Upcoming Medicare Part D Creditable Coverage Notice Distribution Deadline

The annual Medicare Part D enrollment period, which generally runs from October 15 until December 7 each year, is quickly approaching. Employers who offer prescription drug coverage must distribute a notice of "creditable" or "non-creditable" coverage to Medicare-eligible individuals before October 15, 2024.

This notice requirement applies to all employers who sponsor a prescription drug coverage plan, regardless of plan size, ACA grandfathered status, or whether fully insured or self-funded.

In addition to the October 15 distribution deadline prior to Medicare Part D annual enrollment, the notice is also required to be provided at other times including:

• Prior to an individual’s initial enrollment period for Part D
• Prior to the effective date of coverage for any Medicare-eligible individual who joins the plan
• When prescription drug coverage terminates or changes creditable/non-creditable status
• Upon request

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.

Employers are not required to offer prescription drug coverage to their employees. However, they are required to notify Medicare Part D-eligible plan participants of their prescription drug plans’ creditable coverage status.

Note that due to several changes to Medicare Part D plans, beginning in 2025, some employer-sponsored prescription drug plans might find it challenging to meet creditable coverage requirements and will be considered “non-creditable” in 2025. Click here for a Risk Strategies article with more information.

Determination of Creditable Coverage

There are two sanctioned methods to determine whether coverage is creditable for purposes of Medicare Part D — a simplified determination method and an actuarial method. Most employer plan sponsors can use the simplified determination method. Details from the Centers for Medicare and Medicaid Services (CMS), the federal agency governing Medicare, on the simplified determination method can be found on the CMS website by clicking here.

Below is a concise summary of the 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^[1]:
   • 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 employers 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.

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

Employers participating in the Retiree Drug Subsidy (RDS) program cannot use the simplified determination method and must use the actuarial method, using generally accepted actuarial principles in accordance with CMS actuarial guidelines. Risk Strategies has a team of qualified actuaries who can assist with this method.

For employers offering multiple plan options (for example a PPO, an HDHP, and/or an HMO), the creditable coverage status must be determined separately for each plan option.

Notice of Creditable Coverage Distribution Requirements

The notice of creditable (or non-creditable) coverage must be distributed to all Medicare-eligible individuals who are covered under an employer’s prescription drug coverage plan. This may include not only active employees and their covered dependents, but also disabled employees, retirees, COBRA participants, and their covered spouses and dependents in each instance.

Since most employers will not generally know whether a covered spouse or dependent is Medicare-eligible, it is common practice to send the notice to all active and disabled employees, retirees, and COBRA individuals. Employers must include clear language in the notice directing the recipient to provide the notice to any Medicare-eligible spouses and dependents covered under the plan. However, a separate notice must be provided if an employer happens to know that any spouse or dependent participating in the plan who is eligible for Medicare Part D resides at a different address from the employee or retiree.

The notice may be mailed out as a separate, stand-alone document or included as part of open enrollment or other benefit-related materials as long as it is prominent and conspicuous within the other materials. To satisfy the “prominent and conspicuous” requirement, 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 statement) must be prominently referenced in at least 14-point font in a separate box, bolded, or offset on the first page. See below for an example of what this “separate box” should look like based on CMS guidance:

The notice can also be sent electronically as long as plan participants have regular work-related computer access in accordance with the Department of Labor rules regarding electronic delivery methods^[2]. Employers that send the notice electronically must also inform plan participants that they are responsible for providing a copy of the notice to their Medicare-eligible dependents covered under the group health plan.

CMS Model Notice

CMS provides model notices (accessed here), available in both English and Spanish, which employers can leverage to satisfy their notice distribution requirements.

If an employer chooses not to use the CMS model notices, the employer’s customized notice must still include certain information including the following:

• A disclosure about whether the plan’s coverage is creditable
• The meaning of creditable coverage (as defined in the guidance)
• An explanation of why creditable coverage is important and that the individual may be subject to payment of higher Part D premiums if they fail to enroll in a Part D plan when first eligible

Purpose of the Medicare Part D Notice of Creditable Coverage

There are no specific penalties for an employer who fails to provide the Medicare Part D Notice of Creditable Coverage to employees. However, 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 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.

CMS Medicare Part D Disclosure Reporting

Although the Medicare Part D Notice of Creditable Coverage must be distributed before October 15 each year, employers offering prescription drug coverage are also required to annually disclose to CMS the plan’s creditable status within 60 days of the start of the plan year. For employers with calendar year plans (January 1 – December 31), the deadline to complete this disclosure to CMS is typically March 1.

Click here for a previous Risk Strategies article with more information on CMS Medicare Part D disclosure reporting requirements.

Next Steps for Employers

The first step for employers is to determine whether their prescription drug coverage is creditable or non-creditable.

• Fully Insured Plans: Employers who sponsor fully insured group health plans typically rely on their carriers to determine the creditable coverage 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 determining the creditable coverage status of your prescription drug coverage if the plan’s third-party administrator or pharmacy benefit manager does not provide the determination.

Once the coverage’s creditable status is determined, employers are advised to prepare and distribute the applicable notice before October 15, 2024.

Risk Strategies is here to help. Contact your Risk Strategies team members for further assistance or email us directly at benefits@risk-strategies.com.

[1] The Affordable Care Act prohibits health plans from imposing lifetime and annual limits on the dollar value of essential health benefits.

[2] In accordance with DOL Reg. §2520.104b-1(c)(1).