The Centers for Medicare and Medicaid Services (CMS) recently released its updated Medicare Part D coverage criteria guidelines. These guidelines can be used by group health plan sponsors to determine whether the prescription coverage offered under their plans is creditable for 2024. In addition, creditability status should be incorporated into the required Part D disclosures to plan participants as well as to the CMS.
What is creditable coverage?
To be considered "creditable coverage," the value of prescription drug coverage offered under a group health plan must be actuarially equivalent to (or greater than) the actuarial value of Medicare Part D Rx coverage. In short, prescription drug coverage must be at least as good, if not better than coverage under Medicare Part D.
Notice Requirements for Employers
Employers must provide an annual notice to plan participants of whether the prescription coverage offered under their group health plan is "creditable coverage" or not. Notice must be provided to all plan participants, their spouses and dependents, retirees, COBRA participants, and beneficiaries. The CMS provides model notices of both Creditable and Non-Creditable Disclosure Notices. Notification must be provided to individuals annually by October 15th each year.
In addition, employers must provide notice to the CMS of whether coverage offered is creditable or not. Notice to the CMS must be completed online via the CMS website. The online process is straightforward and can be completed in just a few minutes. The CMS certification process must be completed within 60 days after the beginning date of the Plan Year.
Creditable Coverage Criteria
Following are the updated 2024 parameters for standard Medicare Part D prescription drug benefit. These are the criteria used to determine if Rx coverage is creditable. Guidelines for 2023 are also included for context.
Deductible
Initial Coverage Limit
- 2023: $4,660
- 2024: $5,030
Out-of-Pocket Threshold
- 2023: $7,400
- 2024: $8,000
Total Part D Spending at OOP Threshold*
- 2023: $10,516.25
- 2024: $11,477.39
Estimated Part D Spending at OOP Threshold**
- 2023: $11,206.28
- 2024: $12,447.11
* For beneficiaries who are not eligible for the coverage gap discount program.
** For beneficiaries who are eligible for the coverage gap discount program.
Notably, the minimum cost-sharing numbers under the catastrophic coverage portion of the benefit no longer apply. Cost-sharing for the catastrophic coverage portion was eliminated by the Inflation Reduction Act of 2022.
Prescription drug coverage that does not meet these minimum criteria is considered non-creditable.
This Seems Complex
The process for determining actuarial value equivalency for Medicare Part D coverage is, in fact, quite complex.
- Good News: Insurance carriers handle the actuarial determination for fully insured plans. For plans that are fully insured, the insurance carrier will indicate whether the Rx coverage is creditable or non-creditable.
- Bad News: Self-Funded plans need to calculate or outsource the calculation of whether coverage is creditable or not.
Most plans in today's marketplace that offer comprehensive Rx benefits are typically determined to offer Creditable coverage. Plans that are most typically non-creditable are small group Bronze plans and certain HDHP plans.
It is important to note that Medicare Part D creditability rules do not require employers to offer creditable coverage. They merely require that employers notify employees of the creditability status of their group sponsored health plan.
Why does creditability matter?
If a Medicare beneficiary does not have Rx coverage from another source that is at least as good as standard Part D coverage, a premium penalty of 1% of the premium is charged for each month a Medicare beneficiary delays enrolling in Medicare Part D coverage without equivalent coverage. However, maintaining prior creditable coverage cancels this penalty and allows individuals to delay enrolling in Part D coverage without paying a late enrollment penalty. Please note that the surcharge for delaying enrollment does not expire. The premium penalty continues through the duration of Part D coverage.
Why are employers involved?
In order for Medicare beneficiaries to decide whether they need to sign up for Part D coverage or whether they can delay, they need to know whether their group coverage is creditable or not. Employers are required to notify participants of Part D creditability so that participants will have the necessary information to take action and enroll into Part D coverage to avoid the premium penalty (or not).
Resource Links
2024 Medicare Part D Criteria (page 134)
Model Notices (for Participants)
CMS Portal for Employer Reporting
