pay for a Part D drug plan because I don’t take any prescription medications. So I just thought you should know that I am dropping my drug coverage. The penalty I’ll pay in the future is no big deal.”

The Part D late enrollment penalty David mentioned is 1% of the current standard Part D premium for every month without creditable drug coverage. In 2023, the penalty amount will be $0.327 (1% of $32.74). If David goes one year without coverage, the penalty will add about $3.90 to the plan premium every month. That amount can change every year and will follow him for life.

But David should know about two more important points.

1. If he changes his mind, he cannot re-enroll in a drug plan until the next Open Enrollment Period, October 15-December 7, and it won’t take effect until January.
2. He may face some big out-of-pocket costs if his health changes during the year.

Here’s another case history from my files.

Gary was about as healthy as anyone could be at age 65. He went to the gym regularly, had no significant medical history, and was the envy of his friends. Because he didn’t take any prescription medications, he chose not to enroll in a drug plan when he turned 65 in January 2020. But in spring 2022, he started feeling out of sorts and was experiencing fatigue and depression. His doctor diagnosed an endocrine disorder and prescribed a topical treatment and two oral medications. Because Gary did not have drug coverage, he was responsible for the full cost of the drugs, about $200 a month. He would have paid less than $50 a month if he had enrolled in a drug plan. If the physician adds more, and possibly more costly drugs within the year, Gary’s costs will increase.

Then, there are those subject to Part D IRMAA (income-related monthly adjustment amount) who decide to drop their Medicare drug coverage. Because Social Security has determined that they are higher-income beneficiaries, they must pay an additional $146.40 at the lowest tier up to $920 at the highest one, in addition to the monthly premium for the Part D drug plan. They believe that by dropping drug coverage, the money they save on premiums and Part D IRMAA will cover the full cost of their drugs. That may or may not be the case and they still face repercussions.

I worked with Jake, a 75-year old man who was a sole-proprietor. At age 65, he enrolled in Part A, hospital insurance, and Part B, medical insurance, but skipped drug coverage because of his income. He didn’t want to pay Part D IRMAA. Now, he’s retired, and his income has dropped so he’s enrolling in a Part D drug plan. He was more than a bit shocked to discover that he will pay over $470 in penalties in 2023.

Play it smart during Open Enrollment

Drug coverage can be very important so consider these points .

• For all the Davids who do not take medications, there are plans with very low premiums. For example, according to the Medicare Plan Finder, there is a drug plan in Seattle, with a premium of $1.60. In Chicago, the lowest premium is $4.60 and in Dallas, $6.60.
• For those like Gary, who have chronic health problems, Part D coverage can save money.
• And, higher-income beneficiaries like Jake, who chose to go without a drug plan, will face a penalty that will follow them forever.

You may think you’re being clever and saving money by refusing or delaying enrollment in a drug plan. But without knowing the real numbers, you might simply be shooting yourself in the foot. The smart thing to do is to spend some time evaluating your drug coverage and taking action before December 7.