Each year group health plan (GHP) sponsors that provide prescription drug coverage are required to annually disclose to Medicare (Part D) eligible individuals whether the coverage they offer is “creditable” or “non-creditable”. Plan sponsors must provide this annual disclosure before the start date of the annual Medicare Part D enrollment period which begins on October 15th of each year. This communication outlines what GHPs need to know related to the Part D notice requirements.
Who Must Receive Notice
Medicare includes a voluntary prescription drug benefit for “Part D eligible individuals.” These are individuals who have coverage under Medicare Part A or B and who live in the service area of a Part D plan. Notice must be provided to all Medicare Part D eligible individuals, which may include active employees, disabled employees, COBRA participants and retirees, as well as their covered spouses and dependents. As a practical matter, GHP sponsors will often provide the notices to all plan participants.
Creditable Coverage and Why the Notice Matters
Creditable coverage means that the coverage provided by the plan is expected to pay on average as much as the standard Medicare prescription drug coverage. The Part D notice is important because a Part D late enrollment penalty is imposed 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. Accordingly, the Part D notice information is essential to a Part D eligible individual’s decision whether to enroll in a Medicare Part D plan or stay with the employer plan. Failing to provide the notice could be detrimental to these individuals because if they are not covered by creditable prescription drug coverage and do not enroll in Medicare Part D when first eligible, they may have to pay higher premiums if they enroll later.
Creditable Coverage Status is to be Determined for Each Applicable Option
GHPs subject to this notice requirement include health plans as defined under ERISA, including certain account-based medical plans, as well as GHPs sponsored for employees or retirees by unions, churches, and federal, state, or local governments. For a list of entities subject to the Medicare D disclosure requirement, see CMS’ Entities Required to Provide Disclosure to All Medicare Eligible Individuals. The notice requirements apply to insured and self-funded plans, regardless of plan size, employer size, or grandfathered status. A GHP’s prescription drug coverage is considered creditable if its actuarial value equals or exceeds the actuarial value of standard Medicare Part D prescription drug coverage. In general, this actuarial determination measures whether the expected amount of paid claims under the GHP’s prescription drug coverage is at least as much as the expected amount of paid claims under the Medicare Part D prescription drug benefit. For plans that have multiple benefit options (for example, PPO, HDHP and HMO), the creditable coverage test must be applied separately for each benefit option. See the CMS Creditable Coverage web page for general Part D notice guidance for employer and union-sponsored plans.
When Must Notice Be Provided
Medicare Part D notices must be provided prior to the Part D annual coordinated election period—beginning October 15 through December 7 of each year. This means the individual must be provided with the notice at least once annually in every 12 month period ending on October 14, which is just before the start date of the Part D annual period. Plan sponsors must also provide notice at various other times as required under the law, including to a Part D eligible individual when he/she joins the plan, upon request, and if the prescription drug benefit ever changes from creditable to non-creditable (or vice versa).
Form of Notice
CMS has provided English and Spanish model disclosure notices that can be tailored by plan sponsors to satisfy their notice obligation. For plans that have multiple benefit options (e.g., PPO and HDHP), the creditable coverage determination test and related notice obligation must be addressed separately for each benefit option.
How Must Notice Be Provided
As a practical matter, GHP sponsors will often provide the disclosure notices to all plan participants by including the notice in the new hire and annual open enrollment materials:
1. If a plan sponsor chooses to provide the disclosure notice with other plan participant information, the creditable coverage 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 that contains the disclosure notice portion—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.
2. As a general rule, a single disclosure notice may be provided to the covered Medicare beneficiary and all of his or her Medicare Part D-eligible dependents covered under the same plan. However, if it is known that any spouse or dependent who is eligible for Medicare Part D lives at a different address than where the participant materials were mailed, a separate notice must be provided to the Medicare-eligible spouse or dependent residing at a different address.
3. The notice may be sent electronically under certain circumstances. CMS has issued guidance indicating that health plan sponsors may use the electronic disclosure standards under DOL regulations in order to send the creditable coverage disclosure notices electronically. Also, if a plan sponsor uses electronic delivery, the sponsor must inform plan participants that they are responsible for providing a copy to their Medicare-entitled dependents, and the sponsor must also post the current version of their notices on their websites.
Related Online CMS Disclosure
A related Medicare Part D disclosure rule requires that sponsors complete the Online Disclosure to CMS Form to report the creditable coverage status of their prescription drug plan. This online disclosure should be completed annually no later than 60 days from the beginning of a plan year (contract year, renewal year), within 30 days after termination of a prescription drug plan, or within 30 days after any change in creditable coverage status. See our Update for more information on this requirement.
Should you have questions about this or any aspect of group health plan requirements, contact your Conner Strong & Buckelew account representative toll free at 1-877-861-3220. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.