July 2026
Paul Van Brunt, Sr. Associate Director Benefits Compliance
The Medicare Part D creditable coverage rules are changing in 2027, and employers that have historically relied on the simplified determination method should take a fresh look at their plans. Because the new standard released by the Centers for Medicare and Medicaid Services (“CMS”) raises the threshold for creditable coverage, some plans that qualified in the past may no longer be creditable. While employers are not required to provide prescription plans that meet Medicare Part D creditable coverage requirements, it’s important to work with your insurer, pharmacy benefit manager (“PBM”), third-party administrator (“TPA”), or broker to help identify any issues and avoid surprises for your Medicare-eligible employees when it comes time to distribute Medicare Part D notices.
Why this matters
Individuals who are eligible for Medicare Part D and go without creditable prescription drug coverage for 63 consecutive days or longer may be subject to a permanent late enrollment penalty when they eventually enroll in Part D. Because of this, employers that offer prescription drug coverage must determine whether their coverage is creditable and provide annual notices to Medicare-eligible participants so they can make informed decisions about their coverage for 2027.
What’s changing in 2027?
Historically, many employers have relied on CMS’s simplified determination method to assess whether their prescription drug coverage was creditable. Under the original methodology, plans generally needed to cover brand and generic drugs, provide reasonable access to retail pharmacies, and pay at least 60% of participants’ prescription drug expenses, on average.
As a result of Medicare Part D’s redesign, CMS concluded that the old 60% standard no longer reflects the value of today’s Medicare drug benefit. Beginning in 2027, employers using the simplified method must satisfy a new standard requiring plans to pay, on average, at least 73% of participants’ prescription drug costs to be considered creditable for their employees and is subject to adjustments in subsequent years. In addition, plans must cover brand-name drugs, generic drugs, and biologics and provide reasonable access to retail pharmacies.
For many plans, this higher threshold may make it more difficult to qualify as creditable coverage under the simplified method. However, the alternative method for determining creditability is an actuarial analysis which some carriers, PBMs, or TPAs may provide, or the analysis can be done through an outside vendor.
Additional relief for account-based plans
CMS also finalized a welcome administrative simplification for account-based arrangements. Beginning in 2027, health reimbursement arrangements (“HRAs”), individual coverage HRAs (“ICHRAs”), health savings accounts (“HSAs”), and health flexible spending accounts (“FSAs”) are no longer required to determine or disclose Medicare Part D creditable coverage status. CMS concluded that these arrangements do not provide direct prescription drug benefits and, therefore, are not appropriate for comparison to Medicare Part D coverage.
Employer action items
- Request your plan’s 2027 creditable coverage determination now from your insurer, TPA, or PBM.
- Confirm whether your prescription drug coverage satisfies the revised 73% standard or whether an actuarial test will be required.
- Consider an actuarial analysis if the plan does not clearly satisfy the revised simplified methodology.
- Continue to distribute Medicare Part D creditable/non-creditable coverage notices to Medicare-eligible individuals and complete required CMS disclosures for applicable plans.
Additional information and resources
For more information
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