Employer Sponsored Plans and Medicare Part D Notices of Creditable Coverage
The recent changes to Medicare Part D benefits resulting from the prescription drug provisions of the Inflation Reduction Act have significant implications for employer-sponsored plans. Starting in 2025, Medicare Part D will implement a $2,000 out-of-pocket cap, raising the threshold for what is considered creditable coverage for Part D. This change is poised to impact many employer-sponsored plans, necessitating a closer examination of their prescription drug coverage offerings.
Importance of Creditable Coverage
While employers are not mandated to offer plans that qualify as creditable coverage, they must notify employees about the creditability of the coverage they provide. This is crucial because individuals without creditable coverage who delay enrolling in Part D may face late enrollment penalties. Given the growing trend of working past age 65, employers are finding that a larger percentage of their workforce is Medicare eligible and may need to evaluate and adjust at least some of their prescription drug offerings to meet the needs of their changing workforce.
How Brokers Can Assist
For fully insured clients, carriers typically announce each year which plans are considered creditable coverage. Warner Pacific will collect this information from the carriers for all our plan offerings and post it to Carrier 411. If you work with another general agency, check with them to see if they are collecting this information. This year, you should expect that many more plans, especially those with higher deductibles where prescription drugs are subject to the deductible, will be deemed not creditable. Brokers play a vital role in communicating these changes to their clients and helping them navigate the complexities of creditable coverage.
For level-funded and self-funded clients, brokers should contact their client’s TPA, carrier, or pharmacy benefits manager to confirm the creditable coverage status. Once you have determined the creditable coverage status for your clients’ plans, it is essential to inform them which plans are creditable, and which are not.
While carriers or TPAs may also notify your clients, you should not assume that this has occurred, or that your clients understand the significance of the notification. It is a best practice for brokers to explain the creditable coverage issue to their clients and to emphasize the importance of the annual notification to employees, especially given the significant changes to the Part D benefit this year. This ensures employers can make appropriate benefits decisions, particularly since many renew plans during the fourth quarter.
Employer Responsibilities
Employer health plans are not required to offer creditable prescription drug coverage. While there are no express penalties for failing to provide a Part D Creditable Coverage Notice, an employer could be subject to an ERISA fine for failing to comply as a failure to exercise fiduciary duty under ERISA. Therefore, it is imperative for employers to stay informed about the creditable coverage status of their plans and communicate this information effectively to their employees.
The Notice of Medicare Part D Creditable Coverage must be sent out by October 15th each year to all Medicare-eligible employees and dependents participating in the employer’s plan. Because it can be challenging to track who is Medicare-eligible, most employers distribute the Part D notice to all employees annually. This proactive approach helps ensure compliance and avoids potential penalties.
CMS provides two model notices for employers to use:
- A Model Creditable Coverage Disclosure Notice for when the health plan’s prescription drug coverage is creditable
- A Model Non-creditable Coverage Disclosure Notice for when the health plan’s prescription drug coverage is not creditable
These model notices serve as a valuable resource for employers, simplifying the process of communicating creditable coverage status to employees.
Determining Creditable Coverage Status for Self-funded Plans
While the most accurate method of determining creditable coverage status is actuarial determination, for 2025, employers and other plan sponsors who are not fully insured can use the CMS Simplified Determination for measuring creditable coverage status. More information on this method can be found on the CMS Creditable Coverage webpage. This simplified approach provides a practical alternative for employers, reducing the administrative burden associated with actuarial determinations. Keep in mind, for self-funded plans, including level-funded plans, your carrier or TPA will be your best source for creditable coverage status.
Disclosure to CMS
In addition to notifying plan participants, employers and other plan sponsors must disclose to CMS each year whether their prescription drug coverage is creditable or non-creditable. This disclosure must be made annually and whenever any change occurs that affects the coverage’s creditability. Plan sponsors are required to use the online disclosure form on the CMS Creditable Coverage webpage.
Conclusion
The upcoming changes to Medicare Part D benefits underscore the importance of understanding and communicating creditable coverage status. Employers, brokers, and plan sponsors must work together to ensure that employees are informed and that all regulatory requirements are met. By staying proactive and utilizing available resources, employers can navigate these changes effectively and continue to provide valuable benefits to their employees.