Chances are that if you’ve got a chronic condition that requires a lot of medication, you’ve got your prescription drug plan figured out. If you’re in a fit shape and don’t take a single pill, what’s the point? When it comes to Medicare and prescription drug coverage, if you don’t sign up when you’re first eligible, you could pay more down the road on account of penalties.

“Once your house is on fire, you can’t buy homeowners insurance,” says Susan Morisato, president of Insurance Solutions for UnitedHealthcare’s Medicare and Retirement services . “The whole concept of insurance is that it’s a shared risk.”

Morisato says the federal government require you to sign up and pay a premium for something you may not use right now because of the same reason behind you having insurance on property.

Prescription drug coverage is also known as Part D in Medicare. The Washington Post reports there is a lot of confusion around the penalty for not signing up in time for Part D. The confusion centers on people who have coverage from a current or former employer, union or other group plan.

The bottom line is you won’t pay a penalty for not signing up for Part D when you become eligible if you have drug coverage that meets Medicare’s minimum standards .

Calculating the Penalty

You may pay more to get Part D plan down the road if you don’t have “creditable” prescription drug coverage. When time runs out 63 days after you don’t have “creditable” prescription drug coverage, then after that you may have to pay a penalty.

The way the penalty is calculated is based on a few factors. The formula includes the amount of time you are late, base premium, and a fixed percentage – one percent per month of late enrollment.

Morisato recommends using the Open Enrollment period from October 15 to December 7 each year to reevaluate your plan and make changes as your needs change. It’s paramount as your healthcare needs may change as you age and your doctor may prescribe different or additional medications.

The keynote is that people who qualify for Extra Help, a Social Security program for people with limited resources and income, will not be penalized.

Signing Up for Part D

You can avoid penalties by ensuring you have prescription drug coverage. There are two ways to get a Medicare Part D plan. Both are through private insurance companies.

      1. You can get a standalone Part D plan to add prescription coverage to Original Medicare.

      2. You can enroll in a Medicare Advantage plan (Part C) that combines Parts A and B           along with a prescription drug plan.

Creditable Coverage

What are the minimum standards for prescription coverage classified as? Coverage needs to be “creditable.” This signifies that the coverage is expected to pay on average as much as the standard Medicare prescription drug coverage.

If you have drug coverage through a group plan, that plan must tell you if your coverage is considered “creditable.” Medicare requires your plan to send you this information at least once a year. It may come in a standalone notice or in a letter or newsletter. Keep this information; you might need to provide it when you sign up for a Medicare drug plan later.