August 2024 HR Update

Medicare Part D Creditable Coverage – Changes Coming in 2025

Employers sponsoring any size group health plan that provides prescription drug coverage are not required to offer creditable coverage, but they are required to determine whether the prescription drug coverage is creditable and then must communicate creditable or non-creditable coverage status annually to eligible employees and their family members and to the Centers for Medicare & Medicaid Services (CMS).

As we mentioned back in 2022, Medicare Part D prescription drug coverage will expand in 2025 as required under the Inflation Reduction Act (IRA), which could impact whether an employer’s group health plan provides creditable prescription drug coverage. Plans that met creditable coverage status previously may no longer be creditable beginning in 2025. Employers who offer prescription drug coverage need to be aware of the Medicare Part D changes, take the required steps to understand the creditable status of their prescription drug plan(s) for 2025, and then clearly communicate status to eligible employees and report status to CMS.

Medicare Part D Coverage Changes in 2025
The IRA legislation requires a phased approach aimed at lowering prescription drug costs for Medicare. Beginning in 2025, amongst other changes, out-of-pocket drug spending for Medicare Part D coverage will be capped at $2,000. This will increase the actuarial value of the coverage available via 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. For example, it seems unlikely that many HDHPs will be creditable after the 2025 Medicare Part D changes, but keep in mind that an HRA offered alongside the group health plan can be considered when determining 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. Additionally, loss of creditable coverage mid-year allows a mid-year Special Enrollment in Medicare outside of the normal October 15 – December 7 Open Enrollment Period.

If the creditable status of an employer’s prescription drug coverage will change for the 2025 plan year, employers may want to communicate and educate in addition to what is set forth in CMS’s model notices discussed below (e.g., perhaps a cover letter explaining who should care (Medicare Part D eligible individuals) and why creditable status matters). Higginbotham will be creating employee-facing communication pieces that will be available prior to Medicare Open Enrollment. Additionally, there are many groups pushing for CMS to delay this provision for an additional year, and we will notify you immediately should this happen.

Creditable Status – Why It Matters
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 Part D 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.

As mentioned above, employers are not required to offer creditable prescription drug coverage, but employers are required to determine and communicate creditable (or non-creditable) status to eligible individuals. The information assists Medicare Part D eligible individuals in making an informed decision about whether to enroll in Medicare Part D. In addition, reporting the information to CMS is required to help CMS determine when there might be other creditable coverage available to individuals who are eligible for Medicare.

Determining Whether an Employer’s Prescription Drug Coverage Is Creditable
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. Most major carriers have confirmed that they will have creditable coverage tools available no later than mid-September 2024 (for example, United Healthcare has already provided theirs here.) 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.

Employers participating in the Retiree Drug Subsidy (RDS) program must use the actuarial determination method. This requires an attestation by a qualified actuary using generally accepted actuarial principles in accordance with CMS actuarial guidelines.

However, if a plan sponsor is not applying for the subsidy available to sponsors of a qualified retiree prescription drug plan, the sponsor may be able to use a “simplified method” for determining whether the prescription drug coverage is creditable. If a plan does not meet the criteria under the simplified determination method, that does not automatically mean the plan is not creditable; but in that case, the plan must obtain an actuarial determination of whether the actuarial value of the coverage equals or exceeds the actuarial value of standard prescription drug coverage under Medicare Part D. See more information on the simplified method here.

Required Disclosure of Creditable Status to Eligible Participants

Disclosures of creditable (or non-creditable) coverage must address the following:

That the employer has determined that the prescription drug coverage is creditable (or non-creditable);
The meaning of creditable coverage;
That an individual generally may only enroll in a Part D plan from October 15 through December 7 of each year; and
Why creditable coverage is important and that the individual could be subject to payment of higher Part D premiums if there is a break in creditable coverage of 63 days or longer before enrolling in a Part D plan.

CMS makes model notices available in both English and Spanish for purposes of the disclosure requirement. The model notices can be found on CMS’s page here.

