Medicare Part D

Medicare Part D is a federal program to subsidize the costs of prescription drugs for Medicare beneficiaries in the United States.

The Medicare Modernization Act (“MMA”) imposes a late enrollment penalty on individuals who do not maintain Creditable Coverage for a period of 63 days or longer following their initial enrollment period for the Medicare prescription drug benefit. MMA mandates that employer health plan sponsors disclose to all Medicare eligible individuals with prescription drug coverage under the plan whether such coverage is “creditable.” This information is essential to an individual’s decision whether to enroll in a Medicare Part D prescription drug plan.

Covered Plans

Applies to all plans offering prescription drug coverage to Part D eligible individuals, including all Medical, Dental and Vision Plans, Health FSAs and HRAs if offering prescription drug coverage.

CMS has informally advised that if an HRA is required to provide notice, it can combine that notice with that provided by a major medical plan offered by the same employer if the individual participates in both plans.

Note that Health FSAs are not required to provide Creditable Coverage disclosure notices.

See Entities Required to Provide Notice.

Creditable Coverage Test

The Creditable Coverage Test requires actuarial attestation certifying that the employer’s plan is at least as good as the Medicare program from two perspectives:

• The “gross value” test that focuses on the total benefits.
• The “net value” test focusing on a comparison of the employer-subsidized portion of the plan compared with the government-funded Medicare benefit.

Simplified Determination

If an entity (employer or union) is not applying for the retiree drug subsidy, it can use the simplified determination of creditable coverage status annually to determine whether its prescription drug plan’s coverage is creditable or not.

If an entity is not an employer or union that is applying for the retiree drug subsidy, it can use the simplified determination of creditable coverage status annually to determine whether its prescription drug plan’s coverage is creditable or not. The plan will be determined to be creditable if the plan prescription drug plan design meets all four of the following standards. However, the standards listed under 4(a) and 4(b) may not be used if the entity’s plan has prescription drug benefits that are in with benefits other than prescription drug coverage (i.e. Medical, Dental, etc.). Integrated plans (see INTEGRATED PLAN below) must satisfy the standard in 4(c).

A prescription drug plan is deemed to be creditable if it:

1. Provides coverage for brand and generic prescriptions;
2. Provides reasonable access to retail providers;
3. The plan is designed to pay on average at least 60% of participants’ prescription drug expenses; and
4. Satisfies at least one of the following:

a) The prescription drug coverage has no annual benefit maximum benefit or a maximum annual benefit payable by the plan of at least $25,000; or
b) The prescription drug coverage has an a expectation that the amount payable by the plan will be at least $2,000 annually per Medicare individual.
c) For entities that have integrated health coverage, the integrated health plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit paid by the plan of at least $25,000 and has no less than a $1,000,000 lifetime combined benefit maximum.

Integrated Plan

An integrated plan is any plan of benefits that is offered to a Medicare eligible in where the prescription drug benefit is combined with other coverage offered by the entity (i.e., medical, dental, vision, etc.) and the plan has all of the following plan provisions:

1. A combined plan year deductible for all benefits under the plan;
2. A combined annual benefit maximum for all benefits under the plan; and
3. A combined lifetime benefit maximum for all benefits under the plan.

A prescription drug plan that meets the above parameters is considered an integrated plan for the purpose of using the simplified method and would have to meet steps 1, 2, 3 and 4(c) of the simplified method If it does not meet all of the criteria, then it is not considered to be an integrated plan and would have to meet steps 1, 2, 3 and either 4(a) or 4(b).

NOTE: If the entity cannot use the Simplified Determination method stated above to determine the creditable coverage status of the prescription drug plan offered to Medicare eligible individuals, then t entity must make an actuarial determination annually of whether the expected amount of paid claim under the entity’s prescription drug coverage is at least as much as the expected amount of paid claims under the standard Medicare prescription drug benefit.

Notice

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) requires that all entities that provide prescription drug coverage give written notice stating whether that coverage is “creditable”, i.e., whether or not the expected amount of paid claims under a group health plan’s prescription drug coverage is at least as much as the expected amount of paid claims under the standard health benefit under Medicare Part D.

Notice must be provided by:

1) October 15 of each year;
2) prior to an individuals initial enrollment period for Part D;
3) prior to the effective date of coverage for any Part D-eligible individual who enrolls in the employer’s prescription drug coverage;
4) when the plan no longer provides any drug coverage or when the coverage is no longer “creditable”; or
5) upon request.

Sending the notice to all plan participants annually satisfies 1 & 2 above.

