Employers and plan sponsors that offer prescription drug coverage to individuals eligible for Medicare Part D must advise those individuals whether the offered coverage is creditable. Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), eligible individuals who do not enroll in Part D when first available, but who enroll later, have to pay higher premiums permanently unless they have creditable prescription drug coverage.

Under CMS guidance, once a sponsor determines whether coverage is creditable (see Q 355), the sponsor must provide notice to all Part D-eligible individuals covered by or applying for the plan, including Part D-eligible dependents. In lieu of determining who is Part D eligible, an employer sponsor may provide notice to all active employees, along with an explanation of why the notice is being provided.

The required notice to beneficiaries must, at a minimum:

(1)     Contain a statement that the employer has determined that the coverage is creditable or not creditable;

(2)     Explain the limits on the periods in a year when individuals can enroll in Part D plans; and

(3)     Explain that the individual may incur late enrollment penalties.¹

The CMS guidance includes model initial notices that a sponsor may choose to use. Sponsors were required to provide initial notices to beneficiaries by November 15, 2005. CMS later issued updated guidance with model notices for use following the May 15, 2006 close of the initial enrollment period for Medicare Part D.

Following the initial enrollment period, sponsors must, at a minimum, provide the required notice to beneficiaries:

(1)     Prior to an individual’s initial enrollment period for the Medicare prescription drug benefit;

(2)     Prior to the effective date of enrolling in the sponsor’s plan and on any change that affects whether the coverage is creditable prescription drug coverage;

(3)     Prior to the commencement of the annual coordinated election period that begins on October 15 of each year; and

(4)     On beneficiary request.

The final regulation does not specify a specific time limit within which disclosure must be provided; it only requires that it be provided prior to any of the above events.²

Sponsors also must disclose to CMS annually whether coverage is creditable and any change that impacts whether the coverage is creditable. CMS has outlined the requirements for this disclosure in separate guidance and provides disclosure forms on its website at http://www.cms.hhs.gov/CreditableCoverage.³

1.    42 CFR § 423.56(d).

2.    42 CFR § 423.56(f).

3.    42 CFR § 423.56(e).

To determine that coverage is creditable, a sponsor need only determine that total expected paid claims for Medicare beneficiaries under the sponsor’s plan will be at least equal to the total expected paid claims for the same beneficiaries under the defined standard prescription drug coverage under Part D.¹ The determination of creditable coverage status for disclosure purposes requires attestation by a qualified actuary who is a member of the American Academy of Actuaries.²

Applicants may use qualified outside actuaries, including (but not limited to) actuaries employed by the plan administrator or an insurer providing benefits under the plan. If an applicant uses an outside actuary, the attestation can be submitted directly by the outside actuary or by the plan sponsor.³

The Center for Medicare & Medicaid Studies (CMS) has issued guidance to assist sponsors in making the determination that coverage is creditable. If the total expected claims requirement stated above is met, then the following types of coverage are considered creditable:⁴

(1)     Coverage for prescription drugs under a PDP or MA-PD plan;

(2)     Medicaid coverage under Title XIX of the MMA;

(3)     Coverage under certain group health plans, such as the federal employee health benefits program and qualified retiree prescription drug plans;

(4)     State Pharmaceutical Assistance Programs coverage;

(5)     Prescription drug coverage for veterans, survivors, and dependents;

(6)     Coverage for Medicare supplemental policies;

(7)     Military coverage;

(8)     Individual health insurance coverage that includes outpatient prescription drug coverage but is not an excepted benefit under the Public Health Service Act;

(9)     Coverage provided by certain Indian or Tribal medical care programs;

(10)   Coverage provided by a PACE organization;

(11)   Coverage provided by a cost-based HMO or CMP;

(12)   Coverage provided through a state high-risk pool; and

(13)   Other coverage as deemed appropriate by federal regulators.

Under CMS guidance, once a sponsor determines whether coverage is creditable, the sponsor must provide notice to all Part D-eligible individuals covered by or applying for the plan, including Part D-eligible dependents. In lieu of determining who is Part D eligible, an employer sponsor may provide notice to all active employees, along with an explanation of why the notice is being provided.

1.    42 CFR § 423.884(d).

2.    42 CFR § 423.884(d)(2).

3.    42 CFR § 423.884(d)(2).

4.    42 CFR § 423.56(b).