Employers that provide prescription drug coverage must annually provide a notice related to the credibility of said coverage to all employees, dependents, and COBRA beneficiaries – no later than the beginning of the annual Medicare open enrollment period of October 15th.
Which Employers Must Comply?
This rule applies to all employers who offer prescription drug coverage, irrespective of size; irrespective of insured or self-funded; and irrespective of whether the coverage is integrated into the plan or offered as a stand-alone policy.
What is the Intent of the Notice?
Said notice advises Medicare-eligible individuals if the plan is credible or non-credible. “Credible” basically means that the employer plan is at least as good as the Medicare plan. Thus, step one is for the employer to make this determination. Typically, the insurer or TPA (in the case of self-funded) can make this determination. CMS also offers a “simplified” determination method to make the credibility call, which we include by appendix.
Why is this Notice Necessary?
When one first becomes eligible for Medicare at age 65, they have a seven-month span to enroll in Medicare D without incurring penalties. These seven months include the three months prior to turning age 65, the month of the 65th birthday, and the three months following the month of the 65th birthday. If one delays beyond that, a penalty based on the time lapsed during the delay is added to the Part D premium that is payable from that point forward. The purpose of the penalty is to mitigate adverse selection; i.e. someone waits for years to enroll until they suddenly have to go on medications.
This penalty is applicable only if there is no current prescription drug coverage, or the current drug coverage is tested out as non-credible. No penalty is assessed if one delays Part D enrollment and has credible coverage for at least 63 days prior to enrollment. For example, Susan plans on working past age 65 but goes ahead and applies to begin her Social Security. By so applying she will automatically be enrolled in Medicare Part A (hospitalization). She is not required to enroll in Part B until she is no longer covered by her employer plan; and she will not be penalized for waiting until she retires to apply for Part D so long as the employer coverage is “credible”. At enrollment, she must provide a statement from her employer that she has had credible coverage the termination date of said coverage.
Who Gets the Part D Notice?
As mentioned, the notice must be distributed to employees, dependents, and COBRA beneficiaries who are eligible for Medicare Part A. Rather than trying to sort this all out, many employers just blanket it to all plan participants to assure non one falls between the cracks. The notice must be in writing or electronically, but only if all employees are regularly on the company email system.
What does the Notice Look Like?
CMS provides sample Part D notices for credible and non-credible coverage in both English and Spanish at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/Model-Notice-Letters.html. The insurer or TPA may provide a sample notice.
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