CMS Revises Medicare Part D Creditable Coverage Rules for 2027
The Centers for Medicare and Medicaid Services (CMS) recently finalized changes to the Medicare Part D creditable coverage determination method for plan years beginning January 1, 2027 or after. The new rules follow Medicare redesign changes beginning in 2025 that increased the actuarial value of standard Medicare prescription drug changes. In addition to revising the determination methodology, CMS has finalized relief excusing certain account-based plans (including health reimbursement accounts (HRAs) and individual coverage HRAs (ICHRAs)) from the creditable coverage notice.
Background
Medicare imposes a late-enrollment penalty on individuals eligible for Medicare Part D coverage who fail to maintain creditable coverage for 63 days or more. Because of this potential penalty, group health plans are required to notify enrollees of the creditable status of prescription drug coverage offered by the group health plan. These annual notices allow Medicare eligible individuals to make informed Medicare decisions and avoid potential Part D penalties.
New Creditability Determination Method
Starting in 2009, employers could use a simplified safe harbor methodology to determine whether the prescription drug coverage offered by their plan was creditable. Following implementation of the richer standard Medicare prescription drug benefit in 2025, CMS has determined that the simplified method is no longer viable.
Beginning with 2027 plan years, the simplified determination methodology will be retired. Going forward, employers must determine creditable status through actual actuarial equivalence testing or use of the revised simplified determination method. Under the revised simplified determination method, a plan’s prescription drug benefit will be considered creditable if the plan:
- Covers brand-name drugs, generic drugs, and biological products;
- Provides reasonable access to retail pharmacies; and
- Is designed to pay, on average, at least 73% of participant’s prescription drug expenses for 2027*.
CMS has also said that the required actuarial value percentage (73% for 2027) will likely see further increases in future years. Because of these changes, some employer-sponsored plans that previously had creditable prescription drug coverage may no longer satisfy the increased standards.
Qualified high-deductible health plans (HDHPs) may face particular difficulty in meeting the new creditability standard as HDHPs require participants to satisfy the deductible before any coverage (other than preventive coverage) begins. CMS has outlined strategies HDHPs may employ to meet creditable standards, including:
- Subject to IRS rules, carving out preventive or maintenance medications from the deductible;
- Allocating a reasonable portion of the deductible toward prescription drug expenses during actuarial testing; and
- Offering lower participant cost-sharing after the deductible is satisfied.
Account-Based Plans Excused from Notice Requirement
CMS has also made permanent earlier relief excusing certain account-based plans, including HRAs and ICHRAs, from the creditable coverage notice requirements. CMS’ rationale is that the notice is not needed because these account-based arrangements differ from traditional prescription drug plans and therefore cannot be accurately “compared” to Medicare prescription drug coverage.
Employer Takeaways
Note that sponsors of fully-insured plans should be able to rely on their carrier to make the creditable/non-creditable determination. Employers sponsoring self-funded plans will want to consult with their third party administrator and/or actuaries (and prescription benefit manager, if this benefit is carved out) to determine creditable status. Once creditable status is determined, the employer should retain records demonstrating compliance with the revised simplified methodology.
* Employers that apply for the retiree drug subsidy cannot use the revised simplified determination method and instead must obtain an actuarial determination.
