Not everyone who’s eligible for Medicare chooses to enroll in Part D. There are alternative prescription drug coverage options you can choose instead. But the coverage needs to be considered creditable, or you may incur a lifetime penalty.
Here’s what you need to know about creditable coverage, including what it means, how to tell if your plan qualifies and more.
Who needs to understand creditable coverage
All current and upcoming Medicare beneficiaries should understand how creditable coverage works, including:
- Seniors soon to turn 65
- People eligible for Medicare due to disability or end-stage renal disease
- Retirees looking to keep their employer-sponsored drug coverage or enroll in Part D
It’s also important that employers, plan sponsors, HR, or benefit professionals understand creditable coverage, so they can remain in compliance.
What is creditable coverage?
To be considered creditable, a prescription drug plan must pay at least as much for prescription drugs as Medicare Part D. Creditable coverage can come from multiple sources, including:
- Current or former employer-sponsored health plans
- Union plans
- Retiree health plans
- Government programs like TRICARE, the Indian Health Service (IHS) or the Department of Veterans Affairs (VA)
Why creditable coverage is important
Once you become eligible for Medicare, you can enroll in Part D prescription drug coverage. Enrolling is optional, but if you choose not to do so within the first 63 days of eligibility, Medicare applies a permanent late enrollment penalty.
Those already enrolled in a plan with creditable drug coverage have more flexibility. They can remain on the plan and enroll in Part D in the future without penalties.
Is creditable coverage required?
No. However, having creditable coverage will help you avoid Part D penalties down the line when you enroll in Medicare.
How to know if your coverage is creditable
Plan sponsors, like an employer, are legally required to share with plan members whether coverage is considered creditable. This often occurs annually with a notice of creditable coverage. Typically, this document is sent out before Oct. 15, when Medicare’s Annual Enrollment Period (AEP) begins. You may also receive this notice when you first join your plan, when coverage status changes or if you request it from your health plan.
How creditable coverage is determined
The Centers for Medicaid & Medicare Services (CMS) manages creditable coverage rules, definitions and standards. CMS determines whether a plan’s coverage is creditable based on drug benefit value, cost-sharing amounts, plan payments and more.
Medicare is updated each year based on economic, medical and other developments. When Medicare changes, CMS may adjust what qualifies as creditable.
Can a plan's creditable coverage status change?
Yes. Yearly updates to your plan’s drug coverage or Medicare Part D can cause the creditable coverage status of a plan to change when it’s evaluated for renewal.
What happens if you lose creditable coverage
If your plan’s status changes or you lose coverage, you may qualify for a special enrollment period (SEP). During this time, you can enroll in Medicare Part D. Like the Initial Enrollment Period, this enrollment window is open for 63 days.
Are members notified when coverage changes?
Yes, if you are enrolled in a plan that includes prescription drug coverage, each year you will receive a creditable coverage or non-creditable coverage notice from your health plan or employer.
What employers should know about creditable coverage
Employers should review their plan’s status and take action to remain compliant. If a plan is no longer creditable, employers are required to notify all employees and maintain necessary documentation.