Senators Propose Waiving Late Enrollment Penalty
May 18, 2006

As is being widely reported in the press, the initial sign-up period for the new Medicare drug benefit expired on May 15. Starting May 16, Medicare beneficiaries that did not signed up for drug coverage will have to wait until the fall to enroll and their coverage will not be effective until January 1, 2007. More importantly, Medicare beneficiaries that did not sign up – and later apply for coverage -- will be forced to pay a financial penalty if they later decide to sign up for coverage (see details on the late enrollment penalty below).

Progress on Medicare Part D Enrollment

Yesterday, the Centers for Medicare and Medicaid Services (CMS) released data showing that 90% of the 42 million Medicare beneficiaries now have prescription drug coverage. The surge in enrollment in the final days leading up to the May 15 deadline was overwhelming, with more than 143,000 signing up on the last day.

Of greatest concern to NAMI are estimates that 2/3 of the 4.5 million people who did not sign up for coverage are low-income Medicare beneficiaries who are eligible for a deep subsidy that makes the new benefit affordable. The good news is that both the May 15 enrollment deadline, and the late enrollment penalty, do NOT apply to them. These Medicare beneficiaries generally qualify for "extra help" (also known as the Low-Income Subsidy, LIS) that offers them deep discounts on monthly premiums, no deductible, and no gap in coverage. These low-income beneficiaries must first apply with Social Security for this "extra help" subsidy.

Bipartisan Coalition of Senators Introduce Legislation to Waive the Late Enrollment Penalty

On May 16, just hours after the open enrollment period ended, a bipartisan group led by Senate Finance Committee Chairman Charles Grassley (R-IA) and Ranking Member Max Baucus (D-MT), introduced legislation (S 2810) to waive the Medicare Part D late enrollment penalty for those that did not sign up for coverage. The proposal would specifically waive the penalty for any beneficiary that missed the May 15 sign-up deadline and seeks to enroll starting in November.

Senator Grassley made clear his intention to move S 2810 through the Senate as quickly as possible, perhaps later this week. It is estimated that the legislation would cost $1.7 billion over five years – largely through late enrollment penalties that the government would not collect. Officials from the Bush Administration and House leaders expressed limited interest in waiving late enrollment penalties, but first want to hold hearings on overall progress in Part D implementation.

Details on the Late Enrollment Penalty

Medicare beneficiaries with incomes above about $15,000 (150% of the federal poverty level) that do not enroll by May 15 will face a financial penalty. This penalty is one percent per month for every month after May 15 that an individual has not signed up. That one percent however, is not based on the premium of the plan an individual chooses. Rather, it is based on the national average premium offered by insurers in the year that coverage starts.

Thus, an individual cannot keep the penalty low by choosing a cheaper policy. Again, since enrollment will not open again until November 15, 2006, the initial minimum penalty will be at least seven percent, on top of increased premium rates for the 2007 plan year. Moreover, the late enrollment penalty stays with a late enrollee for the rest of their life. CMS estimates that in the first year, the penalty would average about $2.50 per month in 2007.

Even after the May 15 deadline, help is still available through 1-800-MEDICARE. Or go to NAMI's website.