Understanding Medicare Part D Creditable Coverage in Light of the Inflation Reduction Act
As autumn approaches, employers often find their inboxes flooded with reminders to issue Medicare Part D notices. These reminders can come from carriers, brokers or consultants. They often emphasize that the responsibility for determining Medicare Part D creditable coverage falls squarely on the employer.
This task can feel daunting, leading some employers to hastily deem their prescription drug plans as “creditable” without fully understanding the implications.
This article clarifies the basics of Medicare Part D creditable coverage. It also highlights the significant impact of the Inflation Reduction Act (IRA) on organizations and their plan participants.
What is Medicare Part D?
Medicare Part D is a federal program offering prescription drug coverage to individuals enrolled in Medicare. It is available to those with Medicare Part A or Part B and is provided through private insurance companies approved by Medicare. Beneficiaries can opt for a stand-alone prescription drug plan or a Medicare Advantage plan that includes drug coverage.
What is creditable coverage?
Creditable coverage describes prescription drug plans that are expected to cover at least as much as a standard Medicare Part D prescription drug plan, on average. If an organization’s prescription drug plan meets this standard, it is considered “creditable.” If it falls short, it is deemed “non-creditable.”
The terms “creditable” and “non-creditable” are neutral. They do not imply that one plan is inherently better than the other, but they do have important implications for Medicare-eligible participants.
Why is creditable coverage important?
While the status of a group pharmacy benefit is neither inherently good or bad, it is crucial for Medicare-eligible employees and retirees to know. If these individuals do not enroll in a Medicare Part D plan when they become eligible and go without creditable prescription coverage for 63 days or more, they could face a lifetime penalty for late enrollment. This penalty can significantly increase their out-of-pocket costs over time.
How does the IRA affect creditable coverage?
With the recent implementation of the IRA, the landscape of Medicare Part D has shifted. The IRA introduces several provisions aimed at reducing prescription drug costs. This can impact the creditability status of a group pharmacy benefit. The provisions are summarized below.
Annual out-of-pocket cap. Starting in 2025, the IRA introduces a $2,000 annual cap on out-of-pocket spending for Medicare Part D beneficiaries. This means that once a beneficiary’s out-of-pocket costs reach $2,000 in a year, they will not have to pay more for covered prescription drugs. This cap is designed to protect beneficiaries from excessive drug costs and improve access to necessary medications.
Changes to the coverage gap. The IRA accelerates the closing of the Medicare Part D coverage gap, commonly known as the “donut hole.The coverage gap is the period after a plan participant and their drug plan have spent a certain amount of money for covered drugs. Once this threshold is reached, the plan participant must pay for all of their prescription drugs out of pocket, up to a yearly limit. Once they have spent up to the yearly limit, the coverage gap ends and their drug plan helps pay for covered drugs again.
It’s called a donut hole because there’s coverage on either side of the gap (the initial coverage period and the catastrophic coverage period). The IRA reduces plan participants’ costs during this phase, providing more significant savings for those with high prescription drug expenses.
Insulin cost limits. The IRA includes provisions to limit the cost of insulin for Medicare beneficiaries. As of 2023, insulin copayments are capped at $35 per month for those on Medicare Part D. This measure aims to make insulin more affordable for seniors and people with disabilities who rely on it for diabetes management.
Vaccine coverage. The IRA ensures that certain vaccines are covered at no cost to Medicare Part D beneficiaries. This includes vaccines recommended by the Advisory Committee on Immunization Practices for adults, enhancing access to preventive care.
What are your responsibilities?
Employers have specific responsibilities related to Medicare Part D creditable coverage.
Determine creditability status. The IRA’s impact on Medicare Part D plans may affect your plan’s creditability. For many plans, it will result in non-creditable status.
Provide annual notices. You must provide a “Part D Notice of Creditable (or Non-Creditable) Coverage” for each of your pharmacy plans. It’s critical to educate employees and participants about what a non-creditable notice means.
Send out notices:
- Before Oct. 15 every year
- Before the Medicare Part D annual election period
- To newly eligible participants throughout the year
Report to the Centers for Medicare & Medicaid Services. You are required to disclose the creditability status of your prescription drug plan to CMS. This disclosure is due within 60 days of the plan year.
Keep records. Maintain records of all notices you’ve sent to employees and disclosures you’ve made to CMS. Include the determinations used to assess creditable coverage status.
Medicare Part D creditable coverage is a critical aspect of employer-sponsored health benefits. Review your pharmacy benefits in light of the IRA’s impact on Part D coverage and determine whether they are as good as the benefits provided under Medicare. You can help Medicare-eligible individuals make informed decisions and avoid unnecessary penalties.
This content is for informational purposes only, should not be considered professional, financial, medical or legal advice, and no representations or warranties are made regarding its accuracy, timeliness or currency. With all information, consult with appropriate licensed professionals to determine if implementing any recommendations would be in accordance with applicable laws and regulations or to obtain advice with respect to any particular issue or problem.