If you have prescription drug coverage through your employer at age 65, you can delay Medicare Part D enrollment without penalty—as long as your coverage is "creditable." If your drug coverage is NOT creditable and you delay Part D, you'll face a permanent monthly premium penalty for as long as you have Part D.
What is "Creditable Coverage"?
Creditable drug coverage means your plan's expected coverage is at least as good as Medicare's standard Part D benefit. It can come from an employer, a union, a retiree plan, TRICARE, the VA, the Indian Health Service, or another source.
Your employer or plan must send you a Notice of Creditable Coverage every year before October 15 (the start of Medicare's Open Enrollment Period), and whenever your coverage's creditable status changes. Many plans mail it in September or include it in their open-enrollment packet.
Tip: Save every annual creditable coverage notice you receive. If you eventually enroll in Part D, you may need to prove you had creditable coverage to avoid penalties.
Which Coverage Types Are Creditable?
| Coverage Type | Usually Creditable? |
|---|---|
| FEHB (Federal Employees Health Benefits) | Yes |
| TRICARE (including TRICARE For Life) | Yes |
| VA prescription drug benefits | Yes |
| Indian Health Service (IHS) drug coverage | Yes |
| Large employer group health plans | Usually—check annual notice |
| Small employer plans | Varies—check annual notice |
| Union health and welfare funds | Usually—check annual notice |
| COBRA continuation | Depends on original plan |
| Retiree health plans | Varies—check annual notice |
| High-deductible plans with no separate drug coverage | Often NOT creditable |
| Catastrophic-only plans | Generally NOT creditable |
| ACA Marketplace plans | Often NOT creditable—ask the plan |
Notes on Common Coverage Sources
- FEHB: FEHB drug coverage is creditable, for current employees and retirees alike, so you can delay Part D without a penalty while you keep FEHB. FEHB counts only for Part D, though: once you retire, FEHB does not give you a Part B Special Enrollment Period. See FEHB and Medicare.
- TRICARE: TRICARE pharmacy coverage is creditable, including TRICARE For Life (TFL). TFL requires you to have both Part A and Part B, and many military retirees never need a separate Part D plan.
- VA: VA drug benefits are creditable, but they cover prescriptions only through VA pharmacies and the VA mail-order program. If you want to fill prescriptions at retail pharmacies, you'd need Part D.
- IHS: Drug coverage through the Indian Health Service, a tribal health program, or an urban Indian health program is creditable for American Indian and Alaska Native beneficiaries. See Medicare for Native Americans in New Mexico.
- Employer and union plans: Most large employer plans and union funds include creditable drug coverage, but it isn't automatic. The plan has to test its coverage every year and tell you the result in the annual notice.
- COBRA: COBRA drug coverage can be creditable for Part D if the underlying plan is. (COBRA does not count as current employment coverage for the Part B Special Enrollment Period.)
How to Verify Your Coverage Is Creditable
- Look for the Notice of Creditable Coverage your plan sends each year before October 15
- Check your Summary Plan Description or benefits handbook
- Call your plan's member services and ask: "Is my prescription coverage creditable for Medicare Part D?"
- Get the answer in writing (email or letter) and keep it with your Medicare records
The 2-Month Part D SEP
When you lose creditable drug coverage (for any reason: you retire, your plan ends, or your plan stops being creditable), you have a 2-month Special Enrollment Period to join a Part D plan or a Medicare Advantage plan with drug coverage without penalty. This is much shorter than the 8-month Part B SEP, so act quickly.
The window runs for 2 full months after the month your creditable coverage ends, or after the month you're notified it's ending, whichever is later. If you know your coverage is ending, you can sign up ahead of time so your Part D plan starts the day after your old coverage stops.
If you miss the 2-month window, you generally have to wait for the next Open Enrollment Period (October 15 to December 7, with coverage starting January 1), and penalty months keep adding up in the meantime.
Don't confuse the Part B and Part D SEPs. The Part B SEP lasts 8 months after your (or your spouse's) employment or employer coverage ends, whichever happens first. The Part D SEP lasts only 2 months after creditable drug coverage ends. The clocks run independently, so track both.
How the Part D Late Enrollment Penalty Works
You owe a Part D late enrollment penalty if, at any time after your Initial Enrollment Period ends, you go 63 or more days in a row without Part D or other creditable drug coverage. The penalty is 1% of the national base beneficiary premium ($38.99 in 2026) for every full month you went without coverage, rounded to the nearest 10 cents. Each uncovered month adds about $0.39 a month to your premium.
The penalty is added to your Part D premium for as long as you have Part D—permanently. Because the base premium can change each year, the dollar amount of your penalty can change too.
Example Calculation
If you delayed Part D for 24 months without creditable coverage:
- 24 months × 1% × $38.99 = about $9.36/month penalty
- Added to your Part D premium every month, for life
- Over 20 years of Medicare, that's about $2,246 in extra premiums
At 36 months without creditable coverage, the penalty would be 36% of the base premium, about $14.04 a month.
What If You Disagree With a Penalty?
If Medicare assesses a Part D late enrollment penalty but you had creditable coverage, you can request a reconsideration. You'll need to provide documentation (annual creditable coverage notices) from your former plan.
What This Means for New Mexicans
Federal Employees and Retirees with FEHB
FEHB applies to federal employees and retirees, such as those at Kirtland AFB, White Sands and DOE/NNSA. LANL and Sandia staff are contractor employees with their employer's plan; ask HR whether its drug coverage is creditable. Your FEHB plan includes creditable drug coverage, so you don't need a Part D plan to avoid the penalty while you keep FEHB. Some federal retirees keep FEHB for its drug coverage. Remember that FEHB in retirement does not protect you from the Part B late penalty: sign up for Part B within 8 months after your federal employment ends if you want it.
State, School, and Local Government Retirees
If your retiree coverage comes through the New Mexico Retiree Health Care Authority (NMRHCA), ask NMRHCA before you turn 65 how its plans work with Medicare and whether your drug coverage is creditable. Don't assume your pre-65 retiree plan continues unchanged once you're eligible for Medicare.
Veterans with VA Coverage
If you fill all your prescriptions through the VA, you may not need Part D. Your VA coverage is creditable, so you can add Part D later without a penalty if your needs change. See Medicare for veterans and military families.
Avoid the Part D Penalty Trap
Assuming all employer coverage is creditable can lead to a Part D late penalty. A licensed insurance agent can review your specific coverage and help you transition properly.