More than 69.9 million Americans are currently enrolled in some type of Medicare plan, with about 90% of enrollees over age 65, according to the Centers for Medicare & Medicaid Services (CMS). When you sign up for Medicare, you’re eligible to enroll in Medicare Part D, an optional prescription drug plan that covers or reduces your out-of-pocket costs for all prescription drugs.

“It was established to help older adults and individuals with disabilities afford the medications they need to manage chronic conditions,” says Dee Chaudhary, a principal consultant with Clarivate. “Any medication that is self-administered — such as an insulin injection, a pill or an inhaler — is covered under Medicare Part D.”

Medicare Part D helps cover the cost of prescription drugs. It’s either offered as a standalone plan or embedded into a Medicare Advantage plan, and while it covers generic and brand-name drugs, each plan maintains its own unique list of covered medications, known as a formulary.

Signing up late can come with a price. If you go too long without creditable drug coverage after becoming eligible, you may face a late enrollment penalty that increases your monthly premium.

“Too few people approaching Medicare’s eligibility age understand how late enrollment penalties work or give them much thought, which can be a costly mistake,” says Whitney Stidom, vice president of consumer enablement at eHealth. “The permanent, lifetime late enrollment penalties for Medicare Part D can potentially cost enrollees hundreds or even thousands of dollars over the course of their retirement.”

Here’s what to know about how the Medicare Part D penalty is calculated, how long it lasts and how to avoid it.

[READ: What Do I Do If I Lose My Health Insurance?]

What Is the Medicare Part D Late Enrollment Penalty?

Not signing up for Medicare Part D when you initially enroll in Medicare can have major consequences if you decide later to sign up for a drug plan. The penalty is an extra amount added to your monthly premium if you don’t sign up for prescription drug coverage when you’re first eligible — and you don’t have other creditable coverage.

“The Medicare Part D late enrollment penalty is a permanent, lifetime penalty, and it never goes away,” Stidom says. “Beneficiaries will be required to pay the penalty if they are enrolled in a Medicare drug plan.”

Once you’re charged the penalty, you’ll pay it every month for as long as you’re enrolled in a Medicare drug plan.

How the penalty is calculated

The penalty is based on:

— The number of months you went without creditable prescription drug coverage

— The national base beneficiary premium

Keep in mind that figure is rounded to the nearest $0.10 and added to your monthly premium.

“Since the base premium is $38.99 in 2026 and is set by CMS each year, the penalty can rise gradually over time,” explains Danielle K. Roberts, a Medicare insurance expert and co-founder of Boomer Benefits.

Lapse in Coverage	Penalty Percentage	Estimated Monthly Surcharge (using the 2026 national base beneficiary premium)	Annual Cost Increase
1 year (12 months)	12%	$4.70	$56.40
2 years (24 months)	24%	$9.40	$112.80
3 years (36 months)	36%	$14	$168

[READ Medicare Part D 2026: Costs, Coverage, and New Out-of-Pocket Caps]

5 Ways to Avoid the Medicare Drug Plan Penalty

Don’t wait to apply for coverage. You can’t predict what the future will entail for you and your health. It’s better to be prepared so you don’t end up in a life-changing situation.

“If you have a health care crisis out of the blue and must start taking medications and you don’t have a prescription drug plan, you would have to pay out of pocket until the next enrollment date for the prescription drug plan comes around,” says Natasha McPherson, owner of the Medicare brokerage, Medicarerocks.com. “There are drugs out there that cost thousands of dollars out of pocket — this situation could ruin someone financially.”

Follow these tips to prevent the Medicare Part D penalty and save money on your prescriptions each year.

[READ First Medicare Bill Too High? Reasons Why and How to Fix It]

1. Enroll on time during your initial enrollment period

The best way to make sure you don’t get hit with a penalty is to sign up for the optional prescription drug plan when you’re first able to enroll in Medicare. As a reminder, your initial enrollment period runs a total of seven months surrounding your 65th birthday.

“If you fail to sign up during this window, you may have to wait until the next annual election period, and you would start accruing a penalty for each month without creditable coverage,” Roberts says. “Whether you need it at the moment or not, if you think you could need it in the future, you must sign up for it when you enroll in Medicare to avoid a lifetime penalty.”

