Medicare Part D Creditable Coverage: New Simplified Determination for 2026

In April 2025, the Centers for Medicare and Medicaid Services (CMS) confirmed that the existing Medicare Part D simplified determination methodology no longer reflects actuarial equivalence. The enhancements in Medicare Part D benefits resulting from the Inflation Reduction Act of 2022 created a misalignment between Part D value and the prior Part D valuation method.

The CMS finalized an updated, simplified determination methodology. It now reflects actuarial equivalence with the richer Part D benefit. In short, the actuarial equivalence factor increased from the prior standard of 60% to 72%.

This revised method applies for the 2026 calendar year.

Background on Part D Creditability Rules

For full background, please refer to our prior article: Medicare Part D Creditability Determination: What Employers Need to Know.

Revised Simplified Determination Methodology

The revised simplified determination methodology reflects both updating the actuarial formula and “cleaning up” references in the prior methodology that were outdated (as they were written prior to the ACA).

A prescription drug coverage benefit must meet all of the following standards in order to be deemed creditable:

1. Provides reasonable coverage for brand-name and generic prescription drugs and biological products.
2. Provides reasonable access to retail pharmacies.
3. Designed to pay on average at least 72% of participants’ prescription drug expenses.

Those familiar with the original simplified determination will note the removal of the criteria that plans have no annual and lifetime benefit maximums. Since the Affordable Care Act eliminated annual and lifetime benefit limits in group health plans, references to such maximums are no longer germane.

Note: Coverage of biologics was not previously explicitly required. At the time the regs were written (2009), biologics were not an integral part of the pharmaceutical landscape.

Note: Lowering the Part D out-of-pocket max to $2,000 (indexed) means the actuarial value threshold needed to change. Creditable plans must now pay at least 72% of Rx expenses (on average).

Employer Considerations

The process for determining actuarial value equivalency for Medicare Part D coverage depends on the funding strategy of plans:

• Fully Insured Plans: Insurance carriers handle actuarial determination for fully insured plans. Therefore, employers with fully insured plans need only confirm from their carriers whether Rx coverage is creditable or non-creditable and provide the required notifications to employees.
• Self-Funded Plans: Self-Funded plans need to calculate or outsource the calculation of whether coverage is creditable or not. When possible, employers will want to adopt the simplified determination methodology. If that is not possible, an actuarial analysis is required.

Most plans in today’s marketplace that offer comprehensive Rx benefits are typically determined to offer Creditable coverage.

As a reminder, Medicare Part D creditability rules do not require employers to offer creditable coverage. Rather, they merely require that employers notify employees whether their group health plan is creditable or non-creditable.