It is Creditable Coverage Time

Following is the perennial discussion of the Medicare Part D creditable coverage notice requirement together with some twists resulting from the Inflation Reduction Act. As a reminder, Medicare Part D provides prescription drug benefits. Employers offering prescription drug programs must annually and at certain other times advise Medicare-eligible individuals, defined broadly to include employees, dependents, retirees, and other post-employment individuals about the creditable status of the prescription benefit.

Many plans choose to provide this notice on or around the Medicare Part D open enrollment period which runs from October 15 through December 7. Why is it important that individuals know whether their prescription drug plan is creditable? It is important because individuals who go without creditable coverage run the risk of a life-time financial penalty when they ultimately enroll in Medicare Part D. The penalty is calculated as a 1% increase in the premium for each month without creditable coverage.

Determination of whether a plan is creditable or not creditable is made by an actuarial determination. To qualify as creditable the plan must be at least as rich as the Medicare Part D program. There is a simplified method available in certain instances. In the simplified method, coverage is deemed to be creditable if it:

• Provides coverage for brand and generic prescriptions.
• Provides reasonable access to retail providers.
• Pays, on average, at least 60% of participants’ prescription drug expenses.
• Satisfies at least one of the following: (1) The prescription drug coverage has no annual benefit maximum, or a maximum annual benefit of at least $25,000; or (2) The prescription drug coverage has an actuarial expectation of a minimum payout of $2,000 annually per Medicare eligible individual.

For integrated health plans (those in which prescription drug benefits are integrated with the health plan), the plan must have:

• No more than a $250 deductible per year,
• No annual benefit maximum, or a maximum annual benefit payable of at least $25,000; and
• No less than a $1 million lifetime combined benefit maximum.

Note: the simplified method is only available if the employer is not seeking the Retiree Drug Subsidy (RDS).

A creditable coverage determination must be made for each benefit package offered by the employer that includes a prescription drug benefit.

Beginning in 2025, the Inflation Reduction Act changes the nature of Medicare Part D by lowering the annual out-of-pocket threshold from $8000 to $2,000, among other things. See prior Benefit Beat article here which could impact whether the employer prescription plan is at least as rich as Medicare Part D.

It is not a requirement that employers offer creditable coverage. It is a requirement that employers communicate to employees about whether their prescription drug coverage is creditable. Creditable or not creditable disclosure notices can be found on CMS website.

If the plan changes from creditable to not creditable or vice versa, Medicare eligible individuals must be notified within thirty days of the change. It is possible that a plan that is creditable today might become not creditable in 2025. In this instance it might be necessary to provide a Medicare creditable coverage certification more than once in a 12-month period.

Also note, that a change from creditable to not creditable may necessitate a summary of material modification which if it is a reduction in benefits must be provided within 60 days of the adoption of the change.

In addition, and as a reminder, plans must file a disclosure notice with CMS within 60 days of the beginning of the plan year (generally, by March 1 for calendar year plans). The disclosure notice can be found here.

Employers should negotiate with TPAs, PBMs, and other vendor entities to assist in determining status of the plan as creditable or not creditable.

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. This information is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.