You are generally required to enroll in Part D if you do not have another form of drug coverage that Medicare considers creditable.

— The 63-day grace period: You have up to 63 consecutive days after your initial eligibility ends to secure Part D or other creditable coverage before penalties begin to accrue.

— Annual enrollment: If you miss your IEP, you must wait until the Medicare open enrollment period (October 15 to December 7) to join a plan, with coverage beginning January 1 of the following year.

“As long as you pay the penalties, your coverage is not delayed,” says Amy Niles, the chief mission officer at the Pan Foundation.

[Read: What Medicare Doesn’t Cover and How to Manage Costs]

2. Maintain creditable drug coverage

Creditable drug coverage can come from various sources, including:

— Former or current employers

— Unions

— TRICARE (for U.S. Armed Forces military personnel, military retirees and their dependents)

— The Department of Veterans Affairs (for military veterans and their families)

— The Indian Health Service (for American Indians and Alaska Natives)

3. Qualify for a special enrollment period or Extra Help

There are specific circumstances where the late enrollment penalty does not apply.

For example, if you suddenly lost prescription drug coverage through your employer (or former employer), you may be eligible for a special enrollment period that waives the penalty.

Additionally, if you qualify for the federal Extra Help program (also known as the Low-Income Subsidy), you are exempt from the penalty, whether you qualify at the time of initial enrollment or gain eligibility later.

“Part D offers low-income subsidies through the Extra Help program, which can eliminate premiums and copays entirely for those who qualify,” Chaudhary says.

Without documented creditable coverage or qualification for Extra Help, the monthly penalty becomes mandatory for anyone who misses their initial enrollment opportunity.

4. Work with a noncaptive Medicare agent

Working with a Medicare agent can help you evaluate the different plans in your area to understand which plans cover every drug that you take and which ones offer the lowest price. However, it’s important to note there are two kinds of insurance agents: captive agents and noncaptive (or independent) agents.

— A captive agent is an insurance agent who can only sell plans from one insurance company and receives a salary, commission or both from that company.

— A noncaptive agent is an independent insurance agent who can sell plans from any company.

5. Take the time to review your plan’s benefits thoroughly each year

Don’t rush choosing a prescription drug plan, and don’t let anyone tell you there aren’t better options available for you.

“No one on Medicare should be complacent,” Niles says. “Everyone should take time to evaluate plans and take into consideration their own health and financial circumstances, preferences for how they get medical care, which providers they see and their prescription drug needs.”

She recommends considering the following details before committing to a Part D plan:

— Deductibles

— Cost-sharing requirements

— Whether your medications are listed on the formulary and which ones are excluded

— Prior authorization and step therapy requirements for medications

“What companies don’t want you to know is that every year, they offer the same plan but make it cheaper or enhance it,” McPherson says. “If you aren’t doing your due diligence and reviewing your Medicare choices each year to make sure you’re still in the best and most affordable plan for yourself, you are probably losing hundreds of thousands over your lifetime.”

How to Appeal a Medicare Part D Late Enrollment Penalty

Beneficiaries who enroll in a Medicare Part D plan or a Medicare Advantage plan with drug coverage after the enrollment window will receive a late penalty letter, which will provide you instruction on how to appeal. You have 60 days from the date of that letter to appeal.

If you qualify for the Extra Help program or you’ve proven that you already receive drug coverage from another source, this penalty will be waived.

“You have the right to appeal a decision you believe to be incorrect about a late enrollment penalty,” Niles says.

Some potential situations where you may consider appealing include:

— You submitted information about other creditable drug coverage on time, but it wasn’t taken into consideration.

— Your plan miscalculated the number of months you went without creditable drug coverage.

— You did qualify for the Extra Help program, but your late enrollment monthly penalty wasn’t waived.

Bottom Line

When enrolling in a Medicare plan, it’s essential to also sign up for Medicare Part D so that your prescriptions now and in the future can be covered without having to pay a monthly penalty. Exceptions to this include having consistent drug coverage through an employer or another benefit. You can also have the penalty waived if you are eligible for the Extra Help program upon enrollment or become eligible later on. When in doubt, talk with a professional and consider exploring your options with a noncaptive Medicare agent.

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What Is the Medicare Part D Penalty? originally appeared on usnews.com

Update 05/04/26: This story was previously published at an earlier date and has been updated with new information.