Creditable Coverage Notification Frequently Asked Questions

In 2006, Medicare-eligibles will have the opportunity to receive subsidized prescription drug coverage through the new Medicare Part D program. The new drug benefit will be delivered by competing health plans, and Medicare-eligible individuals who want to receive coverage will select an approved plan each year. Medicare eligible individuals who choose not to sign up at the first opportunity pay more if they wait to enter the program later after the open enrollment period.

Medicare-eligible individuals who have other sources of drug coverage - through a current or former employer or union, for example - may stay in that plan and choose not to enroll in the Medicare drug plan. If their other coverage is at least as good as the new Medicare drug benefit (and therefore considered "creditable coverage"), then the Medicare eligible individuals can continue to get the high quality care they have now as well as avoid higher payments later if they later sign up for the Medicare drug benefit.

The Medicare Modernization Act of 2003 (MMA) mandates that certain entities offering prescription drug coverage, including group health plan sponsors, must disclose to all Medicare-eligible individuals with prescription drug coverage under the plan whether such coverage is creditable.

• How does the requirement affect retirees covered under an employer pharmacy plan?
• How does an employer know if they have to provide the Creditable Coverage notification?
• What if an employer plan is not primary to Medicare?
• Does the Creditable Coverage notification go to employees or retirees only?
• What is "Creditable Coverage"?
• What information is required in the Creditable Coverage notification?
• Where can I get the Model Language?
• What is the timing for sending the Creditable Coverage notification?
• How does an employer plan know if their coverage is creditable?
• Does the Creditable Coverage determination have to be made by an Actuary?
• What are are the actuarial principals for determining if an employer's pharmacy coverage is creditable coverage?
• Does the employer have to send a Non-Creditable Coverage notification if their pharmacy plan is deemed not creditable?
• What if our employer sponsored pharmacy coverage is not-creditable coverage?
• Is there any specific requirements on how the notification is provided?
• How is the late enrollment Part D premium penalty determined?
• Can someone other than the employer provide the Creditable Coverage notification?
• Are there other requirements?
• Are there other options the employer plans should consider?
• Are there penalties if an employer/union plan does not send the required notices to employees or retirees?
• Does the employer need to include a Creditable or Not Creditable coverage statement in their Standard Plan Document (SPD) or other member material?
• Where can I get more information?

How does the requirement affect retirees covered under an employer pharmacy plan?

The MMA imposes a late enrollment penalty on individuals who do not maintain creditable coverage for any period of 63 days or longer following their initial enrollment period for the Medicare prescription drug benefit. The Creditable Coverage notification information is a key factor in retirees' decision about whether to enroll in a Part D plan. Therefore, it is important that plan sponsors provide this information and communicate effectively to ensure that their members make informed and timely enrollment decisions.

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How does an employer know if they have to provide the Creditable Coverage notification?

The Creditable Coverage notification requirement applies to employers or unions that sponsored active and retiree coverage, regardless of whether those entities are eligible for, and elect to apply for, the retiree drug subsidy (RDS).

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What if an employer plan is not primary to Medicare?

A disclosure is required whether the entity's coverage is primary or secondary to Medicare.

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Does the Creditable Coverage notification go to employees or retirees only?

The Disclosure Notice requirement applies with respect to Medicare eligible individuals, who are active employees and those who are retired, as well as Medicare eligible individuals who are covered as spouses under active or retiree coverage.

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What is "Creditable Coverage"?

Coverage is considered creditable if its actuarial value equals or exceeds the actuarial value of standard prescription drug coverage under the Medicare prescription drug benefit. In general, this actuarial equivalence test measures whether the expected amount of paid claims under the plan sponsor's prescription drug coverage is at least equal to the expected amount of paid claims under standard prescription drug coverage under Medicare.

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What information is required in the Creditable Coverage notification?

The information must explain whether the plan sponsor's prescription drug coverage is creditable. If the coverage is not creditable, this information must also explain that there are limitations on the periods during the year in which the individual may enroll in a Medicare drug plan and that the individual may be subject to a late enrollment penalty. The Center for Medicare and Medicare Services has released a model notification that can be used.

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Where can I get the Model Language?

You can visit the Centers for Medicare and Medicaid Services.

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What is the timing for sending the Creditable Coverage notification?

The Creditable Coverage notification must be provided to all affected members (members with Medicare due to age or due to disability) by at a minimum:

• prior to an individual's initial enrollment period for the Medicare prescription drug benefit;
• prior to the effective date of enrolling in the employer/union plan;
• up on any change that affects whether the coverage is creditable prescription drug coverage (renewal);
• prior to the commencement of the annual coordinated election period that begins on November 15 of each year; and
• up on the individual's request.

If the creditable coverage disclosure notice is provided to all plan participants, CMS will consider items 1 and 2 to be met.

"Prior to" means that the Medicare eligible individual must have been provided the appropriate Creditable or Non-Creditable Coverage Notice within the past twelve months.

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How does an employer plan know if their coverage is creditable?

Coverage is creditable if the actuarial value of the coverage equals or exceeds the actuarial value of standard Medicare prescription drug coverage, as demonstrated through the use of generally accepted actuarial principles and in accordance with CMS actuarial guidelines.

In general, this actuarial determination measures whether the expected amount of paid claims 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.

For plans with multiple benefit options, the employer must apply the actuarial value test separately for each benefit option. A benefit option is defined as a particular benefit design, category of benefits, or cost-sharing arrangement offered within a group health plan.

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Does the Creditable Coverage determination have to be made by an Actuary?

The determination of creditable coverage status for the purpose of the Creditable Coverage Notification does not require an attestation by a qualified actuary.

