Medicare Part D Changes May Impact Creditable Coverage Status of Employer Plan

A consequence of the Inflation Reduction Act of 2022 (IRA) (which included several cost-reduction Provisions affecting Medicare Part D plans) many plans will see an impact to the creditable coverage status of employer-sponsored prescription drug coverage beginning in 2025. The IRA caps the annual out-of-pocket maximum at $2,000 for prescription drug coverage for those enrolled in Medicare Part D. Employer prescription health plan coverage may no longer be considered creditable (at least as good as what Medicare Part D offers). The change in creditable status for the 2025 plan year requires sending a non-creditable Medicare Part D notice to plan participants. There is no requirement to maintain a creditable prescription drug plan. It is only required to send the appropriate Medicare Part D notice to plan participants and provide notice to CMS within 60 days of the beginning of the plan year. For more information on notice to CMS see the prior Leavitt Group article Plan Sponsors Should Ready for CMS Creditable Coverage Reporting Due March 1st | Leavitt Group News & Publications.

For those with off-calendar plan years, consider sending the Medicare Part D Non-Creditable Notice sooner than your open enrollment period in 2025 so that Medicare Part D eligible employees can enroll in Medicare before realizing the employer plan was not as good as the Medicare Part D plan, and the plan was not creditable (if using the simplified determination method in 2025 to determine creditable coverage status), causing a gap in creditable coverage beyond 63 days. Once there is a gap in creditable coverage beyond 63 days, there could be a late enrollment penalty to the Medicare eligible enrolling in Medicare Part D. The sooner the Medicare eligible knows the creditable status of the employer health plan in 2025, the sooner they can make plans for coverage changes. See Chapter 4 – Creditable Coverage Period Determinations and the Late Enrollment Penalty Guidance (cms.gov). Open enrollment for Medicare, including Part D prescription drug coverage, is October 15th through December 7th.

Action Necessary for Many Health Plans

Employers that provide prescription drug coverage to individuals who are eligible for Medicare Part D must inform these individuals and the Centers for Medicare and Medicaid Services (CMS) whether their prescription drug coverage is creditable, meaning that the employer’s prescription drug coverage is at least as good as Medicare Part D coverage. Previously, CMS stated in its Draft Part D Redesign Program Instructions that one of the methods for determining whether coverage is creditable (the “simplified determination” method) would no longer be valid as of calendar year 2025, given the significant changes made to Medicare Part D by the IRA. However, according to the Final Part D Redesign Program Instructions, CMS will continue to permit the use of the simplified determination methodology, without modification, for calendar year 2025 for group health plan sponsors who are not applying for the retiree drug subsidy. In future guidance, CMS will reevaluate the continued use of the existing simplified determination methodology or establish a revised one for calendar year 2026.

Creditable Coverage Determination

A group health plan’s prescription drug coverage is considered creditable if its actuarial value equals or exceeds the actuarial value of standard Medicare Part D prescription drug coverage, as demonstrated through the use of generally accepted actuarial principles and in accordance with CMS guidelines. In general, this actuarial determination measures whether the expected amount of paid claims under the group health plan’s prescription drug coverage is at least as much as the expected amount of paid claims under the Medicare Part D prescription drug benefit. 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. For at least the 2025 plan year (and in years prior), a simplified determination could also be used where not engaging in an actuarial determination.

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

• As a first step, employers with insured prescription drug plans should ask their carriers whether they have determined whether the plan’s coverage is creditable.
• For self-insured plans, or where the carrier for an insured plan has not made a determination about whether the plan is creditable, employers may use a simplified determination-as long as the coverage meets certain design requirements. If it doesn’t, the employer must use an actuarial determination method. In 2025, if the prescription drug plan does not also have a cap of $2,000 on the annual out-of-pocket maximum, the employer plan will not be at least as good as the Medicare Part D plan and not creditable. A Non-creditable Coverage Medicare Part D notice must be sent to plan participants for the 2025 plan and reported to CMS (see the article above for instructions).

CMS will continue to permit the use of the simplified determination methodology, without modification, for calendar year 2025 for group health plan sponsors who are not applying for the retiree drug subsidy. In future guidance, CMS will reevaluate the continued use of the existing simplified determination methodology or establish a revised one for calendar year 2026.

More information and resources on the IRA’s changes to Medicare Part Dare available on CMS’ Part D Improvements webpage.

Disclosure to Individuals

Plan sponsors must provide creditable coverage or non-creditable coverage disclosure notices to individuals each year before Oct. 15-the start date of the annual enrollment period for Medicare Part D. The disclosure notice alerts individuals as to whether their plan’s prescription drug coverage is creditable. Model notices are available for employers to use but have not been updated since the IRA changes. Although the CMS guidance has not been fully updated for consideration of the IRA impacts to notices or the simplified determination formula. An actuarial determination can also be made and may be suitable for more complex plans. Work with your Leavitt Group Trusted Advisor who can connect you with a preferred partner who can run the analysis.

For plans that will experience a change in creditable coverage status due to the IRA change on January 1, 2025 (meaning if they have more than a $2,000 annual out-of-pocket maximum for prescription drug coverage, the same limit as the Medicare Part D prescription drug plan, it is non-creditable coverage), plans should send the non-creditable coverage Medicare Part D notice as soon as possible to allow Medicare eligible employees to elect Medicare during the open enrollment period and not incur a late enrollment penalty for having non-creditable coverage for more than 62 days. If an off-calendar plan year, send the creditable coverage notice for months up to January 1, 2025 and non-creditable for months after January 1, 2025, explaining the change in creditable coverage determination due to the IRA change to Medicare Part D prescription drug plan coverage.

Disclosure to CMS

The disclosure to CMS is due within 60 days after the start of each plan year. For calendar year plans, this deadline is March 1 of each year (Feb. 29 for leap years). Plan sponsors are required to use CMS’ online disclosure form. For more information on notice to CMS see the prior Leavitt Group article Plan Sponsors Should Ready for CMS Creditable Coverage Reporting Due March 1st | Leavitt Group News & Publications.

Enforcement

There is no penalty or fee for the employer for offering prescription drug coverage that is non-creditable. Non-creditable prescription drug coverage can still be a valuable benefit for employees. However, individuals need to know whether their prescription drug coverage is creditable or non-creditable. If the coverage is non-creditable and Medicare-eligible individuals fail to enroll in Part D during their initial enrollment period, they can be subject to a higher Part D premium if they enroll in Part D at a later date.

There are also no specific penalties for employers that fail to comply with the Medicare Part D disclosure requirements, except for employers that are claiming the Retiree Drug Subsidy and failure to report to CMS the creditable status of the plan. However, by not providing creditable coverage disclosure notices, employers may trigger adverse employee relations issues. In addition, noncompliant employers may indirectly face consequences under other federal laws (such as the Employee Retirement Income Security Act’s fiduciary duty provisions). For additional details, see the prior Leavitt Group article Medicare Secondary Payer Reporting Penalties are Real. Have you Reported on Your Plan’s Status? | Leavitt Group News & Publications

Be sure to work with your Leavitt Group Trusted Advisor when it comes to your required notices and the creditable status of your plan.

Source: Zywave. Republished with permission. Some content by Leavitt Group.
Notice: This news alert is not intended as legal, financial or tax advice. Consult your own legal or tax professional for application to your plan.