Medicare Part D Creditability Determinations for Non-Calendar Year Plans

In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) added a voluntary prescription drug benefit to the Medicare program. The benefit, known as Medicare Part D or “Part D,” is an optional program for Medicare beneficiaries to access covered prescription drugs at a lower cost. In 2022, the Inflation Reduction Act (IRA) was signed and set into motion changes to Part D benefits, with additional impact on employers in 2024 and 2025.

Group plan sponsors that provide prescription drug coverage to individuals who are eligible for coverage under Part D have reporting and disclosure requirements under the MMA. The reporting requirements apply to large and small plans and to self-funded and fully insured plans regardless of whether the plan pays primary or secondary to Medicare. There are no exceptions for church or government plans.

The two main reporting requirements that must be completed annually are: 

• Annual written notices to all Medicare-eligible individuals who are covered under the prescription drug plan;
• Disclosure to the Centers for Medicare and Medicaid Services (CMS) whether the coverage is “creditable prescription drug coverage” through the CMS Creditable Disclosure webpage.

Creditable coverage is coverage that provides “coverage of the cost of prescription drugs the actuarial value of which…to the individual exceeds the actuarial value of standard prescription drug coverage.” In 2022, President Biden signed the IRA, which included provisions that impact drug prices for individuals enrolled in Medicare, as well as reducing what the federal government spends on prescription drugs. Under the IRA, Part D coverage became richer in 2024. 

The IRA also outlined additional changes that will dramatically impact Medicare Part D benefits beginning in 2025. On April 1, 2024, CMS released Final Redesign Program Instructions for the Medicare Part D program, which will be effective starting January 1, 2025. The 2025 updates include a variety of changes, including a lower annual out-of-pocket (OOP) threshold from $8,000 to $2,000. 

The new Medicare Part D benefits will change the creditable coverage determinations for plans starting in 2025. This has led to a common question for plan sponsors of non-calendar year plans: do non-calendar year plan sponsors have to redetermine the creditability of their plan for January 2025, or do they wait until their plan renews in 2025? 

The original regulations implementing Medicare Part D answer this question clearly: Creditable prescription drug coverage means any of the following types of coverage listed in paragraph (b) of this section only if the actuarial value of the coverage equals or exceeds the actuarial value of defined standard prescription drug coverage under Part D in effect at the start of such plan year, not taking into account the value of any discount or coverage provided during the coverage gap, and demonstrated through the use of generally accepted actuarial principles and in accordance with CMS guidelines. 42 CFR §423.56(a)  

Therefore, plan sponsors of non-calendar year plans do not need to calculate the actuarial value of their plans until they renew in 2025. 

Example: Carmine’s Sandwich Shop has a group health plan that renews on September 1 every year. In 2024, the plan renewed on September 1, and Carmine’s Sandwich Shop sent out Part D Creditable Coverage notices to plan participants the following week, in advance of the October 15 deadline. The actuarial value of the plan for the 2024 notice was calculated against the 2024 value of Medicare Part D. In September 2025, Carmine’s Sandwich Shop will renew its plan and calculate the plan’s actuarial value against the 2025 value of Medicare Part D and send the corresponding notices prior to October 15, 2025. 

Plan sponsors with additional questions on Medicare Part D can ask their local Alera Group office for additional information and resources.