Methods for Medicare Part D Creditable Coverage Determinations

By: Kendall Jackson, Esq.

Each year, self-funded health plans must adhere to an array of disclosure, notice, and filing requirements, and compliance with these requirements already carries a degree of stress. While compliance with annual requirements would in theory be more straightforward (since plans can essentially rinse and repeat the same processes from previous years), that isn’t the case when the methods for compliance are altered. More recently, this has been the case for Medicare Part D creditable coverage determinations.

Medicare Part D regulations require most group health plan sponsors offering prescription drug coverage to disclose to Part D-eligible individuals and CMS whether the plan coverage is creditable or non-creditable. To be deemed creditable, the actuarial value of the group health plan’s prescription drug coverage must equal or exceed the actuarial value of standard prescription drug coverage under Medicare Part D, as demonstrated through the use of generally accepted actuarial principles and in accordance with CMS actuarial guidelines.

In prior years, plans had two options to make creditable coverage determinations: the simplified determination method or the actuarial equivalence method. Determining which method is appropriate for a plan largely depends on the complexity of the plan design. The simplified determination method, which is available if plans meet the plan design safe harbor rules set forth in CMS guidance, is often used by plans with relatively straightforward plan designs. The safe harbor rules for the simplified determination method can vary based on whether the employer’s prescription drug benefits are integrated with their other benefits or are instead offered on a separate stand-alone basis. Alternatively, where a plan’s prescription drug coverage design does not meet the requirements to fall into the safe harbors for the simplified determination method, the plan must make the determination using the actuarial equivalence method. We typically see this method used by plans with more complex plan designs, and this method generally requires assistance from an actuary to review the plan’s prescription drug coverage. That coverage will only be creditable if the actuary determines that the value of the plan’s prescription drug coverage equals or exceeds the actuarial value of standard prescription drug coverage under Medicare Part D.

In April 2024, CMS released guidance clarifying how key provisions of the Inflation Reduction Act’s (IRA) enhancements to prescription drug affordability might impact a group health plan’s Medicare Part D creditable coverage determinations and reporting requirements. This guidance also noted that CMS was planning to re-evaluate the simplified determination methodology and establish a revised method for 2026 and future years.

Subsequent guidance from CMS introduced the revised simplified determination method. This method is more straightforward than the former simplified determination method but may be more difficult to meet. Unlike the simplified determination method, the new revised simplified determination method makes no distinction between “integrated” and “non-integrated” health plans. Instead, for coverage to be creditable under the new method, plans must meet all of the following standards:

• Provides reasonable coverage for brand name and generic prescription drugs and biological products;
• Provides reasonable access to retail pharmacies; and
• Is designed to pay on average at least 72 percent of participant’s prescription drug expenses.

With this new guidance, many plans questioned what method should be used for a given calendar year moving forward. CMS guidance provides that while this revised simplified determination methodology may be used for calendar year 2026, plans can continue to use the existing simplified determination method until calendar year 2027. Beginning in 2027, only the new revised simplified determination or the actuarial equivalence method may be used. This gives plans that utilize the simplified determination method a bit of reprieve, since they can continue using this method through calendar year 2026. However, beginning in calendar year 2027, plans can no longer use the existing simplified determination method and must use either the revised simplified determination method or the actuarial equivalence method to make creditable coverage determinations.