Employers offering prescription drug coverage must provide an annual notice to Medicare-eligible participants indicating whether their coverage is creditable, meaning it is expected to pay at least as much as the standard Medicare Part D benefit. This long-standing requirement applies regardless of employer size, funding arrangement or grandfathered status.
The Inflation Reduction Act (IRA) has significantly enhanced Medicare Part D benefits, lowering out-of-pocket costs and raising the standard for creditable coverage. These changes may make it more difficult for some employer-sponsored prescription drug plans, particularly high-deductible health plans, to meet creditable coverage standards.
Creditable Coverage and IRA Impact
Employers can determine their prescription drug plans’ creditable status through an actuarial certification or using a “simplified” method. However, the IRA’s reforms, including a $2,000 out-of-pocket cap and elimination of the coverage gap, substantially increase the actuarial value of Medicare Part D. These enhancements raise the bar for employer plans to qualify as creditable, and many high-deductible health plans may no longer meet the 60% threshold under the simplified method. Given this, employers should review plan designs now and confirm creditable status under the updated standards rather than relying on prior determinations.
2026 and 2027 Changes
In 2026, the Centers for Medicare & Medicaid Service (CMS) will introduce a revised simplified method with stricter requirements: coverage of brand, generic and biologic drugs; reasonable retail pharmacy access; and a 72% actuarial value threshold. The old, simplified method (60% threshold) will still be available for 2026 but is scheduled for elimination in 2027. Plans participating in the Retiree Drug Subsidy Program are not eligible to use the simplified method. Instead, these plans must receive actuarial certification.
Notice Requirements
Employers must notify Medicare-eligible participants and their dependents each year, prior to the start of Medicare’s open enrollment period by October 15, whether their coverage is creditable or non-creditable. Employers must also provide the Part D notice at initial enrollment, when coverage ends or if creditable status changes. Notice must be sent to Medicare-eligible retirees, Medicare-eligible active employees, Medicare-eligible COBRA participants and their covered dependents.
Effective Date: Annual notices must be distributed before October 15, 2025, for 2026 Medicare enrollment decisions. Employers must also disclose creditable status to CMS within 60 days of the plan year start date (March 1, 2026, for calendar-year plans).
Practical Impact: Notices help Medicare-eligible individuals make informed decisions and avoid lifelong late-enrollment penalties, which apply when Medicare-eligible individuals go 63, or more, days without creditable prescription drug coverage.
Implementation Considerations
Before October 15, 2025, employers must:
- Confirm the creditable status of their prescription drug plan.
- Distribute the correct CMS model notice (creditable or non-creditable) to all Medicare-eligible participants.
- Ensure electronic delivery methods meet federal consent and disclosure rules.
- Submit the CMS disclosure filing within 60 days of the plan year start date.
