Determining Medicare Creditable Coverage

What is Medicare creditable coverage and why does it affect me as an employer?

As part of the Medicare Modernization Act of 2003, the Medicare Part D prescription drug program was created. The law requires that each employer offering prescription drug benefits as part of their employee benefit plan must notify any Medicare-eligible participant and the federal government if the coverage offered is at least as good as the standard Medicare prescription drug plan. If the benefit the employer offers is at least that valuable, the plan is deemed “creditable.”

Notification to these participants is critical as that same law created a “late enrollment penalty” for those who did not have creditable coverage for 63 days or longer prior to their initial enrollment period for their Medicare prescription drug benefit. This will help those affected determine whether or not to stay on the employer plan or enroll in a Medicare Part D drug plan.

So as an employer, what do I need to do?

Every employer who offers a plan covering prescription drugs must file their status (creditable or non-creditable) to the Centers for Medicare and Medicaid Services (CMS) each year no later than 60 days after the start of their plan year. For example, the majority of health plans renew on January 1 of each year, which means they will need to file by March 1. To notify CMS of the plan’s status, the plan sponsor/employer needs to complete this form by entering their contact information and the federal tax identification number and completing the certification. The process is quite simple.

Employers are also responsible for notifying each plan option’s credibility status (note: many plans have more than one health plan option) to all active employees, plan participants, and any covered retirees that may be Medicare eligible.

Keep in mind, Medicare does not always apply to those 65 years or older. There are other extenuating circumstances why someone may be eligible for Medicare and since you may not be aware of any that qualify for other reasons, it is best to send the announcement to all covered persons. This notice must be delivered prior to October 15 each year, so that any person who wishes to enroll for Medicare may do so during that calendar year’s Medicare open enrollment period. Many employers tend to include the creditable status in their open enrollment packets or to new hires as they come on board. The point is, make sure all participants receive the information no later than October 15.

How will I know if our plan is creditable or non-creditable?

If your group plan is fully insured, the insurance carrier will be able to verify if the drug benefit is or is not creditable. Since every carrier is different in the handling of these notices, your agent should assist you as plan status may change each year even if there have been no changes to benefits.

Employers may also check plans status by using guidance from CMS or an independent actuary can be hired to value the benefits appropriately.

What if my plan is not deemed creditable? Are there penalties?

There is no requirement that employers offer creditable coverage and no penalty exists today if they do not. You are only required to a) notify the government annually and b) notify all active employee plan participants and covered retirees that could be Medicare eligible. We recommend that new hires (as they come onboard) are also made aware of the current plan’s Medicare creditable status. Medicare-eligible beneficiaries will be able to decide if they would like to enroll in a higher value Medicare Part D plan if the employer plan is indeed determined non-creditable.

How can I get assistance throughout this process to make sure I stay compliant?

At ARC Benefit Solutions we know that this may be a complex and intimidating task for employers who are busy running their businesses. Our licensed advisors are equipped with the knowledge and resources you need to keep your employees informed and keep your business compliant. If you have questions about creditable coverage or questions about any other compliance issues, please contact your ARC representative today.

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