We offer prescription drug coverage to our employees (including those who are eligible for Medicare). We typically send the required notice to employees annually by October 15 to reflect whether the coverage is “creditable” for Medicare Part D purposes. We have heard about changes to Part D for 2025 under the Inflation Reduction Act (IRA). What year’s coverage does the notice reflect? Do we have to send another notice if the creditable status changes for 2025?
The notice issued in October 2024 would reflect the creditable coverage status of the 2024 plan that the participant is currently enrolled in. Prior to the IRA, the status of the plan as “creditable” would be unlikely to change from year to year; however, when the IRA rules affecting Part D take effect in 2025, that may change (and an additional notice may be required).
Under the Medicare Modernization Act (MMA), group health plan sponsors offering prescription drug coverage must disclose to all Medicare-eligible individuals with prescription drug coverage under the plan whether such coverage is “creditable.” Coverage is considered creditable if its actuarial value equals or exceeds the actuarial value of standard prescription drug coverage under Part D. Knowing whether their current coverage is creditable helps employees make informed and timely decisions about whether to enroll in a Part D plan.
The MMA imposes a late enrollment penalty if a person goes 63 days or longer without creditable coverage at any time after becoming eligible for Medicare. This penalty is a permanent monthly surcharge of 1% for each month of non-creditable coverage. The surcharge is calculated off the Part D Base Beneficiary Premium (which for 2024 is $34.70) and then added to the person’s Part D premium for the plan that he or she elects in any particular year.
The creditable (or non-creditable) coverage notice must be provided to any “Part D eligible individual,” meaning any person who 1) is entitled to benefits under Medicare Part A or is enrolled in Medicare Part B; and 2) lives in the service area of a Part D plan. Part D eligible individuals could include active employees, disabled employees, COBRA participants and retirees — and their covered spouses and dependents.
The coverage notice must be sent annually before October 15 (the start of the Part D annual coordinated election period) and can be combined with other materials if it is “prominent and conspicuous.” According to the Centers for Medicare & Medicaid Services, this means it must be in “at least 14-point font in a separate box, bolded, or offset on the first page” of the other information that is being provided.
The notice must also be provided in the following two circumstances (with unspecified timing):
If feasible, the notice could be included with enrollment materials for the 2025 plan enrollment. The issue is providing the participants enough time to enroll in Part D without being assessed a penalty. When an individual loses “creditable” prescription drug coverage from an employer plan, that person gets a 60-day special enrollment period that begins when he or she is notified of the loss of (or reduction in) creditable coverage and ends two calendar months after either the loss (or reduction) occurs or the individual receives the notice, whichever is later.
The IRA made enhancements to Part D, but the testing of an employer plan’s “creditable coverage” status for Part D purposes generally was not impacted in 2024; however, changes are coming in 2025. The richer standard Part D plan under the IRA rules may make it more difficult for active plans to satisfy creditable coverage testing standards.