The notice should be distributed by the plan to participants and beneficiaries eligible for Medicare Part D.  Individuals who do not enroll in Part D when first available, but enroll later, will have to pay higher premiums permanently unless they have creditable coverage.

Please note that neither the plan nor the employee is required to send this notice to the Centers for Medicare and Medicaid Services (CMS).  However, the plan must still disclose to the CMS the creditable status of its drug coverage in general.  See the “Disclosure to CMS” section.

Click Here for Model Notices of Creditable and Non-Creditable Coverages.

Notice Distribution Requirements

Entities have flexibility in the form and manner of providing Disclosure Notices to beneficiaries. The notice need not be sent as a separate mailing. The Disclosure Notice may be provided with other plan participant information materials (including enrollment and/or renewal materials). The entity may provide a single disclosure notice to the covered Medicare individual and all his/her Medicare eligible dependent(s) covered under the same plan. However, the entity is required to provide a separate disclosure notice if it is known that any spouse or dependent that is Medicare eligible resides at a different address than from where the participant/policyholder materials were provided.

If entities choose to incorporate disclosures with other plan participant information, the disclosure must be prominent and conspicuous. This means that the disclosure notice portion of the document (or a reference to the section in the document being provided to the individual that contains the required statement) must be prominently referenced in at least 14-point font in a separate box, bolded, or offset on the first page of the provided plan participant information.

Electronic Distribution

Plan Sponsors may use electronic disclosure requirements to meet the creditable coverage disclosure requirements provided the recipients have adequate access to electronic information.

Active At-Work Plan Participants
The disclosure requirements allow the entity sponsoring a group health plan to provide a creditable coverage disclosure notice electronically to plan participants who have the ability to access electronic documents at their regular place of work if they have access to the plan sponsor’s electronic information system on a daily basis as part of their work duties. If this electronic method of disclosure is chosen, the plan sponsor must inform the plan participant that the participant is responsible for providing a copy of the electronic disclosure to their Medicare eligible dependents covered under the group health plan.

Retirees
An entity can also provide a Disclosure Notice through electronic means to retirees only if the Medicare eligible individual has indicated to the entity that s/he has adequate access to electronic information. An entity must not take the right to provide materials to an individual via electronic means as a permissible way to deliver documents to all individuals. Before individuals agree to receive their information via electronic means, they must be informed of their right to obtain a paper version, how to withdraw their consent, how to update address information, and be advised of any hardware or software requirements needed to access and retain the creditable coverage disclosure.

If the individual consents to an electronic transfer of the notice, a valid e-mail address must be provided to the entity and the consent from the individual must be submitted electronically to the entity. This ensures the individual’s ability to access the information as well as ensures that the system for furnishing these documents results in actual receipt.

Web Site Posting
In addition to having the disclosure notice sent to the individual’s email address, the notice (except for personalized notices) must be posted on the entity’s website, if applicable, with a link on the entity’s home page to the creditable coverage disclosure notice.

Disclosure to CMS

Plans should complete annual disclosure requirement to Centers for Medicare and Medicaid Services stating whether or not the expected amount of paid claims under a group health plan’s prescription drug coverage is at least as much as the expected amount of paid claims under the standard drug benefit under Medicare Part D, i.e, “creditable”.

• This must be completed on an annual basis within 60 days of end of the plan year.  Also, it must be completed within 30 days of the termination of a plan’s prescription drug coverage or after a change in the creditable status of a plan.
• The notice is filed with CMS through online form by the Plan.

Plans approved for the Retiree Drug Subsidy (“RDS”) are exempt from providing the notice with respect to retirees for whom the plan is claiming the subsidy.

Retiree Drug Subsidy

Group health plans that have retiree drug coverage that is actuarially equivalent to Medicare Part D coverage may request a Retiree Drug Subsidy (“RDS”).

• The subsidy is available for each retiree (or spouse/dependent) that is eligible for Part D but not enrolled in Part D.
• A list of retirees for whom the plan may receive a subsidy must also be submitted to complete application.
• Additional cost submissions are required to receive subsidy.
• The request is filed with CMS through online RDS system accessed from www.rds.cms.hhs.gov.

The subsidy application and attestation must be submitted annually, at least 90 days prior to the start of the plan year.  Attestation must also be provided no later than 90 days before a material change to drug coverage that potentially causes the plan to no longer be actuarially equivalent.

Additional Resources

Click Here for Model Notices of Creditable & Non-Creditable Coverage.

Click Here for Disclosure to CMS Guidelines.

Click Here for Retiree Drug Subsidy Overview.

Click Here for Creditable Coverage General Information.