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What are are the actuarial principals for determining if an employer's pharmacy coverage is creditable coverage?

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

• Provides coverage for brand and generic prescriptions;
• Provides reasonable access to retail providers and, optionally, for mail order coverage;
• The plan is designed to pay on average at least 60% of participants' prescription drug expenses; and satisfies at least one of the following:
  • 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
  • The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 per Medicare eligible individual in 2006.
  • 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 payable by the plan of at least $25,000 and has no less than a $1,000,000 lifetime combined benefit maximum.

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Does the employer have to send a Non-Creditable Coverage notification if their pharmacy plan is deemed not creditable?

The regulation requires all employer plans that offer pharmacy coverage to Medicare eligible individuals as active employees, retirees, spouses or dependents to disclose to their Medicare affected members and CMS whether their prescription drug coverage is creditable or non-creditable.

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What if our employer sponsored pharmacy coverage is not-creditable coverage?

If Part D eligible individuals are covered under a plan that is providing non-creditable prescription drug coverage, they will need to enroll in a Part D plan during the Initial Open Enrollment Period if they do not want to pay a late enrollment penalty.

There are limited times in the year in which a Medicare eligible individual can enroll (November 15- December 31), and if they do not enroll during the initial open enrollment period, they will likely pay a late enrollment penalty if they choose to join at a later time, unless they had another source of creditable coverage.

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Is there any specific requirements on how the notification is provided?

There is flexibility in the form and manner of providing Creditable and Non-Creditable Coverage Notices to plan members.

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 employer may provide a single disclosure notice to the covered Medicare individual and all 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 where the participant/policyholder materials.

An entity can provide a Disclosure Notice through electronic means only if the Medicare eligible individual has indicated to the entity that s/he has adequate access to electronic information, agree to accept information electronically, be informed of their right to obtain a paper version, how to withdraw their consent, update address information, and identify any hardware or software requirements to access and retain the creditable coverage disclosure.

If the Medicare eligible individual consents to an electronic transfer of the notice, a valid email address must be provided to the employer and the consent from the Medicare eligible individual must be submitted electronically to the employer. This ensures the Medicare eligible individual's ability to access the information as well as ensure that the system for furnishing these documents results in actual receipt. The stand-alone disclosure format must use the sample disclosure notice or the required disclosure elements as outlined in this guidance. In addition to having the disclosure notice sent to the Medicare eligible individual's email address, the notice must be posted on the employer's website, if applicable, with a link to the creditable coverage disclosure notice on the employer's home page.

If employers choose to incorporate creditable coverage disclosures with other plan participant information, then the disclosures must be prominent and conspicuous. This means that the statements (or a reference to the section in the document being provided to the Medicare eligible 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 that begins the plan participant information being provided.

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How is the late enrollment Part D premium penalty determined?

The late enrollment penalty applies to Part D eligible individuals who go without any creditable prescription drug coverage for any continuous period of sixty-three (63) days or longer after the end of their initial enrollment period in Part D, and then enroll in Part D.

The higher premium charge is based on the number of months that the individual did not have creditable coverage. The premium that would otherwise apply is increased by at least 1% for each month without creditable coverage.

While this percentage will apply for as long as the individual remains enrolled in Part D, the higher premium charge will actually increase each year, because the percentage increase will be applied to each subsequent year's base premium.

If Part D eligible individuals are covered under a plan that is providing creditable prescription drug coverage, they will not be assessed a late enrollment penalty if they choose to enroll in Medicare prescription drug coverage at a later date. However, they will be assessed late enrollment penalties if they choose to drop coverage before they can enroll in a Medicare prescription drug plan (or lose coverage and do not promptly take advantage of the resulting Special Enrollment Period), and they go without any creditable coverage for a continuous period of 63 days or longer.

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Can someone other than the employer provide the Creditable Coverage notification?

While the entity that provides the coverage is responsible for providing the notice, nothing in the regulation prevents that entity from arranging to have it provided by a third party.

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Are there other requirements?

The entity must also provide a disclosure of creditable coverage status to the Centers for Medicare & Medicaid Services (CMS) on an annual basis. CMS will provide future guidance relating to disclosure to CMS.

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Are there other options the employer plans should consider?

Employer plans that contract with Medicare directly as a Part D plan or that contract with a Part D plan to provide qualified prescription drug coverage are exempt from the disclosure requirement.

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Are there penalties if an employer/union plan does not send the required notices to employees or retirees?

The MMA does not include a specific penalty for failure to provide the required notices. If however the employer/union is requesting the Retiree Drug Subsidy (RDS) from CMS the required attestation that all applicable rules will be followed would require that the appropriate notices are sent to Medicare affected members. If the Medicare member can prove that they did not get adequate notice that their employer plan was not creditable them CMS may not apply the premium penalty with when the member enrolls in Part D.

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Does the employer need to include a Creditable or Not Creditable coverage statement in their Standard Plan Document (SPD) or other member material?

MMA does not require this however if the employer wants to use this method as the annual notification then the guidelines require the disclosures must be prominent and conspicuous. This means that the statements (or a reference to the section in the document being provided to the beneficiary 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 that begins the plan participant information being provided.

Example of reference to creditable or non-creditable coverage requirements:

If you have Medicare or will become eligible for Medicare in the next 12 months, a new Federal law gives you more choices about your prescription drug coverage, starting in 2006.

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Where can I get more information?

You should first visit the Centers for Medicare and Medicaid Services. If you cannot find your answer there, you can contact the Employer Policy & Operations Group (EPOG) at CMSEmployerAppComments@cms.hhs.gov, CMSEmployerWaivers@cms.hhs.gov, or EGWPDisclosure@cms.hhs.gov.

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