Timing of the DisclosureThe notice is required to be provided to Medicare Part D eligible individuals at the following times:

Prior to commencement of the annual enrollment period for Medicare Part D (Oct. 15);
Prior to an individual’s initial enrollment period (IEP) for Medicare Part D;
Prior to the effective date of coverage for any Medicare Part D eligible individual who enrolls in the plan sponsor’s prescription drug coverage;
Whenever the employer no longer offers prescription drug coverage or changes it so that it is no longer creditable or becomes creditable; and
Upon request by a Medicare Part D eligible individual.

Who Is Entitled to Receive the Disclosure
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. In other words, if somebody is both Medicare Part D eligible AND eligible to enroll in the plan sponsor’s prescription drug plan, a notice is required.

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 – and we recommend – to provide the disclosure notice to everyone who is eligible to enroll in their prescription drug plan.

Employer Takeaway
Most all employers with fully-insured plans should work with their medical plan carriers to determine if their prescription drug coverage will be considered creditable for 2025. Most major carriers have confirmed that they will have creditable coverage tools available no later than mid-September 2024 (for example, United Healthcare has already provided theirs here.) Employers should review their prescription drug offerings and long-term strategy related to Medicare eligible individuals.

Finally, employers that offer prescription drug coverage must disclose to all Medicare Part D eligible individuals and to CMS whether the prescription drug coverage is creditable. The main purposes of this requirement is to inform those that are Medicare eligible about possible higher Part D premiums for not enrolling when first eligible, unless they have creditable coverage from another source – such as their employer’s group plan. This is particularly important for groups that only offer an HDHP, which will most likely not be able to meet the definition of creditable coverage for 2025.

If coverage is no longer creditable, to avoid a Part D premium penalty in the future, employees will need to enroll in either Medicare Part A or B in order to enroll in a Part D plan within 63 days of the loss of the creditable coverage. The current penalty is 1% of the “national base beneficiary premium” ($34.70 in 2024) for each full month an individual does not have creditable coverage.
- Example: If an employee waited 14 months after becoming eligible for Medicare to join a Medicare drug plan, and the employee didn’t have creditable drug coverage, the employee would have to pay a 14% late enrollment penalty in addition to his or her monthly plan premium.
  - The penalty amount comes from the “national base beneficiary premium” ($34.70 in 2024).
    - $34.70 (2024 national base beneficiary premium) X 0.14 (14% penalty) = $4.86 (rounded to the nearest $0.10 = $4.90)
    - $4.90 will be the employee’s monthly penalty for 2024 and will be added to the employee’s Part D monthly premium. This monthly penalty is added for as long as the employee continues to have Medicare drug coverage.
However, even if coverage is not creditable, employees may still need to maintain their employer sponsored coverage if they cover dependents who are not yet Medicare-eligible, which means that they may have to enroll in Medicare and keep their employer-based plan. (As a reminder, “voluntarily” dropping employer coverage to enroll in Medicare is not a COBRA qualifying event and does not allow spouses/dependents to enroll in COBRA).
Further, this is a good time to remind employers that due to Medicare Secondary Payer rules, employers with more than 20 employees cannot penalize nor incentivize (i.e. reward, reimburse, pay premiums, etc.) employees for taking Medicare in lieu of an employer’s group health plan.

To reiterate, if employees drop their employer-sponsored coverage in favor of enrolling only in Medicare, the employee will need to enroll in both Medicare Parts A & B along with either Parts D (and a Medicare Supplement, if desired) or a Medicare Advantage plan. Please see our Medicare Enrollment Cheat Sheet and be on the lookout for additional employee-facing materials as we get closer to Open Enrollment. Additionally, we will host a brief webinar (which will be recorded and made available later) on Monday, August 12 at 10 a.m. CST (Register Here) to answer any questions you may have. Finally, please reach out to your Higginbotham representative if you need assistance with determining the credibility of your particular plans or if your Medicare-eligible employees/dependents need assistance navigating Medicare enrollment.