Recent guidance from CMS (issued as a final regulation published on April 2, 2026) makes compliance with the prescription drug creditable coverage obligations for employer plans simpler and less confusing for plan participants. 

Background

Creditable coverage obligations for employer plans, including the disclosure requirements, were first required with the launch of Medicare Part D in 2006. Since then, group health plans that offer prescription drug coverage have generally been required to provide an annual creditable coverage notice to Medicare-eligible individuals and to report creditable status to CMS on the required schedule. The determination of such coverage has also been subject to relatively sophisticated actuarial determinations. 

There is no obligation for employer medical plans to offer a certain level of prescription drug coverage. Rather, the obligations require employer plans to disclose to plan participants, and to CMS, whether the prescription drug coverage in the plans is creditable for purposes of avoiding late enrollment penalties for Medicare beneficiaries. 

The recent final rules make the determination of the level of coverage and the reporting (for account-based plans) simpler for employers. 

Reporting Obligations for Account-Based Plans Eased 

The Centers for Medicare and Medicaid Services (CMS) issues final regulations that ease a reporting obligation for account-based plans such as health reimbursement arrangements (HRAs), including individual coverage health reimbursement arrangements (ICHRAs), health flexible spending accounts (FSAs), and health savings accounts (HSAs). The final rules exempt those account-based plans from the Medicare Part D creditable coverage disclosure requirement. That means employers sponsoring those plans will no longer need to provide the annual creditable coverage notice for such plans starting in 2027. 

Prior guidance required such plans to disclose that they do not meet the creditable coverage requirements. However, they are typically paired with underlying group medical coverage that does provide such coverage. That can be confusing for the plan participants. CMS explained that account-based plans do not themselves provide prescription drug coverage, making the creditable coverage disclosure framework less applicable to those arrangements. The change is intended to reduce administrative burden and avoid confusing or conflicting notices for participants. 

Employers should note that this relief applies to the notice obligation for account-based plans, but group health plans that actually provide prescription drug coverage remain subject to the creditable coverage rules. Plan sponsors should review 2027 communication procedures and update vendor instructions accordingly. 

Determination of Creditable Coverage Eased

Changes in Medicare Part D made it more challenging for many employer plans to be considered creditable in 2026. That is not fatal to the plans, but if that remained the case, employees who are or become eligible for Medicare would be subject to a penalty for late enrollment in Medicare Part D. For active employees, that can raise all sorts of potential compliance issues (such as being ineligible for HSAs) that might not be obvious. The easing of the rule will be welcome for many plan sponsors and their employees. 

CMS recognizes two main ways to determine whether prescription drug coverage is creditable: the simplified determination method and the actuarial method. Under the simplified method, a plan can be treated as creditable if it meets CMS's design-based safe harbor standards; if it does not, the plan sponsor must use an actuarial determination based on generally accepted actuarial principles. 

To meet the simplified method, the plan must offer reasonable coverage for brand-name and generic prescription drugs and biological products, reasonable access to retail pharmacies, and an expected payment of at least 72% of participants' prescription drug expenses. The revised method applies beginning in 2026 for non-RDS (those not receiving a CMS subsidy, which applies to virtually all active group health plans). 

Conclusion

The recent changes finalized by CMS should make compliance for employer plans simpler. It will also make some of the disclosures less confusing for plan participants. Employers should consult with their advisors regarding the potential impact on their plans.