Each year, employers with group health plans that offer prescription drug coverage must determine whether their prescription drug plan is as good as the one offered under Medicare Part D. You must then share this information with:
- Employees and dependents eligible for Medicare Part D
- The Centers for Medicare and Medicaid Services (CMS)
If your plan meets the standard benefit parameters set by CMS each year, your plan is “creditable.” If it does not, your plan is “non-creditable.”
Why does it matter?
Employees eligible for Medicare may enroll in Medicare Part D during their initial enrollment period. If they are still working or have other prescription drug coverage, they may delay enrollment. Medicare charges a penalty for late enrollment unless the individual had creditable coverage.
So, what is creditable coverage? In general, it is coverage that is as good as (or better) than what is offered under Medicare Part D.
CMS has tried to simplify this determination for you. If you are not applying for a retiree drug subsidy, your plan must:
- Cover brand-name and generic prescriptions.
- Provide reasonable access to retail providers.
- Pay (on average) at least 60% of participants’ prescription drug expenses.
- Satisfy at least one of the following:
- The prescription drug coverage has no maximum annual benefit or a maximum annual benefit payable by the plan of at least $25,000.
- The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare-eligible individual.
- For entities that have integrated health coverage, the integrated health plan has no more than a $250 deductible per year, has no maximum annual benefit or a maximum annual benefit payable by the plan of at least $25,000 and has no less than a $1 million lifetime combined benefit maximum.
If your plan does not meet all four of these standards, it is non-creditable.
Most health insurance carriers and third-party administrators will tell you whether your plan is creditable or non-creditable. If you need more information, refer to the Creditable Coverage Simplified Determination site at CMS.gov
Standard benefit parameters
If you don’t want to use the simplified determination to determine creditability, CMS issues parameters each year for the standard Medicare Part D prescription drug benefit. If your plan’s actuarial value equals or exceeds these amounts, it is creditable.
Parameters for 2022
- Deductible: $480
- Initial coverage limit: $4,430
- Out-of-pocket threshold: $7,050
- Total covered spending at the out-of-pocket expense threshold for beneficiaries who are not eligible for the coverage gap discount program: $10,012.50
- Estimated total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are eligible for the coverage gap discount program: $10,690.20
- Minimum cost-sharing under the catastrophic portion of the benefit: $3.95 for generic/preferred multi-source drugs and $9.85 for all other drugs
Parameters for 2023
- Deductible: $505
- Initial coverage limit: $4,660
- Out-of-pocket threshold: $7,400
- Total covered spending at the out-of-pocket expense threshold for beneficiaries who are not eligible for the coverage gap discount program: $10,516.25
- Estimated total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are eligible for the coverage gap discount program: $11,206.28
- Minimum cost-sharing under the catastrophic portion of the benefit: $4.15 for generic/preferred multi-source drugs and $10.35 for all other drugs
Test each of your medical plans
If you offer more than one health care plan, you must determine whether each plan is creditable or non-creditable. It is possible to offer plans that are creditable and non-creditable at the same time.
Online disclosure to CMS
Once you have determined whether a plan is creditable, you must complete the Online Disclosure to CMS Form. This form must be submitted online:
- Within 60 days of the start of the plan year
- Within 30 days of the plan’s termination
- Within 30 days of any change in creditable coverage status
If your plan year runs on a calendar year, you must provide your information to CMS no later than March 1.
You must submit this information for each of your health care plans, even if your plan is not primary for anyone enrolled in Medicare.
If you need help completing the form, CMS.gov has complete instructions that include easy-to-follow screenshots.
Written notification to employees
You must also provide employees with written notice of whether your prescription drug plan is creditable or non-creditable. These notices must be distributed before Oct. 15 each year to:
- Medicare-eligible employees and their dependents covered under your prescription drug plan
- Medicare-eligible individuals and their dependents covered under your COBRA prescription drug plan
- Medicare-eligible disabled employees and their dependents covered under your prescription drug plan
- Medicare-eligible retirees and their dependents covered under your prescription drug plan
Model disclosure notices
CMS has created model notice letters. You can find them in English and Spanish at CMS.gov. You will need to customize these notices for your plan. Be sure to add contact information and what happens if an employee drops coverage and decides to enroll again at a later date.
Remember, employees rely on these notices to help them decide whether to enroll in Medicare Part D. if your plan is non-creditable, an employee may want to elect Medicare Part D coverage during their initial enrollment period or within 63 days of losing creditable coverage to avoid late enrollment penalties.
Distributing the notices
Many employers provide notice to all employees and their dependents so they don’t have to keep track of Medicare eligibility. If you choose to follow this best practice, be sure to include all active employees, COBRA-qualified beneficiaries and retirees. Also, make sure to remind employees this information must be shared with dependents.
You may send the notices electronically if employees have job-related electronic access. Or, you may post your Medicare Part D notices on your company website or intranet. If you have more than one health care plan, make sure each plan is clearly linked to the appropriate notice.
If any enrollee does not have access to your company website or intranet, you must get their written consent to receive the notice electronically or you must send them a paper copy through the mail.
If your open enrollment period was before Oct. 15 and you included your Medicare Part D notice in the open enrollment packet, you do not have to resend the notice.
If your plan changes during the year
There are times when a prescription drug plan may change from creditable to non-creditable (or vice versa) during the year. If this happens, you will need to send updated notices to employees and dependents.
If you have questions
While CMS tries to make it as easy as possible, determining creditability can be confusing. Talk to your broker or benefits adviser. They can walk you through the process and provide the tools you need to meet CMS reporting requirements.
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