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Medicare Part D Changes May Impact Creditable Coverage Status of Employer Plans


doctor discussing plan with patient at tableThe Inflation Reduction Act of 2022 (IRA) includes several cost-reduction provisions affecting Medicare Part D plans, which may impact the creditable coverage status of employer-sponsored prescription drug coverage beginning in 2025.

Employers that provide prescription drug coverage to individuals who are eligible for Medicare Part D must inform these individuals and the Centers for Medicare and Medicaid Services (CMS) whether their prescription drug coverage is creditable, meaning that the employer’s prescription drug coverage is at least as good as Medicare Part D coverage.

CMS’ Draft Part D Redesign Program Instructions state that given the significant changes that the IRA made to Medicare Part D, one of the methods for determining whether employer-sponsored prescription drug coverage is creditable will no longer be valid as of calendar year 2025. These draft program instructions are subject to change, and CMS will issue final program instructions for 2025 after considering the public comments received in response to the draft program instructions.

Action Items

  • Employers should monitor CMS’ final program instructions for 2025.
  • Employers should confirm whether their health plans’ prescription drug coverage for 2025 is creditable or non-creditable as soon as possible to prepare to send the appropriate Medicare Part D disclosure notices.

Creditable Coverage Determination

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.

In general, this actuarial determination measures whether the expected number of paid claims under the group health plan’s prescription drug coverage is at least as much as the expected number of paid claims under the Medicare Part D prescription drug benefit. The creditable coverage test must be applied separately for each benefit option for plans with multiple benefit options (PPOs, HDHPs, and HMOs).

Under existing CMS guidance, there are a few different ways for an employer to determine whether its prescription drug coverage is creditable:

  • As a first step, employers with insured prescription drug plans should ask their carriers whether they have determined whether the plan’s coverage is creditable.
  • For self-insured plans, or when the carrier for an insured plan has not decided about whether the plan is creditable, employers may use a simplified determination — if the coverage meets certain design requirements. If it doesn’t, the employer must use an actuarial determination method. However, CMS has stated that the simplified determination method will no longer be a valid methodology to determine creditable coverage status as of calendar year 2025.

According to CMS, as of calendar year 2025, the simplified determination methodology will no longer be valid to determine whether an entity’s prescription drug coverage is creditable.

Disclosure to Individualsprescription drug bottles

Plan sponsors must provide creditable coverage disclosure notices to individuals each year before October 15 — the start date of the annual enrollment period for Medicare Part D. The disclosure notice alerts individuals as to whether their plan’s prescription drug coverage is creditable. Model notices are available for employers to use.

Disclosure to CMS

The disclosure to CMS is due within 60 days after the start of each plan year. For calendar year plans, this deadline is March 1 of each year (February 29 for leap years). Plan sponsors are required to use CMS’ online disclosure form.


The employer is not penalized or charged for offering non-creditable prescription drug coverage. Non-creditable prescription drug coverage can still be a valuable benefit for employees. However, individuals need to know whether their prescription drug coverage is creditable or non-creditable. If the coverage is non-creditable and Medicare-eligible individuals fail to enroll in Part D during their initial enrollment period, they can be subject to a higher Part D premium if they enroll in Part D later.

There are also no specific penalties for employers failing to comply with the Medicare Part D disclosure requirements, except for employers claiming the Retiree Drug Subsidy. However, employers may trigger adverse employee relations issues by not providing creditable coverage disclosure notices. In addition, noncompliant employers may indirectly face consequences under other federal laws (such as the Employee Retirement Income Security Act’s fiduciary duty provisions).

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