Medicare Part D Notices Due by October 15th

The Inflation Reduction Act of 2022 (IRA) made changes to Medicare Part D to enhance benefits and enrollee cost savings, which may significantly impact whether employer sponsored prescription drug benefits continue to qualify as creditable coverage under Medicare Part D. Creditable coverage means that the employer’s prescription drug coverage is at least as good as Medicare Part D coverage.

Employers are not required to offer prescription drug coverage that qualifies as creditable coverage. However, an employer is obligated to determine whether its prescription drug program qualifies as creditable coverage by completing an actuarial analysis and subsequently notifying participants.

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.

How can an Employer Determine if Prescription Drug Coverage is Creditable Coverage?

Generally, a group health plan’s prescription drug coverage is considered creditable if its actuarial value equals or exceeds the actuarial value of standard Medicare Part D prescription drug coverage, as demonstrated using generally accepted actuarial principles and in accordance with CMS guidelines.

Employers with insured prescription drug plans should reach out to the carriers or through their broker to see if the insured benefit option is creditable coverage. Employers with self-insured plans, including carve-out pharmacy coverage, should reach out to the administrative services only (ASO) vendor, third-party administrator (TPA), or pharmacy benefit manager (PBM) for confirmation of creditable coverage status.

If the insured or self-insured benefit has not been evaluated on an actuarial basis (or the information is not made available to the employer), CMS offers a simplified determination for employers that treats coverage as creditable if the benefit option meets certain design requirements. However, per the simplified determination method, the plan must have a prescription drug deductible (or combined medical and prescription drug deductible) no greater than $250.

In light of the enhancements under the IRA, CMS released Final Rules for calendar year 2026 which provides an additional calculation method, the revised simplified determination method. Under the revised simplified determination method, a plan will be deemed to provide prescription drug coverage with an actuarial value that equals or exceeds the actuarial value of Part D coverage if:

• The plan provides reasonable coverage for brand name and generic prescription drugs and biological products.
• The plan provides reasonable access to retail pharmacies.
• The plan is designed to pay on average at least 72% of participants’ prescription drug expenses.

Employers not applying for the Retiree Drug Subsidy may continue to use the current simplified method for 2025 and 2026 determinations. Alternatively, these employers may use the revised method in 2026. Employers using the simplified method should compare the requirements under the current and revised simplified determinations to determine if their prescription drug plan will qualify under the new standards.

What Steps Should an Employer with an HDHP Take Now?

For employers who sponsor high-deductible health plans (HDHPs), satisfying the higher 72% threshold under the revised simplified method and increased actuarial value of Medicare Part D may be a concern. The Final Instructions and related guidance suggest that HDHPs may mitigate this concern through other aspects of the benefit by:

• Not applying a deductible to preventive (i.e., maintenance) medications.
• Using a reasonable and supportable allocation of the HDHP deductible attributable to prescription drug expenses, or
• By offering lower cost-sharing than standard Part D coverage once the deductible is met.

CMS acknowledges that the higher actuarial value may cause some prescription drug programs to fail to meet the creditable coverage standards and this is one of the stated reasons for allowing employers to use either the current or revised simplified determination standard for 2026 as a way of easing the transition.

Employer Action Items

1. Contact Your Carrier, TPA, ASO, or PBM.
2. Employers should begin planning now with their brokers and vendors to evaluate whether current plan designs would meet the revised simplified determination standards for creditable coverage in 2026 and, if not, develop a strategy for 2026 and 2027 benefit planning.
3. Evaluate Deductibles in Your Prescription Drug Coverage.
   The plans most at risk of being deemed non-creditable are HSA compatible HDHPs. HDHP deductibles are adjusted annually, and in 2025, the minimum deductibles are $1,650 for self-only coverage and $3,300 for other-than-self-only (family) coverage. The IRA imposed a $2,000 limit on Part D deductibles (increasing to $2,100 in 2026). Because the HDHP minimum deductible for other-than-self-only coverage is higher than the $2,000 Part D out-of-pocket maximum introduced by the IRA, all HSA-compatible HDHPs will potentially lose creditable coverage status for 2026. This change can also impact other prescription drug coverage that is not an HDHP if it has a higher deductible than the new Part D deductible.
4. Update Your Notice and Communicate Changes to Participants.
   Ensure your creditable coverage notices are updated accordingly and properly distributed to Medicare-eligible individuals prior to October 15, 2025. Notification must be sent to Medicare-eligible active working individuals and their dependents, Medicare eligible COBRA individuals and their dependents, Medicare eligible disabled individuals covered under your prescription drug plan, and any retirees and their dependents.

Innovative Benefit Planning is currently assisting our clients with this process to ensure compliance with the notice requirements. Please reach out to us for assistance.