Breaking Down Medicare Part D: Disclosure Notice to CMS
Employers offering health plans with prescription drug coverage for Medicare Part D eligible individuals are required to disclose whether the plan’s prescription drug coverage is creditable or non-creditable to the Centers for Medicare and Medicaid Services (CMS).
The disclosure notice must be provided:
For calendar year plans, the deadline is March 1, or February 29 in the event of a leap year. Plan sponsors are required to make the disclosure whether the health plan’s coverage is primary or secondary to Medicare and use the online form on the CMS Creditable Coverage webpage for compliance with the disclosure requirement, unless the reporting entity does not have internet access. Group health plans that do not offer prescription drug benefits to Medicare Part D eligible individuals at the beginning of the plan year are not required to submit the online disclosure form to CMS for that plan year. Plan sponsors approved for the retiree drug subsidy are exempt from the CMS disclosure notice for those qualified retirees for whom the sponsor is claiming the subsidy. Employers required to report to CMS should consult their advisors to determine whether their prescription drug coverage is creditable or non-creditable. Online Disclosure Method The data fields required to generate the disclosure notice to CMS include types of coverage, number of options offered, creditable coverage status, period covered by the disclosure notice, number of Part D-eligible individuals covered, date the creditable coverage disclosure notice is provided to Part D eligible individuals and change in creditable coverage status. CMS provided instructions with detailed descriptions of these data fields and guidance on how to complete the form. Creditable Coverage A group health plan’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. This actuarial determination measures whether the expected amount of paid claims under the group health plan’s prescription drug coverage is at least as much as the expected amount of paid claims under the Medicare Part D prescription drug benefit. An attestation by a qualified actuary is not required for determination of creditable coverage unless the plan sponsor is electing the retiree drug subsidy for the group health plan. Employers may want to consult with an actuary to confirm that their determinations are accurate. For plans that have multiple benefit options (i.e., PPO, HDHP and HMO), the creditable coverage test must be applied separately for each benefit option. There are two approved ways to determine whether coverage is creditable: Simplified Determination Plan sponsors may be eligible to use a simplified determination that its prescription drug coverage is creditable if they are not applying for the retiree drug subsidy. The standards for the simplified determination vary based on whether the employer’s prescription drug coverage is “integrated” with other types of benefits (such as medical benefits).
An integrated plan combines the prescription drug benefit with other coverage offered by the entity (i.e., medical, dental or vision) and contains all the following plan provisions:
- A combined plan year deductible for all benefits under the plan.
- A combined annual benefit maximum for all benefits under the plan.
- A combined lifetime benefit maximum for all benefits under the plan.
A prescription drug plan that meets these parameters is considered an integrated plan for the purpose of using the simplified method and must meet Steps 1, 2, 3 and 4(c) of the simplified method. If it does not meet all the criteria, then it is not considered to be an integrated plan, and would have to meet Steps 1, 2, 3 and either 4(a) or 4(b).
Actuarial Determination
If a plan sponsor cannot use the simplified determination method to verify the creditable coverage status of the prescription drug coverage offered to Medicare eligible individuals, the sponsor must make an actuarial determination annually 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. This determination involves the same standard as the first prong of the “gross value” test for the retiree drug subsidy.
CMS issued guidance that addresses the extent to which account-based arrangements, such as health reimbursement arrangements (HRAs), may be considered in the creditable coverage determination. This guidance provides that the HRA annual contribution may be taken into consideration when determining creditable coverage status. Existing funds in the HRA that have rolled over from prior years are not considered as part of the determination. For HRAs that pay both prescription drugs and other medical costs, a portion of the year’s contribution should be reasonably allocated to prescription drugs.
Disclosures to Individuals
In addition to the annual disclosure to CMS, group health plan sponsors must disclose to individuals who are eligible for Medicare Part D whether the plan’s prescription drug coverage is creditable. Creditable coverage disclosure notices must be provided to individuals at the following times:
If the creditable coverage disclosure notice is provided to all plan participants before Oct. 15 each year, items (1) and (2) above will be satisfied. “Prior to,” means the individual must have been provided with the notice within the past 12 months. Plan sponsors should also include the notice in plan enrollment materials provided to new hires.
CMS has provided model disclosure notices for plan sponsors to use when disclosing their creditable coverage status to Medicare beneficiaries. The model disclosure notices are available on CMS’ website.
