Medicare Part D Creditable Coverage: CMS Finalizes Revised Simplified Determination Method for 2026

Creditable Coverage

Prescription drug coverage is considered “creditable” when its actuarial value equals or exceeds the actuarial value of standard Medicare Part D prescription drug coverage. Generally, this actuarial determination measures whether the expected amount of paid claims under the group health plan’s prescription drug coverage is at least as much as the expected amount of paid claims under the Medicare Part D prescription drug benefit. It is considered “non-creditable” when it does not provide, on average, as much coverage as Medicare's standard Part D plan.

Employer plan sponsors are not required to offer prescription drug coverage to their employees. However, they are required to annually notify Medicare Part D-eligible plan participants of their prescription drug plans’ creditable coverage status (typically referred to as the “Notice of Creditable Coverage”). Individuals eligible for Medicare Part D who fail to maintain creditable coverage for a period of 63 continuous days or more will face a late enrollment penalty when they eventually enroll in Part D. As a result, this Notice of Creditable Coverage serves an important purpose for these individuals to prove they maintained creditable coverage and avoid late enrollment penalties when they ultimately enroll in Part D. Click here for a Risk Strategies article with more details.

Determination of Creditable Coverage

There are currently two sanctioned methods to determine whether coverage is creditable for purposes of Medicare Part D — a simplified determination method and an actuarial method. Many employer plan sponsors use the simplified determination method to determine creditable coverage status for their prescription drug coverage.

Details from CMS regarding the current simplified determination method can be found on the CMS website by clicking here.

Below is a summary of the current simplified determination method to deem a prescription drug coverage benefit creditable:

1. The plan provides coverage for brand and generic prescriptions;
2. The plan provides reasonable access to retail providers;
3. The plan is designed to pay on average at least 60% of participants’ prescription drug expenses; and
4. The plan satisfies at least one of the following:
   • The coverage has no annual benefit maximum or maximum annual benefit payable by the plan of at least $25,000;
   • The coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare-eligible individual; or
   • For employer plan sponsors that have integrated prescription drug and health coverage, the integrated plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit of at least $25,000, and has no less than a $1,000,000 lifetime combined benefit maximum.

Employer plan sponsors who have historically relied on the simplified determination method to determine their plan’s creditable coverage status are able to continue to use this method for 2025, as confirmed by CMS in its Final CY 2025 Part D Redesign Program Instructions.

Employer plan sponsors participating in the Retiree Drug Subsidy (RDS) program^[1] cannot use the simplified determination method and must use the actuarial method, using generally accepted actuarial principles in accordance with CMS actuarial guidelines.

Final CY 2026 Part D Redesign Program Instructions for 2026

As we previously reported here, CMS released Draft CY 2026 Part D Redesign Program Instructions (“Draft Instructions”) for calendar year 2026 on January 10, 2025. CMS released the Final Instructions on April 7, 2025.

The Draft and Final Instructions both confirm that the current simplified determination methodology no longer reflects actuarial equivalence with defined standard Medicare Part D coverage due to enhancements to the Part D benefit under the IRA. As such, CMS finalized a revised simplified determination methodology that better reflects actuarial equivalence with the richer Part D defined standard benefit under the IRA for the 2026 calendar year.

CMS’s commentary and insight in connection with the changes to this revised simplified determination method, contained in both the Draft and Final Instructions, are summarized below:

1. Addition of biological products: due to changes in the prescription drug and pharmaceutical technology landscape since the current simplified methodology determination was first developed and released in 2009.
2. Removal of annual and lifetime benefit maximums: due to changes under the Affordable Care Act, which have generally eliminated such annual and lifetime benefit maximums in group health plans.
3. Removal of an annual deductible: CMS explains here that it is currently uncommon for group health plan and prescription plan drug coverage to be separate benefits.

4. Change to 72% payment threshold (from 60%): due to benefit changes required by the IRA^[2], which significantly enhanced the Part D benefit.

   CMS determined that the 60% value is no longer an accurate representation of the value of the Part D benefit and that group health plan coverage must be designed to pay on average at least 72% of participants’ prescription drug expenses in order for its actuarial value to equal or exceed the actuarial value of standard Medicare Part D prescription drug coverage.

   High-Deductible Health Plans (HDHP) & 72% Payment Threshold

   Although high-deductible health plans (HDHPs) might facially appear less likely to satisfy the higher 72% payment threshold for prescription drug expenses under the revised simplified determination method, both the Final and Draft Instructions include several recommendations detailed below to mitigate this risk:

   • not applying a deductible to preventive (i.e., maintenance) medications,
   • a reasonable and supportable allocation of the deductible attributable to prescription drug expenses, or
   • offering lower cost-sharing than standard Part D coverage once the deductible is met.

Notably, the Final Instructions clarify that for calendar year 2026 only, non-RDS group health plans will be provided the choice to use either the current simplified determination methodology or the revised simplified determination methodology to determine whether their prescription drug coverage is creditable.*

CMS stated in the Final Instructions that they are providing non-RDS group health plans the choice between the current and revised simplified determination methods for calendar year 2026 for the following purposes:

1. minimize potential risks to the employer group market and to Part D eligible individuals who may no longer have access to creditable coverage through an employer plan,
2. allow for maximum flexibility for plan design while still ensuring that Part D eligible individuals covered by a plan meeting the creditable coverage requirements will continue to have robust prescription drug coverage that is at least as good as Part D coverage, and
3. ensure that all interested parties have sufficient time to implement changes for calendar year 2026.

Calendar Year 2027

For the 2027 calendar year, the Final Instructions note that CMS intends to no longer permit the use of the current simplified determination method. If finalized, this would result in non-RDS group health plans having to use either the actuarial method or the revised simplified determination method for the 2027 calendar year.

Employer Plan Sponsor Considerations

As non-RDS employer plan sponsors start to consider and strategize their group health plan design, including prescription drug coverage, for the 2026 calendar year, they should review the guidance provided in these Final Instructions.

In particular, non-RDS employer plan sponsors should be aware of the choice to use any of the following methods to determine creditable coverage status of their plans for the 2026 calendar year:

1. the current simplified determination method,
2. the revised simplified determination method, or
3. the actuarial method (if the plan design does not meet the requirements of 1 and 2 above).

Additionally, employer plan sponsors with HDHPs are advised to review the recommendations by CMS (detailed above here) to mitigate the risk that their HDHP plan design will not meet creditable coverage requirements for the 2026 calendar year.

As a reminder, employer plan sponsors will generally determine the creditable coverage status of their group health plans as outlined below:

• Fully-Insured Plans: Employers who sponsor fully-insured group health plans can typically rely on their plan insurance carriers to determine creditable status of their prescription drug coverage.
• Self-Funded Plans: For employers with self-funded health plans (including level-funded plans), your Risk Strategies account team can assist with the creditable status determination of your prescription drug coverage if the plan’s third-party administrator or pharmacy benefit manager does not provide the determination.

Risk Strategies is here to help. Contact your Risk Strategies account team with any questions or contact us directly here.

[1] The RDS program is one of several options available under Medicare that enables employers and unions to continue assisting their Medicare-eligible retirees in obtaining more generous drug coverage, with the cost subsidized by the federal government.

[2] Including $35 cost-sharing cap on a month’s supply of each covered insulin product, access to recommended adult vaccines without cost-sharing, the implementation of an annual OOP threshold ($2,100 for 2026), and the elimination of the coverage gap phase of the benefit.