CMS Finalizes Rules Impacting Medicare Part D Creditable Coverage
On April 2, 2026, the Centers for Medicare and Medicaid Services (“CMS”) released a final rule which will impact Medicare Part D prescription drug benefit programs beginning in calendar year 2027.
For employers offering prescription drug coverage through their group health plan, particular attention should be paid to the following two provisions within the final rule.
• Simplified Determination Method. Effective in 2027, plan sponsors will no longer be able to utilize the “simplified determination method” when determining whether their prescription drug plan is creditable. Instead, plan sponsors will need to rely on the actuarial determination method or the “revised simplified determination method,” which was made available for calendar year 2026. Additional information on the determination methods can be found in our blog post here.
• Account-Based Plan Exclusion. Effective in 2027, account-based plans such as Health Reimbursement Arrangements (“HRA”), Flexible Spending Accounts (“FSA”), and Health Savings Accounts (“HSA”) will be excluded from the Notice of Creditable Coverage requirements. Specifically, CMS states “…account-based plans do not actually offer prescription drug coverage…therefore, the benefit design of account based plans makes concepts, such as disclosure of creditable coverage, inapplicable to those arrangements.” Despite this change, plan sponsors will still be required to evaluate whether their prescription drug plan is creditable; however, with the exclusion account-based plans, the risk of individuals receiving contradictory notices (e.g., the prescription drug plan is creditable but the HRA is not) is mitigated.
Why Does Creditable Coverage Status Matter?
Employers must notify impacted individuals and the Centers for Medicare and Medicaid Services (CMS) whether the employer’s prescription drug coverage is creditable. Plan sponsors must report the plan’s status to CMS within 60 days after the first date of the plan year and disclose that status to Medicare-eligible employees and dependents before October 15 of each year. When a plan’s creditable (or non-creditable) status changes, a plan sponsor must notify CMS within 30 days and notify employees and dependents who are entitled to benefits under Medicare Part A or are enrolled in Medicare Part B and live in the service area of a Part D plan.
Individuals who are eligible for Medicare Part D, but delay enrollment because they are covered by the employer’s group prescription drug plan, will be subject to a late enrollment penalty when they later sign up for Medicare Part D if the plan they are enrolled in through their employer is non-creditable. The penalty results in an increased premium for Medicare Part D for life.
Employers receiving a retiree drug subsidy from CMS must offer creditable coverage. Under this federal program, employers and unions are subsidized for a portion of the cost of prescription drug coverage they provide, which is creditable coverage for Medicare-eligible retirees. For more information on the retiree drug subsidy program, visit the CMS Retiree Drug Subsidy website.
Employer Next Steps
Despite the 2027 effective date, employers should begin evaluating their prescription drug plans and determining which calculation methodology they will rely on. Innovative Benefit Planning is available to assist with the Notice of Creditable Coverage and will be sending additional information to clients in the coming months.
