Earlier this year, the Centers for Medicare and Medicaid Services (CMS) released a revised simplified determination that can be used by most employer groups* to evaluate the creditable coverage status of their prescription drug coverage. (Note: For fully insured and most level-funded plans, creditable coverage status is determined by the carrier.)
For calendar year 2026 only, group health plans can use either the existing simplified determination methodology or the revised simplified determination methodology to establish whether their prescription drug coverage is creditable. (See chart below.) Groups unable to use either determination option are required to perform more robust actuarial equivalence testing.
| Revised Determination | Existing Determination |
| Provides reasonable coverage for brand, generic and biologic prescriptions | Provides drugs for brand and generic prescriptions |
| Provides reasonable access to retail pharmacies | Provides reasonable access to retail pharmacies |
| Plan pays, on average, at least 72% of participants’ prescription drug expenses | Plan pays, on average, 60% of participants' prescription drug expense |
| No longer applicable | Satisfy one of the following: a) the drug coverage has no annual benefit maximum or a maximum annual payable by the plan of at least $25,000 or b) the actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare-eligible participant |
The revised simplified determination formula is addressed in the Final Part D Redesign Program Instructions, reflecting changes from the Inflation Reduction Act (IRA) of 2022. The new methodology better reflects the actuarial equivalence of the richer Part D plan requirements defined under the IRA.
CMS acknowledges that the changes adopted may cause some prescription drug programs, particularly high-deductible health plans, to fail to meet the creditable coverage standards. To ease the transition, employers are allowed to use either the current or revised simplified determination standard for 2026. For 2027, CMS stated it intends to withdrawal the current simplified determination.
There is no employer penalty for offering non-creditable coverage. However, Medicare-eligible individuals enrolled in non-creditable coverage can incur premium penalties by delaying coverage in a Part D prescription plan.
Given the potential for Medicare-eligible individuals to incur Part D premium penalties, employers have an annual obligation to issue a creditable or non-creditable coverage notice to all health plan participants who are Medicare-eligible, including dependents and retirees. The notice, due by October 15, informs Medicare-eligible participants whether their prescription drug coverage is at least as good as Medicare.
Should a prescription drug plan provide benefits that are less than Medicare offers, the coverage is deemed non-creditable. Medicare-eligible plan members with non-creditable coverage would be advised to enroll in a Medicare Part D prescription drug plan to avoid penalties at a future enrollment date.
Notices can be distributed by first-class mail, hand-delivered or emailed if recipients have access to the employer’s email system as part of their daily work duties. The email should note that the notice should be shared with all Medicare-eligible individuals under the group health plan.
Model notices are available to download from CMS. Most fully insured prescription drug plans are creditable. If you are unsure which notice to use, please check with your Bukaty Companies benefits consultant.
Download a customizable creditable coverage disclosure notice.
Download a customizable non-creditable coverage disclosure notice.
Online disclosure also required
An online disclosure requires employers to verify whether their company’s prescription drug coverage is creditable or non-creditable as defined by CMS. The disclosure requirement must be completed no later than 60 days after the beginning of a plan year. This is an annual requirement.
For additional information, contact your Bukaty benefits consultant at 913.345.0440.
* Plan sponsors participating in the CMS Retiree Drug Subsidy Program are not able to use a simplified determination methodology to determine creditable coverage status.
