Important Update on New Medicare Part D Creditable Coverage Determination.

It was previously reported that the Inflation Reduction Act of 2022 (“IRA”) included certain cost-reduction provisions that may affect Medicare Part D plans by altering the creditable coverage status of some employer-sponsored prescription drug coverage, beginning in the 2025 calendar year. However, according to the Final Part D Redesign Program Instructions, CMS has elected to continue permitting use of the simplified determination methodology, without modification throughout the 2025 calendar year, respecting group health plan sponsors who are not applying for the retiree drug subsidy. In future guidance, CMS will reevaluate and/or reissue the existing simplified determination methodology for application in calendar year 2026.

Employer Action Items

• Confirm whether health plan prescription drug coverage for 2025 is creditable or non-creditable as quickly as administratively practicable to ensure appropriate time to prepare to submit Medicare Part D disclosure notices;
• Closely monitor future agency guidance form CMS as related to utilization of the simplified determination method for calendar year 2026, and beyond.

Summary

CMS will continue to permit the use of the simplified determination methodology, without modification, for calendar year 2025 respecting all group health plan sponsors not applying for the retiree drug subsidy. In future guidance, CMS will reevaluate and/or reissue guidance regarding utilization of the simplified determination methodology for calendar year 2026.

Creditable Coverage Determination

A group health plan’s prescription drug coverage is considered creditable if the plan’s underlying actuarial value equals or exceeds the actuarial value of standard Medicare Part D prescription drug coverage, as demonstrated using generally accepted actuarial principles and in accordance with CMS guidelines. In general, such a determination is designed to measure whether the expected amount of claims paid under the group health plan’s prescription drug benefit will cost at least as much as the expected cost of claims paid under Medicare Part D prescription drug benefits. For plans that have multiple benefit options (for example, PPOs, HDHPs and HMOs), the creditable coverage test must be applied separately for each benefit option.

Under existing CMS guidance, there are different ways for an employer to determine whether its prescription drug coverage is creditable:

• Employers with insured prescription drug plans should ask their carriers/issuers whether their plan’s prescription coverage is deemed creditable in nature; or,
• For self-insured plans (or to the extent the carrier/issuer for an insured plan has not determined the plan’s creditable status), employers may use a simplified determination.
  • The simplified determination evaluates whether the coverage meets certain design-based requirements (depending in part on whether the prescription drug benefits are integrated with other types of benefits, or if they are offered on a stand-alone basis).
  • If the plan is not able to use the simplified determination, then an actuarial determination is required.

Disclosure to Individuals

Plan sponsors must provide notice of the creditable coverage status of their plan(s) to all Part D eligible individuals once each year on or before October 15 (the starting date for annual enrollment for Medicare Part D). The notice alerts individuals as to the plan’s creditable status respecting prescription drug coverage. Model notices are available for use.

Disclosure to CMS

Employer disclosure to CMS is required and due within 60 days following the first day of each plan year. For calendar year plans, the deadline is March 1 (February 29 for leap years). Plan sponsors are required to report utilizing the online disclosure form sponsored by CMS, as further detailed on their website.

Enforcement

There is no penalty or fee associated with an employer’s failure to offer creditable prescription drug coverage. Non-creditable prescription drug coverage may be a valuable benefit for employees in limited instances; however, participants need to know if prescription drug coverage is creditable or non-creditable prior to electing to enroll, or to deferring enrollment, in Part D of the Medicare program benefits. If the coverage is non-creditable and Medicare-eligible individuals fail to enroll in Part D during their initial enrollment offering, they may be subject to a higher Part D premium when they subsequently enroll in Part D.

There are no penalties for employers associated with failing to comply with the Medicare Part D disclosure requirements, notwithstanding employers claiming benefits under the Retiree Drug Subsidy program. That said, by failing to provide creditable coverage notices, employers may inadvertently trigger adverse employee relations issues. Additionally, noncompliant employers may indirectly face consequences under other federal laws (such as violations of the fiduciary duties espoused under the law of ERISA).

For More Information

• CMS guidelines;
• More information and resources on the IRA’s changes to Medicare Part D are available on CMS’ Part D Improvements webpage.