The Medicare Creditable Coverage Notice – Employers Top 7 Q&A

Written by Joanna Morrow

Joanna Morrow, Principal and Founder of Employer Benefits & Advice, is an employer consultant and advocate who has worked in the employee benefits industry for over two decades. She works diligently to help employers overcome obstacles in their business by sharing her expertise in Human Resources, Benefits & Compensation, Process Mapping, Risk Management and ERISA/DOL/IRS compliance. She is a licensed life and health insurance professional in the State of Arizona and is an active member of the National Association of Health Underwriters (NAHU).

The Medicare Creditable Coverage Notice – Employers Top 7 Q&A

#1 – What are the Medicare Part D creditable coverage letters I’m supposed to send out to employees by October 15th?

Each year, individuals eligible to enroll in Medicare may do so during the Medicare annual enrollment that runs between October 15th – December 7th. There are 3 components of Medicare in which individuals can enroll, each covers a different aspect of healthcare, each named for letters of the alphabet.

Part A – Covers hospital visits, referred to as INPATIENT services
Part B – Covers doctor’s office visits, referred to as OUTPATIENT services
Part D – Covers prescription drug coverage

If a Medicare-eligible individual chooses not to enroll in Part D, (the component of Medicare that covers prescription drugs), he is required to prove to the government that he has “creditable” drug coverage elsewhere meaning the drug coverage he has through his employer is equal to or better than what is available through Medicare.

This helps protect the Medicare plan from what is known as “adverse selection”. In simple terms, it prevents people from waiving Medicare Part D coverage initially and then enrolling only when they have a costly prescription they want covered.

The letter he receives from his employer confirming whether or not the employer drug coverage is creditable must be provided prior to the start of the Medicare open enrollment period – October 15th. 

#2 – How do I know whether the drug coverage we offer through the employer-sponsored medical plan is creditable or not?

Your benefits professional and/or insurance carrier can provide you with that information. Some insurance companies like Blue Cross Blue Shield of Arizona simply post a notice on the employer web portal that lists which of their plans are creditable and which are not. Most plans will be classified as creditable, but some H.S.A. plans are not, so it is important to confirm with your benefits professional.

#3 – What happens to Medicare eligible employees who are not enrolled in creditable coverage and choose not to enroll in Medicare Part D?

Eligible members who forego Part D enrollment when first available and who do not have creditable prescription drug coverage for any period of 63 days or longer will likely have to pay a higher Part D premium of one percent (1%) per month for late enrollment.

#4 – How do I know which employees are eligible for Medicare? Do I just send to employees who are age 65 or older?

There are two ways a person can be eligible for Medicare Part D:

  1. A person is age 65 or older
  2. A person of any age who is disabled and has applied for either Medicare Part A (inpatient services) or Part B (outpatient services).

Because an employer typically doesn’t know the Medicare status of any dependents who might be covered under your current plan it is a best practice to send a letter to all employees on the plan letting them know that the drug coverage offered through the employer is either CREDITABLE or NON-CREDITABLE. 

#5 – Where do I find the letter templates?

There are four (4) templates in total – one for CREDITABLE and NON-CREDITABLE each in English and Spanish. The letter templates can be found by following this link. 

#6 – Can I email the letters to my employees or do they need to be mailed?

This notice need not be a separate mailing and may be included with other plan participant informational materials or through electronic means. Please remember, employers are required to provide this notice even if they choose not to apply for the Retiree Drug Subsidy (RDS). 

#7 – Is there a penalty if I don’t send the letters?

No. While there is no monetary penalty for employers that fail to issue letters by the required deadline, late enrollees attempting to enroll in Medicare Part D who are unable to prove creditable coverage as their reason for waiving Part D initially, will pay a fine. This can lead to strained relations between employees, retirees and the employer and can be administratively challenging to attempt to resolve after the fact.