Mastering Medicare Creditability
Much of the frantic buzz in the compliance world has recently centered around Medicare Creditable Coverage. This is in part because the October 14th deadline for employers to notify their plan participants about whether their health plan provides “creditable coverage” under Medicare Part D is quickly approaching. But, the main source of renewed concern about this requirement stems from the new and signification changes to Medicare Creditable Coverage brought about by the Inflation Reduction Act. These updates will impact both healthcare plans and Medicare beneficiaries in 2025 and beyond.
Let’s talk for a moment about creditable coverage as it pertains to Medicare-eligible individuals and the possible ramifications of non-creditable status. First, it’s essential to know that employers offering group health plans ARE NOT required to offer prescription drug coverage that’s creditable. However, it is crucial that Medicare-eligible individuals who don’t have creditable prescription drug coverage be notified of that fact. Why, you ask?
Medicare-eligible individuals are required to be enrolled in creditable prescription drug coverage. Should such an individual go more than 62 days without creditable prescription drug coverage, they will be subject to a LIFETIME late enrollment penalty on their Medicare Part D prescription drug premium. The longer a Medicare-eligible individual goes without creditable coverage, the higher the penalty. Given this, we cannot stress enough the importance of early notification. Waiting until the October deadline (or close to it) to notify participants of an employer-sponsored prescription drug plan’s creditability status gives participants little time to secure creditable coverage during Medicare’s annual open enrollment period (if needed). This could ultimately lead to considerable financial consequences for these Medicare-eligible individuals.
We know that two methods are used to establish creditable coverage status: simplified and actuarial determinations. As previously mentioned, the Inflation Reduction Act has created some changes to Medicare Part D that impact the actuarial method. Most notably, the Medicare Part D Program Redesign Instructions include an updated definition of creditable coverage according to this method for 2025:
“Creditable prescription drug coverage means any of the following types of coverage listed in paragraph (b) of this section only if the actuarial value of the coverage equals or exceeds the actuarial value of defined standard prescription drug coverage under Part D in effect at the start of such plan year, not taking into account the value of any discount provided under section 1860D-14C of the Social Security Act, and demonstrated through the use of generally accepted actuarial principles and in accordance with CMS guidelines.”
Under this revised definition, discounts paid under the Manufacturer Discount Program (i.e., “discounts provided under section 1860D-14C of the Social Security Act”), a new program that will replace the Coverage Gap Discount Program in 2025, should not be taken into account when determining actuarial value.
This update is most relevant to employers seeking a retiree subsidy, who are required to have a qualified actuary perform their credibility determination using the actuarial method. Otherwise, employers can use the simplified method to establish their prescription drug plan’s creditability status. Despite concerns that this method would be eliminated, CMS confirmed, in arguably their most significant comment within the finalized instructions, that the simplified determination will still be available, unchanged, through calendar year 2025.
But, don’t be thrown by the word “simplified.” More than a few calculations and criteria are required according to this method. The following list is a concise summary of the items required for a prescription drug benefit to be creditable according to the simplified determination method:
Employers/plan sponsors 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’re 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.
As with so many other regulations, non-compliance with the creditable coverage notification requirements comes with a set of consequences, such as:
Employers/plan sponsors must stay informed about the latest CMS guidelines and requirements, which can change and impact compliance. MZQ Consulting has the tools and resources to help determine the credibility of a self-funded plan.
To learn more about the MZQuick Creditable Coverage Calculator, click here.
