The Inflation Reduction Act (IRA) made several changes to Medicare Part D that may impact whether employer-sponsored coverage will be creditable for the 2025 plan year. With open enrollment season about to begin, plan sponsors that provide prescription drug coverage to Medicare-eligible individuals should double check their plan’s creditable coverage status for 2025.
What Is Creditable Coverage?
Employer-sponsored prescription drug coverage is generally considered creditable if the actuarial value of the coverage is the same or better than the actuarial value of Part D coverage. In other words, creditable coverage must be expected to pay on average as much as standard Medicare prescription drug coverage. Group health plans that provide prescription drug coverage must inform all Part D eligible individuals (whether they are currently enrolled in or looking to enroll in the plan) about whether the plan’s prescription drug coverage is considered creditable. Plan sponsors are also required to report their plan’s creditable coverage status to the Centers for Medicare & Medicaid Services (CMS).
What Are the IRA Changes to Medicare Part D?
The IRA amended Part D, in part, to limit the annual out-of-pocket maximum amount to $2,000 in 2025 (a $6,000 reduction from the $8,000 limit in 2024) for people with Medicare Part D. This reduction coupled with other changes in the IRA may make it less likely that certain employer-sponsored plans will provide creditable coverage in 2025. High deductible health plans are particularly exposed to this risk. Plan sponsors should not assume that their plan options that provided creditable coverage in 2024 will remain creditable for 2025.
How Does the Plan Determine Whether Its Rx Coverage Is Creditable?
There are two methods that plan sponsors can use to determine whether their prescription drug coverage is creditable in 2025: the simplified determination or the actuarial equivalence determination. The plan’s insurance carrier or third-party administrator (TPA) is generally able to determine the whether the plan’s coverage is creditable under the simplified determination method. However, the CMS indicated that they may eliminate the simplified determination method in future plan years. This means that, beginning in 2026, plan sponsors (or their carrier or TPA) may need to engage an actuary to determine their plan’s creditable coverage status.
What Does This Mean for Plan Sponsors?
Creditable coverage status has become more difficult to achieve and may become even more difficult after 2025. Therefore, plan sponsors should take the following actions:
- Contact the plan’s insurance carrier or TPA to confirm the plan’s 2025 creditable or non-creditable coverage status as soon as possible.
- If coverage is non-creditable, consider whether it is possible to make some plan design changes to make it creditable.
- Distribute (or confirm that the third-party administrator is prepared to distribute) the Part D Notice of Creditable/Non-Creditable Coverage to Medicare-eligible individuals before October 15, 2024. If coverage is non-creditable for the first time, consider distributing the notice sooner (if possible) and/or making the change in creditable status very clear. A non-creditable coverage notice appears at first glance like a creditable coverage notice, and the employee or a family member may need to take action by December 7 to enroll in Part D in order to avoid late enrollment penalties.
- Report the plan’s creditable/non-creditable coverage status to the CMS no later than 60 days from the beginning of the plan year (i.e., November 1 for calendar year plans).
- If there is a change in the plan’s creditable coverage status after its status is reported, notify the CMS within 30 days of discovering such change.
- Plan sponsors using the simplified determination method should stay informed on the availability of the method for plan years 2026 and beyond.
How We Can Help
If you have any questions or need assistance with preparing any of the disclosure items mentioned above, please contact the authors of this blog post, or your Morgan Lewis contact(s).