As Medicare’s annual open enrollment season approaches, the notices of creditable or non-creditable coverage that employers with prescription drug (Rx) plans are required to provide to their Medicare-eligible participants are frequently topics of discussion. Creditable coverage is expected to cover, on average, at least as much as the standard Medicare Part D prescription drug plan, whereas non-creditable coverage falls below this threshold. Though employers that offer group health plans ARE NOT required to offer prescription drug coverage that is creditable, Medicare-eligible individuals are required to be enrolled in creditable Rx coverage. This requirement makes it crucial for employers to provide notice of their plan’s creditable/non-creditable status so that Medicare-eligible plan participants can make informed decisions about their prescription drug coverage.

Two methods are available for employers to establish their prescription drug plan’s creditability: a simplified or an actuarial determination. Employers seeking a retiree subsidy are required to have a qualified actuary perform their credibility determination using the actuarial method. The Inflation Reduction Act has created some changes to Medicare Part D for 2025 that may impact the creditability determinations for employers. In particular, out-of-pocket drug spending for Medicare Part D coverage will be capped at $2,000, which will increase the actuarial value of Part D coverage. For this reason, plans that have historically qualified as creditable under the actuarial method, especially high deductible health plans, may no longer be creditable in 2025.

All other employers, however, can use the simplified method to establish their prescription drug plan’s creditability status. Despite concerns that this method would be eliminated, the Centers for Medicare and Medicaid Services (CMS) has confirmed that the simplified determination will remain available and unchanged through calendar year 2025.

The simplified determination method provides safe harbor rules that plan sponsors can use to establish if the coverage they provide is creditable; these safe harbors differ depending on whether the prescription drug benefit is integrated with other benefits the employer offers (e.g., medical, vision, or dental coverage) or a standalone offering. However, due to several of the Affordable Care Act’s market reforms that were enacted after this methodology was developed, most, if not all, Rx plans should now qualify as standalone for these purposes. Standalone prescription drug benefits are creditable under the simplified determination method if they:

1. Provide coverage for brand-name and generic prescriptions;
2. Provide reasonable access to retail providers;
3. Are designed to pay, on average, at least 60% of participants’ prescription drug expenses; and
4. Either (1) have no annual benefit maximum or a benefit maximum of at least $25,000 or (2) have an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare-eligible individual.

Employers are responsible for certifying whether their plans are creditable and for maintaining documentation supporting a finding of creditable coverage in case of an audit. In most cases, carriers will provide these determinations for fully insured groups, though employers still need to ensure they are distributing the correct notices according to the carrier determinations. Self-insured employers, on the other hand, typically need to perform these determinations themselves, or ensure that their TPA/PBM will be doing so for them.

For employer-sponsored Rx plans, creditability determinations should be made upon plan renewal. For example, for an August – July plan year, creditable status based on the 2025 Medicare Part D changes (which, again, predominantly impact actuarial determinations of creditability) 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.

There are several scenarios in which plan sponsors are required to provide creditability notices, including prior to the beginning of Medicare Part D’s annual open enrollment period (i.e., prior to October 15th), prior to the effective date of a Medicare-eligible participant’s enrollment in the employer’s Rx plan, etc. To satisfy most of the circumstances requiring a creditability notice, many employers choose to provide these notices to participants (1) when they first become eligible for the company Rx plan and (2) annually during open enrollment. Employers that follow this practice typically only then need to provide additional creditability notices if a Medicare-eligible individual requests a copy or in the rare case where their Rx plan design is altered midyear significantly enough to change the creditability status.

Plan sponsors are required to provide creditability notices to retirees and their dependents, active employees who qualify for Medicare and their dependents, and COBRA participants who qualify for Medicare and their dependents. However, because it may be difficult for a plan sponsor to identify all their Medicare-eligible participants (e.g., spouses or disabled dependents), many choose to err on the side of caution and provide the disclosure notice to everyone who is eligible to enroll in their Rx plan.

The creditability notice requirements apply to all employers that sponsor Rx plans, regardless of plan size, employer size, or grandfathered status. Plan sponsors can provide the required notice with their annual enrollment materials if the notice is “prominent and conspicuous.” The notices can be distributed as a separate mailing or via electronic means, such as email, if the participants (1) have the ability to access electronic documents at their regular place of work or (2) have daily access to the plan sponsor’s electronic information system as part of their work duties.

If the notices are mailed to participants, a single notice can be provided to a covered Medicare individual and their dependents unless it is known that a spouse or dependent resides at a different address than the participant. CMS has provided model notices on its website; plan sponsors should carefully review and customize them to ensure they accurately reflect plan provisions.

In addition to providing Medicare-eligible individuals with annual notices of prescription drug coverage status, all plan sponsors are responsible for disclosing their Rx plan’s creditability status to CMS. Plan sponsors have 60 days after the beginning of each plan year to complete the Creditable Coverage Disclosure Form on the CMS Creditable Coverage website.