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Is Your Prescription Drug Coverage Creditable?

Employers providing prescription drug coverage to individuals who are eligible for Medicare Part D must inform both the individuals and the Centers for Medicare and Medicaid Services (CMS) whether their prescription drug coverage is “creditable.” Let’s take a look at what that means:

The prescription drug coverage in a group health plan is considered creditable if its actuarial value equals or exceeds the actuarial value of standard Medicare Part D prescription drug coverage. If not, the coverage is deemed “non-creditable.”

It’s important to note that there is no fee or penalty to the employer for offering non-creditable coverage; the requirement here is one of disclosure, not a restriction on the type of coverage offered. While non-creditable coverage may still have significant value to employees, if they fail to enroll in Part D during an initial enrollment period, they can be subject to an additional Part D premium if they enroll at a later date.

How can an employer tell whether their prescription plan is creditable or not? The first, and often only, step is to ask the insurance carrier whether that determination has been made. In many cases, the carrier has already assessed the actuarial value.

For self-insured plans and those where the carrier has not yet made a determination, employers may use a simplified determination if the coverage meets certain design requirements. If not, an actuarial determination is required. Let’s look at both:

The method for a simplified determination is dependent upon whether the plan in question is an integrated plan or a non-integrated plan. An integrated plan is one in which prescription coverage is bundled with other coverages such as medical, dental or vision, with combined plan year deductibles and annual and lifetime benefit maximums.

To qualify as creditable, the prescription drug coverage of an integrated plan must meet all of these criteria:

  • Coverage for brand and generic prescriptions
  • Reasonable access to retail providers
  • Pays, on average, at least 60 percent of participants’ prescription drug expenses
  • No more than a $250 annual deductible, no annual benefit maximum (or a maximum of at least $25,000) and no less than a $1 million lifetime combined-benefit maximum

A non-integrated plan is considered creditable if it satisfies the first three of the above criteria and at least one of the following:

  • The prescription drug coverage has no maximum annual benefit or a maximum annual benefit of at least $25,000
  • The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare-eligible individual

If an employer’s plan design does not allow for a simplified determination as outlined above, an actuarial determination must be made. This determination must assess whether the expected amount of paid claims under the prescription drug coverage is at least as much as the expected amount of paid claims under the standard Medicare prescription drug benefit. Note that while there is no requirement that a qualified actuary be used to make this determination, it may be advisable.

Questions about prescription drug coverage or other benefits issues? Contact Consolidated.