Changes to Medicare Part D May Affect the Creditable Coverage Status of Employer Plans
The Inflation Reduction Act of 2022 (IRA) includes several cost-reduction provisions affecting Medicare Part D plans, which may impact the creditable coverage status of employer-sponsored prescription drug coverage beginning in 2025.
Employer Action Items
- Employers should monitor CMS’ final program instructions for 2025, which are expected to be published no later than April 1, 2024;
- Employers should confirm whether the prescription drug coverage offered under their group health plans for 2025 is creditable or non-creditable as soon as possible, as the deadlines for preparation and submission of the Medicare Part D disclosure notices is approaching.
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 yet decided whether the plan is creditable, employers may use a simplified determination if the coverage meets certain design requirements. If it doesn’t, the employer must use an actuarial determination method. However, CMS has stated that the simplified determination method will no longer be a valid methodology to determine creditable coverage status as of calendar year 2025.
According to the CMS, as of calendar year 2025, the simplified determination methodology will no longer be valid to determine whether an entity’s prescription drug coverage is creditable.
Summary
Employers that provide prescription drug coverage to individuals who are eligible for Medicare Part D must inform these individuals and the Centers for Medicare & 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.
CMS’ Draft Part D Redesign Program Instructions state that given the significant changes that the IRA made to Medicare Part D, one of the methods for determining whether employer-sponsored prescription drug coverage is creditable will no longer be valid as of calendar year 2025. These draft program instructions are subject to change, and CMS will issue final program instructions for 2025 after considering the public comments received in response to the draft program instructions.
Disclosure to Individuals
Plan sponsors must provide creditable coverage disclosure notices to individuals each year before October 15—the beginning date for the Medicare Part D annual enrollment period. The disclosure notice alerts individuals as to whether the employer’s group health plan prescription drug coverage is deemed creditable. Model notices are available for employers to use.
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 the online disclosure form prepared by CMS.
Enforcement
There is no penalty or fee to the employer to the extent any prescription coverage offered that is non-creditable in nature. 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 may 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. However, by not providing creditable coverage disclosure notices, employer plan sponsors may trigger adverse employee relations issues. In addition, noncompliant employers may face indirect consequences or other liabilities arising in connection with other federal laws (such as the Employee Retirement Income Security Act’s fiduciary duty requirements).
More Information
More information and resources related to the IRA’s changes to the Medicare Part D program are available on the CMS Part D Improvements webpage.
For questions regarding this Legislative Update or any other related compliance issues, please contact your Burnham Benefits Consultant or Burnham Benefits at 949‐833‐2983 or inquiries@burnhambenefits.com.
This Legislative Update was prepared by the Baldwin Regulatory Compliance Collaborative (the “BRCC”), a partnership of compliance professionals offering client support and compliance solutions for the benefit of the Baldwin Risk Partners organization, which includes: Jason Sheffield, BRP National Director of Compliance; Richard Asensio, Burnham Benefits Insurance Services; Nicole L. Fender, the Capital Group; Bill Freeman, AHT Insurance; Stephanie Hall, RBA/TBA; Caitlin Hillenbrand, AHT Insurance; Paul Van Brunt, Baldwin Krystyn Sherman Partners (BKS); and Natashia Wright, Insgroup.
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