2027 Creditable Coverage Requirements

After the redesign of Medicare Part D (effective Jan 2025), the Centers for Medicare and Medicaid Services (CMS) determined that the previous simplified determination threshold of 60% no longer reflected the actuarial value of Medicare’s drug benefit.

Beginning in 2027, employers using the simplified method must pay, on average, at least 73% of participants’ prescription drug costs to be considered creditable.

There are two additional requirements for creditability: plans must also cover brand-name drugs, generic drugs, and biologics and provide reasonable access to retail pharmacies.

October 15^th Notification Deadline

Employers that offer prescription drug coverage must provide notification to Medicare eligible individuals whether their group health plan coverage is “creditable” or “non-creditable.” Notification must be provided annually before October 15^th.

The purpose of the October 15^th deadline is to inform Medicare-eligible individuals prior to the Medicare open enrollment period. Without the notice, individuals would not be able to make a fully informed decision regarding purchasing a Medicare Part D plan (if their group coverage was non-creditable).

Vita Clients

For Vita clients, the Medicare Part D notice is included in the Summary Plan Description, so the process of providing plan documents annually and/or as part of open enrollment will generally satisfy this requirement.

Who Needs to Get the Notice?

Employers must provide notice to Medicare-eligible employees and dependents, COBRA participants and dependents, disabled individuals, and retirees covered under the prescription drug plan.

Technically, the notice need only be sent to Medicare-eligible individuals, however, employers cannot count on knowing all individuals in their population who may be Medicare-eligible. Therefore, it is generally considered best practice for employers to send the notice to all plan participants (employees and their dependents, COBRA participants, disabled individuals, and retirees).

Employer Online Submission to CMS

In addition, the employers must provide notice to the CMS of their plan’s creditable coverage status. This is completed via an online portal.

The CMS filing is generally due within 60 days after the beginning of each plan year. Additional filings are required within 30 days after termination of the prescription drug plan and within 30 days after a change in creditable coverage status.

2027 Medicare Part D Creditable Coverage Criteria

A Refresher on the Basics (for those that need it)

Overview

The Centers for Medicare and Medicaid Services (CMS) released final regulations in 2026 which introduced updates intended to simplify compliance and reduce administrative burdens. The regulations exempted account-based plans and finalized changes to the longstanding “simplified determination method” which can be used to assess creditability of prescription drug coverage.

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.

For 2027, to be creditable, plans must cover (on average) at least 73% of participants’ prescription drug expenses.

Critical Things to Know

Account-Based Plan Exemption. The finalized rules clarify that account-based plans (such as HRAs, CHOICE Arrangements (formerly known as ICHRAs), and QSEHRAs) no longer need to determine, document, or provide creditable coverage notices to participants or to the CMS. This is a welcome change for employers who struggled applying prior regulations to these types of plans. It also avoids potentially contradictory notices for beneficiaries.

Old Simplified Methodology Now Expired. Due to the more generous standard Part D benefit design which became effective January 1, 2025, the CMS allowed employers to use the prior (easier to satisfy) threshold of 60% grandfathered creditability thresholds for 2026. That grace period has expired, and all employers using the simplified method must now meet a new, higher threshold, effective January 1, 2027.

Two Methods to Determine Creditability. There are two methods for determining Part D creditability:

• Revised Simplified Methodology. The revised simplified method requires the plan to cover at least 73% of average prescription drug costs.
• Actuarial Equivalence Method. Employers can use an actuary or actuarial program to run a custom actuarial determination to prove compliance. This method is required for employers participating in the Retiree Drug Subsidy (RDS) program.

Fully Insured vs. Self-Funded

The process of determining creditability depends on how coverage is funded.

• Insured Plans. Insurance carriers handle actuarial determination for fully insured plans. Employers should confirm with their insurance carriers whether Rx coverage is determined to be creditable or non-creditable.
• Self-Insured Plans. Self-Funded plans need to calculate or outsource the calculation of whether coverage is creditable. Employers may use either the simplified determination method or an actuarial method, depending on the plan design. The simplified method offers a significantly more streamlined process than the actuarial analysis method. (Vita will assist employers with self-funded plans to confirm this determination.)

How is Creditability Determined?

Determining creditability status is not as simple as asking,” Does the plan have an out of pocket maximum lower than $2,400? For integrated plan designs (medical and Rx expenses accrue toward a combined deductible, coinsurance, and OOP max), the calculation must estimate out of pocket expenses for participants’ pharmacy benefits given overall deductible, coinsurance, copayment, and out of pocket maximum levels.

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. That said, the 73% threshold for 2027 does make it more difficult for many plans to meet the standards for creditability.

Part D Creditability Notice to Participants

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.

Employers offering prescription coverage must provide an annual notice to plan participants indicating whether the prescription coverage offered under their group health plan is “creditable coverage” or not. The requirement applies to both fully insured and self-funded health plans. Notice must be provided to all plan participants (employees and their dependents, COBRA participants, disabled individuals, and retirees).

The CMS has created model notices of both Creditable and Non-Creditable Disclosure Notices. The CMS model notice may be customized, and the notice may generally be delivered with other plan materials if it is prominent and clearly identified.

The purpose of the notice is to enable Medicare eligible individuals to make informed enrollment decisions and to help them avoid late enrollment penalties when they eventually enroll in Part D coverage.

The deadline for distributing notices to participants is October 15^th each year.

In addition to the October 15^th deadline, plans must provide the creditability notes upon initial enrollment, when creditable status changes, and upon request.

Part D Creditability Notice to CMS

In addition, employers must provide notice to the CMS of whether prescription drug 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 deadline for the CMS submission process is 60 days after the beginning date of the Plan Year.

Why Does Creditability Matter?

If a Medicare beneficiary does not have Rx coverage that is creditable, meaning it is at least as good as standard Part D coverage, a late enrollment penalty of 1% of the premium is charged. The penalty is compounded each month that a Medicare beneficiary delays enrolling in Medicare Part D coverage without equivalent coverage.

If an individual maintains creditable coverage continuously (without more than a 63-day breach), the individual may delay enrolling in Part D coverage without paying the late enrollment penalty. Importantly, the premium surcharge for delaying enrollment does not expire; it continues through the duration of maintaining 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

Final Regulations 2026 (Large document, use the Table of Contents to navigate to Definition of Creditable Coverage) 

Final CY 2026 Part D Redesign Program

Model Notices (for Participants) 

CMS Portal for Employer Reporting