Employers that sponsor group health plans with prescription drug coverage must provide a notice to any individual in their plans who is eligible for Medicare Part D prescription drug coverage as to whether each prescription drug benefit option in the plan is creditable or non-creditable relative to the Medicare Part D requirements before the Medicare annual enrollment period, which begins on October 15 of each year. Creditable coverage generally means that the prescription drug coverage is expected to pay, on average, at least as much as standard Medicare Part D coverage.
The notice must be provided to any Medicare Part D-eligible individual who is covered under, or who applies for, the plan's prescription drug coverage, whether Medicare is primary or secondary. This population may include active employees, retirees, COBRA-qualified beneficiaries, spouses, and dependents.
Because employers will often not know whether every covered spouse or dependent is Medicare-eligible, most employers distribute the notice to all individuals enrolled in, or applying for, prescription drug coverage as a general plan administrative practice. The notice is required to be distributed at the following times:
Many employers include the notice with their plan's annual open enrollment information (assuming that it is sent before the October 15 deadline).
Employers should not assume that a plan option remains creditable merely because it was creditable in a prior year. Medicare Part D has changed, and the Centers for Medicare & Medicaid Services (CMS) has revised one of the methods used to determine creditable coverage.
Plan sponsors that are not applying for the Retiree Drug Subsidy (RDS) may generally determine creditable coverage using either the prior simplified determination method or the revised simplified determination method, provided the plan satisfies the requirements of the method being used. If a plan does not qualify for a simplified determination method, an actuarial determination is generally required. Generally, plan sponsors will rely on the insurance carrier or the plan third-party administrator (TPA) to make those determinations.
For insured prescription drug coverage, employers should first confirm whether the carrier has determined the plan's creditable coverage status. Employers should also consider whether an employer-funded arrangement, such as a health reimbursement arrangement (HRA), affects that determination. For example, an HRA that reimburses a portion of the deductible or other participant prescription drug costs may affect the creditable coverage analysis. This may be particularly relevant when the carrier or TPA administers only the underlying medical and prescription drug coverage and does not administer, or otherwise account for, the HRA.
Accordingly, employers should confirm that the creditable coverage determination reflects all applicable components of the prescription drug coverage before relying on a carrier or TPA determination.
For self-funded coverage, or insured coverage for which the carrier has not made a determination, the employer will generally need to determine the plan's creditable coverage status.
Multiple plan options must be tested separately. For example, if an employer offers a PPO, HMO, and HDHP with different prescription drug benefits, the creditable coverage determination should be made separately for each option.
After the creditable coverage status of each prescription drug option is confirmed, employers should provide the notice that matches that result. CMS provides model notices for creditable and non-creditable coverage. Employers are not required to use the model language, but a customized notice must contain the information required by CMS.
If the creditable status of a plan's prescription drug coverage changes, employers generally must provide an updated notice to affected Medicare Part D-eligible individuals when the change occurs. Employers must also separately update their disclosure to CMS, using CMS's online Creditable Coverage Disclosure Form, within 30 days after the change in creditable coverage status.
Electronic delivery of the notice can be satisfied by using the ERISA safe harbor for electronic notices. The safe harbor applies when the applicable electronic disclosure requirements are satisfied. For employees whose access to the employer's electronic information system is an integral part of their job duties, electronic delivery may generally be used without individual consent if the other delivery safeguards are satisfied.
Employees without integrated work-related computer access generally require affirmative consent before the employer relies on electronic delivery. This may include employees who use a shared terminal or personal application only to clock in or out. A notice displayed as a banner at a clock-in prompt, standing alone, generally would not satisfy the electronic delivery requirements for that population.
Note—this is a safe harbor, not a required method. If the employer is satisfied that the information has been effectively communicated, those specific steps are not mandated. However, most employers rely on the safe harbor or paper notices. If a covered individual fails to timely elect Medicare Part D when first eligible and does not have creditable coverage, the individual will be subject to a permanent penalty for their Medicare Part D penalty. With such a severe penalty, employers generally will want to be certain that they meet the minimum standards on the notices.
The method used to obtain consent does not have to match the method used to deliver the notice. For example, an employee may consent during annual enrollment through the employer's web portal to receive specified notices by email, through the portal, or both, if the consent language identifies the covered documents and delivery channels and includes the required disclosures. Where valid consent has not been obtained, employers should generally use another appropriate delivery method, such as hand delivery or first-class mail.
In addition to providing the annual Medicare Part D notice to Medicare Part D-eligible individuals, employers generally have a separate disclosure obligation to report the results to CMS.
Employers should confirm the creditable coverage status of each prescription drug option, verify that the determination reflects any applicable employer-funded arrangement, provide the appropriate notice before October 15, and retain documentation of the determination and distribution. The annual notice to individuals and the separate online disclosure to CMS should each be completed according to their applicable timing requirements.
This Alert is provided for general informational purposes only and does not constitute legal or tax advice. Employers should consult with qualified benefits counsel regarding the application of these requirements to their specific plans.