Compliance FYI: Medicare Part D Changes and Impact
Senior Compliance Attorney
The Centers for Medicare & Medicaid Services (CMS) requires employers to notify individuals eligible for Medicare Part D whether the employer’s prescription drug coverage is creditable. CMS defines “creditable coverage” as coverage which at minimum has the equivalent actuarial value of Medicare Part D coverage (“Part D”).
The purpose of the notification requirement is to assist Part D eligible individuals make an informed decision about initial enrollment in Part D.
The Inflation Reduction Act of 2022 (IRA) made several changes to benefits provided under Part D. The changes, effective January 1, 2025, may result in plans being deemed “non-creditable” when they were previously “creditable.”
Determining Creditable Coverage
Creditable/non-creditable coverage is determined by using one of two approaches permitted by CMS: the simplified determination method and the actuarial determination method.
Simplified Determination Method
Employer provided prescription drug coverage is “creditable” under the simplified determination method if the employer does not apply for the retiree drug subsidy and coverage meets certain plan design safe harbors. Despite the IRA changes, CMS will permit the use of the simplified determination method for calendar year 2025. The requirements of the simplified determination method vary between integrated and non-integrated plans.
Integrated Plan vs Non-Integrated Plan
An integrated plan is any plan offered to Medicare eligible individuals where the prescription drug benefit is combined with other coverage offered by the entity (medical, dental, vision, etc.) with the following provisions:
- A combined plan year deductible for all benefits under the plan,
- A combined annual benefit maximum for all benefits under the plan, and
- A combined lifetime benefit maximum for all benefits under the plan.
A non-integrated plan is any plan that does not meet the criteria to be considered an integrated plan.
Simplified Method-Integrated Plan
An integrated plan is creditable if it:
- Provides coverage for brand and generic prescriptions,
- Provides reasonable access to retail providers,
- The plan is designed to pay on average at least 60% of participants’ prescription drug expenses and,
- The integrated health plan has:
- no more than a $250 deductible per year,
- no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000, and
- no less than a $1,000,000 lifetime combined benefit maximum. 1
Simplified Method-Non-Integrated Plan
A non-integrated plan is creditable if it:
- Provides coverage for brand and generic prescriptions,
- Provides reasonable access to retail providers,
- The plan is designed to pay on average at least 60% of participants’ prescription drug expenses and,
- Satisfies one of the following:
- The prescription drug coverage has no annual benefit maximum benefit or a maximum annual benefit payable by the plan of at least $25,000 or 2
- 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.
Actuarial Determination Method
Prescription drug coverage that is considered non-creditable under the simplified method may still be creditable under the actuarial determination method. Under the actuarial determination method, prescription drug coverage is considered creditable if the actuarial value of the coverage equals or exceeds the actuarial value of the defined standard prescription drug coverage using generally accepted actuarial principles and meeting CMS actuarial guidelines.
IRA Changes to Part D and the Impact on Creditable Coverage
Under the IRA, starting January 1, 2025, Part D out of pocket spending is capped at $2,000 and the coverage gap phase (also called the “donut hole”) will be eliminated. See M3’s article highlighting the complete changes to Part D here. These changes to Part D have the potential to impact a prescription drug plan’s creditable coverage status as Part D is providing greater benefits than in past years.
Currently, the changes do not change the process for determining creditable coverage under the simplified determination method. Employers who can leverage the simplified determination method are less likely to see their creditable coverage status change from years past. However, CMS has indicated that the simplified determination method is only available for the 2025 calendar year and in subsequent years the simplified determination method may be altered or unavailable.
Prescription drug plans required to use the actuarial determination method may have a greater impact on their creditable coverage status as they need to compare the benefits provided under their plan with the benefits provided under Part D. With richer benefits under Part D, more employer sponsored prescription drug plans may be non-creditable as result.
Fully insured plans would be well served to check with their carrier for information regarding their creditable/non-creditable coverage status. Self-funded plans would be well served to check their creditable/non-creditable coverage status with their third-party administrator (TPA) and/or their pharmacy benefit manager (PBM). If your carrier, TPA, or PBM cannot assist with the creditable/non-creditable coverage determination, you can contact your M3 Team for assistance.
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1 The ACA prohibits benefit and annual limits.
2The ACA prohibits benefit limits.
Disclosing Creditable Coverage Status
Once a plan has determined it’s creditable/non-creditable coverage status it must disclose its status.
Timing
The creditable/non-creditable coverage notice must be given at the following times:
- Annually prior to October 15th each year;
- Prior to an individual’s Initial Enrollment Period (IEP) for Part D, which is the period during which an individual is first eligible to enroll in Part D (which runs concurrently with an individual’s Medicare Part A & B eligibility period);
- Prior to the effective date of coverage for any Medicare eligible individual that joins the entity’s plan;
- Whenever the entity no longer offers prescription drug coverage or changes the coverage offered so that it is no longer creditable or becomes creditable; and
- Upon request by the Part D eligible member.
We do recommend that employers send the notice to all participants in the plan, because it is difficult for an employer to know who may or may not be on Medicare or who will become eligible within the next 12 months. Remember, this notice is not only for employees, but also dependents, and Medicare is not just for those over 65. Click here for more information and the model notices.
In addition to providing notification to employees regarding whether the prescription drug coverage is “creditable” or “non-creditable”, employers must also disclose the same information to CMS. This disclosure must be submitted to CMS on an annual basis and whenever changes are made to the prescription drug coverage that would affect whether the coverage is creditable. This disclosure must be provided within 60 days after the beginning of the plan year.
Method
Notices do not need to be sent as a separate mailing and can be included with other plan participant information (enrollment/open enrollment materials). Plan sponsors may provide the disclosure electronically if the DOL electronic delivery requirements are met. These requirements allow the plan sponsor to provide the notice to plan participants that have the ability to access electronic documents at their regular place of work if they have access to the plan sponsor’s electronic information system on a daily basis as part of their work duties. If a plan sponsor provides the notice electronically, the plan participant must be informed that the participant is responsible for providing a copy to their Medicare eligible dependents covered by the prescription drug coverage.
If the disclosure(s) is included with other plan participant information, the disclosure must be prominent and conspicuous. This means that 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 of the provided plan participant information.
Example Language:
If you (and/or your dependents) have Medicare or will become eligible for Medicare in the next 12 months, a Federal law gives you more choices about your prescription drug coverage. Please see page xx for more details.
Key Takeaways:
Employers, as sponsors of the prescription drug plan, are responsible for determining and disclosing their prescription drug plan’s creditable or non-creditable coverage status. Despite changes to Medicare Part D in 2025, employers can continue to use the simplified determination method to determine their creditable coverage status in calendar year 2025 if it applies.
Employers with fully insured plans would be well served to check with their insurance carrier regarding their creditable coverage status. Employers with self-funded plans should check with their TPA or PBM regarding their creditable coverage status. If your carrier, TPA, or PBM cannot assist you with the determination, you can contact your M3 Team for assistance.
The information provided is a summary of laws and regulations relating to employee benefit plan compliance. This information should not be construed as legal advice. In all cases, employers should consult with their own legal counsel.
