Changes to Medicare Part D Benefit May Affect Creditable Status of Employer Plans

Changes to Medicare Part D Benefit May Affect Creditable Status of Employer Plans

In August 2022, Congress enacted the Inflation Reduction Act (IRA), which made significant modifications to the Medicare Part D prescription drug program. These changes began to take effect in 2023, including a cap on insulin co-pays at $35 and the elimination of cost-sharing for vaccines. For 2024, the maximum Part D “true out-of-pocket cost” (TROOP) is $8,000, although most individuals only contribute between $3,300 and $3,800 toward this cap. In 2025, the out-of-pocket cap will be reduced to $2,000. Collectively, these changes significantly increase the richness of the Part D standard benefit, setting a higher minimum standard for an employer’s pharmacy coverage to be considered creditable. Having creditable coverage allows an individual to delay signing up for Medicare Part D coverage without penalty.

At A Glance

• Prescription drug coverage that is borderline creditable for the 2024 plan year is likely to be considered non-creditable for the 2025 plan year.
• Plan sponsors are not required to provide creditable coverage, but they must inform their Medicare-eligible plan participants of their pharmacy plan’s creditable status and whether it is or isn’t as rich as the standard Medicare Part D benefit.
• Most employers distribute the Creditable or Non-Creditable Coverage Notice (whichever one applies) to all eligible participants to ensure all required recipients are properly informed; targeting the Notice to only Part D eligible individuals is generally not a worthwhile endeavor.
• Individuals without creditable coverage who don’t enroll in Medicare Part D when they are first eligible may incur late enrollment penalties when they do eventually enroll in Part D coverage; individuals who lose employer-sponsored creditable coverage have a special enrollment window to enroll in Part D without penalties.
• Employers should confirm whether their prescription drug coverage for 2025 is creditable or non-creditable earlier in 2024 to allow enough time to make decisions and communicate appropriately.

Background

Employers who offer prescription drug coverage through a group health plan are required to determine if the coverage is creditable and then must disclose this information to eligible participants along with the Center for Medicare and Medicaid Services (CMS) on an annual basis (and at other prescribed times). This responsibility applies to all plan sponsors, regardless of whether the plan is fully insured or self-insured. CMS provides Model Notices to help with this requirement. CMS defines creditable prescription drug coverage as coverage that is expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage.

Relevance of Creditable Status

When coverage is non-creditable, the Notice must inform individuals of the following:

1. Coverage is not creditable relative to Medicare Part D prescription drug coverage;
2. There are limitations on when the individual may enroll in Part D during the year; and
3. A late enrollment penalty may apply.

This notice helps individuals make informed decisions about whether to enroll in Medicare Part D. Medicare-eligible beneficiaries who delay enrolling in Part D must have creditable prescription drug coverage to avoid late enrollment penalties if they later decide to enroll. The penalty can be substantial depending on how long an individual goes without creditable coverage. CMS charges a beneficiary a permanent penalty equal to 1% of the base beneficiary premium (which is $34.70 in 2024) for every month that a beneficiary was not enrolled in a creditable plan. Here is an example: