Each year prior to October 15th, employers must provide coverage notices to all Medicare Part D eligible individuals who are covered under, or who apply for, the employer’s prescription drug coverage indicating whether that coverage is creditable or not creditable (i.e, does the plan on average pay as well as Part D pays). This includes individuals eligible for Medicare due to age, disability, or end stage renal disease (ESRD) whether they are enrolled in the medical plan for active employees, under COBRA or other continuation coverage, or retiree coverage.
Applies To:
- All size employers with medical plans providing prescription drug coverage
- All size employers with an individual coverage health reimbursement arrangement (ICHRA) reimbursing not just insurance premiums but also prescription drug expenses
Go Deeper:
Determining Whether the Prescription Drug Coverage is Creditable
The notices required by October 15 are to disclose the creditable or non-creditable status of the employer’s prescription drug plans. Employers should already know the status of each prescription drug plan’s creditability, as notice would have been provided with open enrollment materials and a disclosure to the Centers for Medicare and Medicaid Services (CMS) is required shortly after renewal.
Each prescription drug plan an employer sponsors must be separately evaluated using actuarial principles subject to CMS rules to determine whether it expects to pay, on average, as much for prescription drug claims as Medicare Part D expects to pay. The employer is not required to sponsor creditable plans, but is required to determine the creditable status of each plan it sponsors.
The employer will ideally secure a creditability determination from the carrier or TPA for each specific plan they offer. Often, the carrier provides a chart of off-the-shelf prescription drug plan options to show which plans for the upcoming calendar year are creditable or not creditable. As long as the employer is implementing an off-the-shelf, pre-designed plan without changes, they rely on the creditability determination chart.
If the TPA or carrier will not make a creditability determination, the employer must either use CMS’s design-based “simplified determination method” or obtain a determination using actuarial principles.
Simplified Determination Method
The simplified determination method is not always straightforward for an employer to use. Since last updated in 2009, it requires comparing the plan’s deductible to the Medicare Part D deductible, ensuring adequate coverage of generics and brand drugs, adequate in-network retail pharmacy access for where participants are located, and determining the plan expects to pay at least 60% of prescription drug claim costs (so participants are expected on average to pay no more than 40% of prescription drug claim costs).
Revised Simplified Determination Method
A new option for 2026 (which becomes the sole simplified determination method in 2027) removes the need to evaluate the deductible but adds reasonable access to biologicals to the list of requirements and increases the expectation for the plan to pay at least 72% of prescription drug claim costs rather than 60%. This revised simplified determination method is discussed starting at the bottom of page 27.
It is not always straightforward for an employer to determine whether a plan has “reasonable access” to generics, brands and biologicals; has “reasonable access” to retail pharmacies where participants are located, and expects to pay at least 72% of prescription drug claims costs. When a simplified determination seems out of reach, the determination of creditable coverage status does not require an attestation by a qualified actuary unless the employer is electing the Medicare RDS (retiree drug subsidy), but the use of generally accepted actuarial principles in accordance with CMS guidelines is still required.
Providing the Creditable or Non-Creditable Notice
The employer must give a notice to Medicare-eligible individuals enrolled or seeking to enroll. Identifying these individuals can be difficult, particularly when eligibility for Medicare is based on a factor other than age, such as disability or end-stage renal disease. As a result, it is recommended employers provide Medicare Part D disclosures to everyone enrolled, or seeking to enroll, in the group plan.
CMS provides a model notice with fields the employer must complete. Employers do not have to use the model notices, but do have to ensure required content elements are provided. The model notice has not changed since 2011.
The notice may be sent by mail, handed out at work, or sent electronically if the DOL’s electronic disclosure requirements are met (i.e., employees have electronic access as a material part of their daily job or give consent to electronic delivery). If electronic delivery is chosen:
- the employer must inform the plan participant that the participant is responsible for providing a copy of the electronic disclosure to their Medicare eligible dependents covered under the group health plan; and
- the notice must be posted on the employer’s website, if applicable, with a link to the creditable coverage disclosure notice on the employer’s home page.
If The Employer Knows a Creditable Plan Will No Longer Be Creditable January 1
If an employer knows before the October 15th notice deadline that a creditable plan option is going to lose creditability starting January 1, the employer would ideally include that detail in the notice they provide or in a cover letter. Some individuals already eligible for Part D may have been delaying enrollment due to having creditable coverage through their employer, so knowing in advance that their coverage will not be creditable in January may influence whether they want to elect Part D during the open enrollment period that begins October 15 (electing during the Part D open enrollment allows Part D coverage to start January 1).
Special Rules Allow Providing in Open Enrollment Materials Instead of Sending by October 15
If an employer would prefer, they could call special attention to the required notice in open enrollment materials and avoid the need to send a special mailing (or avoid the need to send an email and link on their website home page). The notice just has to be provided anytime within the past twelve months before October 15th and must be “prominent and conspicuous” enough in open enrollment materials to call attention to the importance of it and direct people where to find it in the materials.*
This means that the disclosure notice portion of the document (or a reference to the section in the document being provided to the individual that contains the required notice) must be prominently referenced in at least 14-point font in a separate box, bolded, or offset on the first page of the provided plan participant information. This is typically accomplished by including a correctly sized text box in the table of contents pointing to the notices section or page of the open enrollment materials, such as this example:
*Note that this approach is likely inappropriate when there is a change in the plan’s creditable status since the last Medicare Part D Notice was distributed.
Penalties for Non-Compliance
While there is currently no direct penalty to an employer for failing to provide these notices, someone with non-creditable coverage who delays enrolling in Part D until after they are first eligible will experience a late enrollment penalty payable for life. Therefore, it is important employers are doing their part to regularly educate employees when one or more plan options are not creditable so they can know when they or a dependent should weigh the pros and cons of delaying Part D and being subject to a late enrollment penalty if they stay in the non-creditable plan.
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