Many employers have a deadline coming up soon to file their annual Medicare prescription drug disclosure with the federal Centers for Medicare and Medicaid Services (CMS).  So we want to discuss the Medicare creditable coverage requirements. What they are and why employers need to comply. Also, who has to do what, when, where, and how. But first, we’d like to go on the record and acknowledge that auto-correct HATES the word “creditable!” It hates it more than any other term used in the benefits business (except for maybe HSA…)!

First Things First, Why Creditable Coverage Is Even A Thing

The Medicare Modernization Act of 2003 (MMA) created the Medicare Part D prescription drug coverage program. Part of that law requires employers offering prescription drug benefits to tell anyone on their plan who might be Medicare-eligible, as well as the federal government if their coverage is as extensive as the standard Medicare prescription drug plan. If so, then the employer’s prescription drug coverage is considered to be “creditable coverage.”

People on the plan who are Medicare-eligible need to know this information because the MMA also created a late enrollment penalty for people who did not have “creditable coverage” for 63 days or longer before their initial enrollment period for the Medicare prescription drug benefit. So, the “creditability status” of the employer-sponsored plan should factor into any person’s decision about whether to stay in the group health plan or enroll in a Medicare Part D prescription drug plan.

Who Has to Do What Regarding Creditable Coverage? And when do they have to do it?

All employer plans that offer prescription drug benefits must annually report their creditability status to CMS. The deadline to do so is no later than 60 days after the start of each plan year. That means calendar-year plans need to report to CMS soon – by March 1st. The procedure for notifying CMS about a plan’s creditable coverage status is pretty straightforward. The plan sponsor needs to access this simple online form. Then they enter contact information and the business’s federal tax identification number and complete the certification.  The process only takes a few minutes.

Groups also have to send a notice about each plan option’s credibility status to all active employees, plan participants, and covered retirees that could be Medicare-eligible. That notice needs to be delivered before October 15thof each year. The goal is for affected people to have the right information in hand during Medicare’s annual election period. There is no specific day a plan participant needs to get the notice, though. So, employers who wish to include it in a package of other annual notices given at open enrollment are free to choose that option. The disclosure just needs to be reflective of current prescription drug benefits.

How Can an Employer Tell If Their Rx Benefits Are Creditable?

Each employer group needs to independently assess the creditability status of every plan option they offer that includes prescription drug benefits. There are a few ways a group plan sponsor can determine if their benefits cover, on average, as much as the standard Medicare Part D plan. If the employer offers fully-insured coverage, then the insurance carrier should be able to verify if the drug benefit is creditable or not. In our experience, some carriers provide this service to employer groups more readily than others. Group policyholders should not hesitate to push for the information, though, because the carrier has direct access to the actuarial information.

An employer can also use the simplified determination guidance from CMS to assess the status of most prescription drug plan options. If the simplified determination doesn’t work for the group’s plan design, then an independent actuary should value the benefits. An independent actuary is also needed if the employer wishes to apply for the CMS Retiree Drug Subsidy Program,

What Happens If the Group Coverage Is Not Creditable?

In a word, nothing. There is no requirement that an employer offers Medicare creditable coverage, and there is no penalty to any group that doesn’t. There are only two things employer groups that offer prescription drug benefits to anyone who might be Medicare-eligible must do. (1) Tell the federal government about their plan(s) through the annual disclosure. (2) Send an accurate notice each year to all active employee plan participants and covered retirees that could be Medicare-eligible.

If the employer plan’s prescription drug coverage isn’t creditable, the business only needs to be honest both in their CMS disclosure and their participant notice. For Medicare-eligible beneficiaries, if they learn their group plan isn’t creditable, then they can decide if they want to enroll in a higher-value Medicare Part D plan instead.

What Is the Broker’s Role?

It is tempting for health insurance brokers to offer to do the certification for employer clients. However, our friendly advice is to avoid making that offer. Each plan sponsor should certify their coverage themselves. The disclosure is due within 60 days after the start of each plan year.  So, our tip for brokers is to set a calendar reminder to contact each group client approximately 30 days after their renewal instead. Then, use that time to walk each client through the certification process and the CMS disclosure deadline. This is also a good time to follow up on any other post-renewal matters.

Brokers can help clients out with their creditable coverage notice too. All group affected groups must send a notification to all active employees plan participants and covered retirees that could be Medicare-eligible before October 15thof each year.  New enrollees who might be affected also need to get notified when they join the plan.  Plus, any plan participant can request a copy at any time.

It is hard for employers to determine Medicare eligibility, particularly for covered dependents.  So we think it’s a good idea to notify all employees and retirees on the plan. CMS has templates for employers to use, but the model text is a bit confusing.  Employers can modify the sample notices to suit their own needs, and a broker can help with this process. Each employer plan needs to have their creditable notice ready year-round. So it makes sense to update it at the beginning of the plan year.  Brokers can help their clients update their notice when the employer group completes its annual CMS disclosure.

Bottom Line

Almost all employers that offer health care coverage to employees have to deal with the Medicare creditable coverage requirements every year. There is federal reporting involved, and businesses need to send affected plan beneficiaries a notice to help ensure that people make sound coverage choices. None of the requirements are particularly hard for employers to meet. Businesses need to know what to do, and then do it on time.  The worst part of it all might be remembering that employer plan coverage can be “creditable” with a T.  It’s not credible with just a D!