What if I have prescription drug coverage from a current or former employer? Can I keep it or will Medicare make me drop it and enroll in a Part D drug plan?

Part D prescription drug coverage is an optional benefit. You can choose to keep drug coverage from elsewhere — such as from a current or former employer or union, COBRA, the Veterans Affairs health system, or insurance you’ve purchased yourself — instead of Part D if you want. But to avoid late penalties and delayed coverage, you need to check whether that other drug coverage is “creditable.”

“Creditable” means that Medicare considers it to be of equal or better value than Part D. This is an actuarial test that you can’t do for yourself, but by law your plan administrators must give you this information, either in the plan materials or on request. (Drug coverage from the Federal Employees Health Benefits Program, TRICARE and the VA health system is creditable. But if you receive drug coverage from a current or former employer or union, COBRA, or insurance you’ve bought yourself, you need to check.)

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If your current drug coverage is creditable, you don’t need to sign up for Part D. If and when you lose that coverage, you’ll have a special enrollment period of up to two months to sign up with a Part D drug plan without incurring any late penalties. Your Part D coverage will begin on the first day of the month after you enroll.

If your drug coverage is not creditable, you must decide whether to keep it or drop it and sign up for Part D. But be very careful:  If the drug coverage is part of an overall health package — for example, from a current employer or from retiree benefits — you may not be able to drop the drug part without losing your health benefits as well. 

What happens if you miss your deadline for enrolling in Part D when you should — either at the end of your seven-month initial enrollment period for Medicare (when you have no other creditable coverage) or the end of your two-month special enrollment period after losing creditable coverage? Missing those deadlines means that:

• You’d be able to enroll in a Part D plan only during the annual open enrollment period, which runs from Oct. 15 to Dec. 7, with coverage beginning Jan. 1; and
•  You’d receive late penalties based on how many months you’d been without Part D or other creditable coverage since turning 65. These penalties would be added to your regular Part D premiums for all future years.

There is one exception to the rules on Part D late penalties. If you are not enrolled in Part A or Part B, you are not eligible for Part D and therefore cannot incur late penalties. This could happen if, for instance, you delayed enrollment in Part A and Part B because you have a health savings account at work — to which, under IRS rules, you cannot contribute while enrolled in any part of Medicare. In this situation you could not be penalized for late Part D enrollment, even if your employer’s drug coverage is not creditable.