Great Lakes Wire

Employers who offer prescription drug coverage are required to provide an annual notice to Medicare-eligible participants about whether their plan qualifies as "creditable," meaning it is expected to pay at least as much as the standard Medicare Part D benefit. This obligation applies to all employers, regardless of size, funding arrangement, or grandfathered status.

Recent changes from the Inflation Reduction Act (IRA) have improved Medicare Part D benefits by lowering out-of-pocket costs and increasing the standards for creditable coverage. As a result, some employer-sponsored prescription drug plans, especially high-deductible health plans, may find it harder to meet these updated standards.

Employers can determine if their prescription drug plans are creditable through actuarial certification or by using a simplified method. The IRA’s reforms, such as a $2,000 out-of-pocket cap and removal of the coverage gap, have increased the actuarial value of Medicare Part D. This means employer plans now face higher requirements to qualify as creditable. Many high-deductible health plans may not meet the 60% threshold under the current simplified method. Employers are advised to review their plan designs and confirm their status under these new standards rather than relying on past assessments.

Looking ahead, in 2026 the Centers for Medicare & Medicaid Services (CMS) will introduce a revised simplified method with stricter requirements: coverage must include brand-name, generic, and biologic drugs; there must be reasonable retail pharmacy access; and plans must reach a 72% actuarial value threshold. The previous 60% threshold will remain available for 2026 but will be eliminated in 2027. Plans that participate in the Retiree Drug Subsidy Program cannot use the simplified method and instead must obtain actuarial certification.

Employers are required to notify Medicare-eligible participants and their dependents each year before October 15—prior to the start of Medicare’s open enrollment—about whether their coverage is creditable or non-creditable. Notices also need to be provided at initial enrollment, when coverage ends, or if there is a change in creditable status. Those who should receive notices include Medicare-eligible retirees, active employees, COBRA participants, and their covered dependents.

For those planning for 2026 enrollment decisions, annual notices must be distributed before October 15, 2025. Additionally, employers need to disclose creditable status to CMS within 60 days of the start of the plan year—for calendar-year plans this deadline is March 1, 2026.

These notices are important because they help Medicare-eligible individuals make informed choices regarding their coverage and avoid lifelong late-enrollment penalties if they go more than 63 days without creditable prescription drug coverage.

To comply with these requirements before October 15, 2025, employers should confirm whether their prescription drug plan is creditable; distribute either a creditable or non-creditable CMS model notice to all Medicare-eligible participants; ensure electronic delivery meets federal rules; and submit CMS disclosure filings within the specified timeframe.

"Article courtesy of Warner Norcross+Judd"