Sarah Borders December 23, 2025 3 min read

Changes Proposed to Medicare Part D Creditable Coverage Guidelines for 2027

The Centers for Medicare and Medicaid Services (CMS) proposed to explicitly exempt Health Reimbursement Arrangements (HRAs), including Individual Coverage HRAs (ICHRAs), from issuing Part D creditable or non-creditable notices. They also propose to increase the actuarial value threshold for prescription drug coverage to be creditable for 2027 and future years.

Applies To:

Employers sponsoring an HRA or ICHRA.
Employer prescription drug plan for which creditability is not determined so a simplified determination actuarial tool must be used.

Go Deeper:

HRA/ICHRA Exemption from Notice of Creditable Coverage

First, CMS proposed explicitly exempting certain account-based plans from providing the annual Notice of Creditable Coverage to Medicare Part D-eligible individuals, as well as the obligation to notify CMS each plan year of whether their prescription drug coverage is creditable or non-creditable. This exemption would apply to account-based plans that reimburse prescription drug expenses, including Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), and Health Reimbursement Arrangements (HRAs), including Individual Coverage HRAs (ICHRAs).

While this change (if finalized) would ease administrative burdens for sponsors of these types of plans, it is important to note that it would not affect traditional group health plans, which still must continue to provide notices and report their status each year as they have since 2006.

Revised Actuarial Value Percentage

CMS also proposed increasing the actuarial value threshold used to determine whether prescription drug coverage is creditable in 2027. The revised simplified determination method introduced for 2026 requires the plan to pay at least 72% of covered prescription drug expenses (meaning employees are expected, on average, to pay no more than 28% of covered prescription drug expenses). The proposal is to increase to 73% for 2027, and incrementally increase for 2028 and 2029, eventually settling at 75% for 2030.

Fortunately, group health plans are not required to offer prescription drug coverage that is deemed creditable. Also, most insurance carriers, third party administrators (TPAs), or pharmacy benefit managers (PBMs) determine creditability for prescription drug plans. But, in the event an employer must make their own determination, an actuarial tool is likely used, and such tools will be updated to reflect the 72% actuarial value standard for next year along with any official indexing for future years once finalized.

The important requirement for employers is to issue the correct notice of creditable or non-creditable notice and report the creditability status to CMS each year.

Sarah Borders

Principal, Benefits Compliance Solutions. Sarah has spent the last 15 years in the employee benefits industry, has numerous designations and serves on NAHU’s Employer Working Group Subcommittee and is an active board member of Austin AHU. She recently stepped down as Vice President of Benefits Compliance at one of the nation's largest brokerage firms to start her own compliance consulting practice. Her designations include an active license with the Texas Department of Insurance, CEBS (Certified Employee Benefits Specialist), Certified Health Care Reform Professional, HIPAA certification and Health Care Service Associate. She holds an MBA from Texas A&M Corpus Christi and a BA from University of Incarnate Word. Her consulting firm, Benefits Compliance Solutions, partners with employers to identify unknown risks and avoid hundreds of thousands of dollars in fines and lawsuits from failure to comply with their healthplan obligations.