A New Sleazy Practice – Assessing Late Enrollment Penalties That Aren’t Owed
Those who transition onto Medicare after age 65 because they had active group coverage through their employment or a spouse’s employment enroll in Medicare Part D coverage through what is referred to as a Special Enrollment Period (SEP).
Historically those individuals received a form from the Part D Plan they enrolled in which stated “you may owe a penalty” and a form was enclosed to complete and return to the Plan so that the new enrollee could report the source of the former group coverage and effective dates. Part D has existed for twenty years now and this matter has been rather routinely administered. We are not aware that this self-reporting of information has ever been challenged.
The new sleazy development is a new enrollee receiving a very official looking letter stating that “Medicare has informed us that you had a gap in coverage” or “Medicare has informed us that you had drug coverage that didn’t meet Medicare’s standards for creditable coverage.” Therefore, you will owe a late enrollment penalty. In fact, one Part D Plan is calling new enrollee’s phones with an automated message suggesting a late enrollment penalty is due prior to the new enrollee even receiving documentation of enrollment in that Plan. We have even seen drug plans add a late enrollment penalty to an invoice before the due date of the prior coverage questionnaire!
An actual letter to a new enrollee in a Wellcare Plan is linked here for reference, which seemingly suggests a four year lapse in group coverage which did NOT occur. Most people don’t know that CMS (the Center for Medicare and Medicaid Services) encourages a process known as a VDSA, or Voluntary Data Sharing Agreement and most large employers participate. The purpose of a VDSA is to share group health coverage information. In sum, the government already has group health coverage information on many losing group coverage after age 65. Moreover, this client already submitted a CMS L564 which also corroborates active group coverage dating back many years with no gap. For the former employee, although not the covered spouse, group coverage is noted on the W2 in box 12. And, finally, the Affordable Care Act also requires large employers to report group coverage information to the government.
It is difficult to read the end of this letter which is in red. It reads:
If you do not contact Wellcare Value Script (PDP) Plan by 01/09/2026, we will assume the above information is correct and you will owe a late enrollment penalty. In most cases, this penalty is permanent and will be owed as long as you have Medicare coverage.
In other words, you will owe a penalty for life.
The good news is, if you complete this form accurately and return it timely, any late enrollment penalties that had already been assessed, if any, will be refunded. This information will also only be requested once in your life, so it is at least not an annual inconvenience.
However, if you miss the deadline for the questionnaire or complete it incorrectly, it is likely that to reverse a late enrollment penalty, you will need to obtain letters of prior creditable drug coverage for all years since age 65 which, if you did not save those, can be difficult to obtain.
We suspect these Part D companies are allowed to keep this revenue which provides all the wrong incentives.
We suggest that you always read the material in any welcome packet and follow-up to make sure you aren’t assessed late enrollment penalties you don’t owe.
