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Employers offering group health coverage that includes any prescription drug benefits must complete two notice and disclosure requirements each year:
Provide a written notice to all Medicare-eligible plan participants before each October 15 explaining whether the plan’s prescription drug coverage is “creditable coverage” (i.e., the coverage is expected to pay on average as much as Medicare’s standard prescription drug coverage).
Complete the Online Disclosure to CMS Form within the first 60 days of each plan year disclosing whether the plan’s prescription drug coverage is “creditable coverage.” CMS is the Centers for Medicare and Medicaid Services, a federal agency that collects data and administers various federal programs.
The employer’s notice to participants, and disclosure to CMS, must be updated if the plan’s credible coverage status changes.
The notice and disclosure requirements apply to all group health plans — insured, self-funded, grandfathered or nongrandfathered — that include prescription drug benefits. There is no exception for small employers.
Medicare began offering “Part D” plans — optional prescription drug benefit plans sold by private insurance companies and HMOs — to Medicare beneficiaries many years ago. Persons may enroll for a Part D plan when they first become eligible for Medicare. If they wait too long, however, a “late enrollment” penalty amount is permanently added to the Part D plan premium cost when they do enroll.
There is an exception from the late enrollment penalty for persons who are covered under an employer’s group health plan that provides creditable coverage. Creditable coverage means that the group health plan’s drug benefits are actuarially equivalent to, or better than, the standard benefits of a Medicare Part D plan. Individuals can delay enrolling for a Part D plan while they remain covered under an employer’s group health plan if the employer’s plan is creditable coverage. Medicare will waive the late enrollment premium penalty for individuals who enroll for a Part D plan after their initial eligibility date if they were covered by an employer’s creditable plan. To avoid the late enrollment penalty, there cannot be a coverage gap longer than 62 days between the employer’s group plan and the Part D plan.
Preparing the Notice
The Centers for Medicare and Medicaid Services (CMS) provides model notices that employers can use to comply with the notice requirement. To begin:
- Determine whether the group health plan’s prescription drug coverage is creditable or noncreditable for the upcoming calendar year. If the plan is insured, the carrier/HMO will confirm creditable or noncreditable status. Employers should keep a copy of the written confirmation for their records. For self-funded plans, the plan actuary will determine the plan’s status using guidance provided by the CMS.
- Download the appropriate model notice(s) from the CMS website and fill in the blanks and variable items as needed for each group health plan. There are two versions, both available in English and Spanish:
Model Creditable Coverage Notice.
Model Noncreditable Coverage Notice.
Model Creditable Coverage Notice (Spanish).
Model Noncreditable Coverage Notice (Spanish).
- Employers that offer multiple group health plans options, such as PPO, HDHP, and HMOs, may use one notice if all options are creditable (or all are noncreditable). In that case, it is advisable to list the names of the various plan options so it is clear. On the other hand, employers that offer a creditable plan and a noncreditable plan, such as a creditable HMO and a noncreditable HDHP, will need to prepare separate notices for the different plan participants.
- Identify the group health plan participants who will receive the Notice of Creditable Coverage or Notice of Noncreditable Coverage, as applicable. Include all group health plan participants who are or may become eligible for Medicare in the next year. Note: “Participants” include covered employees and retirees (and spouses) and COBRA enrollees. Employers often do not know whether a particular participant may be eligible for Medicare due to age or disability. For convenience, many employers decide to distribute their notice to all participants regardless of Medicare status.
- Notices must be distributed at least annually before October 15. Medicare holds its Part D enrollment period each year from October 15 to December 7, which is why it is important for group health plan participants to receive their employer’s notice before October 15.
- Additionally, the notice(s) must be provided at the following times:
- When a Medicare-eligible person enrolls in the employer’s group health plan (e.g., new hire).
- When the group health plan coverage changes from creditable to noncreditable coverage (or vice versa).
- When a plan participant or beneficiary requests the notice(s).
Distributing the Notice(s)
The employer may distribute the notice by first-class mail to the employee’s home or work address. The notice should indicate that recipients are responsible for providing the notice to Medicare-eligible family members if enrolled in the group plan. Separate notices for the employee’s spouse or family members is not required unless the employer has information that they live at different addresses.
The notice is intended to be a stand-alone document. It may be distributed at the same time as other plan materials, but it should be a separate document. If the notice is incorporated with other material (such as stapled items or in a booklet format), the notice must appear in 14 point font, be bolded, offset, or boxed, and placed on the first page. Alternatively, you can put a reference (in 14 point font, either bolded, offset, or boxed) on the first page telling the reader where to find the notice within the material. In that case, CMS suggests the following text for the first page:
“If you (and/or your dependents) have Medicare or will become eligible for Medicare in the next 12 months, a Federal law gives you more choices about your prescription drug coverage. Please see page XX for more details.”
Email distribution is allowed, but only for employees who have regular access to email as an integral part of their job duties. Employees also must have access to a printer and be notified that a hard copy of the notice is available at no cost upon request.
Required Disclosure to CMS
Separate from the participant notice requirement, employers also must disclose to CMS whether their group health plan’s prescription drug benefits provide creditable or noncreditable coverage. The plan sponsor (employer) must submit its annual disclosure to CMS within 60 days of the start of each plan year. For instance, for calendar-year group health plans, the employer must comply with this disclosure requirement by March 1 (or February 29 if leap year).
Disclosure to CMS also is required within 30 days of termination of the prescription drug coverage and within 30 days of a change in the plan’s status as creditable coverage or noncreditable coverage.
The CMS online tool is the only method allowed for completing the required disclosure. Click on the link, then follow the prompts to respond to a series of questions regarding the plan. The link is the same regardless of whether the employer’s plan provides creditable or noncreditable coverage. The entire process usually takes only 5 or 10 minutes to complete.