While employers sponsoring a group health plan with prescription coverage are not required to offer Medicare Part D credible coverage, they are required to determine if their prescription drug coverage is credible and must then communicate that information to Medicare-eligible employees and their family members on an at least annual basis.
Under the Inflation Reduction Act (IRA) Medicare Part D coverage will be expanded in 2025. This expansion of benefits could impact whether an employer’s group health plan provides credible prescription drug coverage. Plans that previously met credible coverage status may no longer be credible beginning in 2025. Employers who offer prescription drug coverage need to be aware of these Medicare Part D changes and take the required steps to understand whether their group health plan meets credible coverage criteria and then clearly communicate the status to both eligible employees and CMS.
Why is Credible Status Important?
Individuals become eligible for Medicare Part D (prescription drug coverage) upon enrolling in Medicare Part A, Medicare Part B, or both. Individuals who are eligible for Medicare Part D can delay enrollment if they are enrolled in other creditable prescription drug coverage (e.g., through an employer-sponsored group health plan). However, an individual who delays Medicare Part D enrollment and goes 63 days or more without creditable prescription drug coverage may then face late enrollment penalties when the individual eventually chooses to enroll in Medicare Part D.
How to Determine if your Group Health Plan Prescription Drug Coverage is Credible?
Prescription drug coverage is creditable if the actuarial value of the coverage equals or exceeds the actuarial value of standard prescription drug coverage under Medicare Part D. In other words, coverage is creditable if the expected amount of paid claims for prescription drugs under the coverage is at least as much as the expected amount of paid claims under the standard Medicare Part D benefit. Often an insurance carrier or third-party administrator (TPA) will provide information to a plan sponsor detailing whether a plan’s drug coverage is creditable. But if a plan sponsor does not receive this information from the carrier or TPA, the plan sponsor (e.g., the employer) is responsible for making the determination, or for hiring an actuary to help with the determination.
What Changes are Coming to Medicare Part D in 2025?
Beginning in 2025 the IRA introduces several key changes to Medicare Part D aimed at addressing rising prescription drug costs and enhancing coverage. These changes include:
- Out-of-Pocket Cap: Introducing a cap on out-of-pocket expenses for Medicare beneficiaries, which limits the amount they have to spend on prescription drugs annually.
- Negotiation of Drug Prices: Allowing Medicare to negotiate drug prices directly with pharmaceutical companies, potentially reducing costs for beneficiaries.
- Expansion of Coverage: Increasing coverage for certain medications, particularly those for chronic conditions, to ensure broader access and affordability.
- Enhanced Transparency: Improving transparency in drug pricing and rebate systems to provide clearer information to beneficiaries and healthcare providers.
These changes will likely impact the actuarial value of the coverage available under Medicare Part D. For this reason, employers who have previously assumed creditable status from one plan year to the next may need to take a closer look at whether their plan design for 2025 will still meet creditable status.
NOTE: For employer-sponsored prescription drug coverage, creditable status determinations must be made upon plan renewal. For example, for an August – July plan year, creditable status based on the 2025 Medicare Part D changes must be determined for the plan that goes into effect in August 2025. Creditable status for the August 2024 – July 2025 plan year is tied to the 2024 Medicare Part D plan design.
Required Disclosure of Credible Status to Eligible Participants
Detailed Guidance from CMS on Disclosures
Medicare Credible Coverage Model Notice Letters (in English and Spanish)
The notice must be provided to Medicare Part D eligible individuals who are eligible to enroll in the plan sponsor’s prescription drug plan. This includes employees, COBRA participants, and retirees, as well as their spouses and dependents. Individuals are eligible for Medicare Part D if they are enrolled in either Medicare Part A or Medicare Part B and live in the service area of a Medicare Part D plan. Since it may be difficult for a plan sponsor to identify which individuals are eligible for Medicare Part D (e.g., spouses or disabled dependents), many plan sponsors choose to provide the disclosure notice to everyone who is eligible to enroll in their prescription drug plan.
The notice is required to be provided to Medicare Part D eligible individuals at the following times:
- Annually: Every year before October 15th, which is the start of the Medicare Part D Annual Election Period.
- Upon a change: If there’s a change in the plan’s creditable coverage status, you must notify the individuals immediately (mid-year plan change).
- Upon Request: Anytime a Medicare-eligible individual requests the notice.
Required Reporting of Credible Status to CMS
Instructions and Online Form for Reporting Credible Status to CMS
This reporting is due within 60 days of the beginning of each new plan year. For example, for calendar year plans, the due date will be March 1 (or February 29 if a leap year). In addition, disclosure must be made within 30 days after termination of the prescription drug plan, and within 30 days after any change to the creditable status of the prescription drug plan if the change occurs mid-plan year. This reporting is separate from the required Medicare Part D creditable/non- creditable coverage notice that is provided to participants upon initial eligibility and annually each year.
Conclusion
Medicare Part D Creditable Coverage Status Notifications are an essential part of managing employee benefits. As 2025 approaches staying informed and proactive is important. By understanding what these notices are, when they need to be sent, and how to deliver them, you can help your Medicare-eligible employees avoid unnecessary penalties and make informed decisions about their healthcare.
Kristin Young, JD, PHR, SHRM-CP | Operations and Compliance Manager
