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Medicare Part D and Creditable Drug Coverage

October 6, 2016

Do you have health insurance from your current or former employer or union? If it includes prescription drug coverage, you should find out if this is considered “creditable coverage” according to Medicare. That may affect your decision whether to sign up for Medicare Part D Prescription Drug Coverage. Medicare Part D is the program that provides Medicare beneficiaries the opportunity to enroll in stand-alone Medicare Part D Prescription Drug Plans and Medicare Advantage Prescription Drug plans, which are offered by Medicare-approved private insurance companies to provide prescription drug coverage. It will also alert you if you are likely to be subject to a late-enrollment penalty if you wait to enroll in a Medicare plan providing prescription drug coverage.

What is creditable employer retiree drug coverage?

Medicare defines creditable coverage as prescription drug coverage, such as from your employer or union, that is expected to pay at least as much as Medicare Part D. Creditable coverage should offer both brand and generic prescriptions and provide reasonable access to retail pharmacies. It should pay, on average, at least 60% of your total prescription drug expenses.

Are you uncertain whether your current prescription drug coverage is creditable? Once a year, your plan must provide you a Notice of Creditable Coverage, which will state whether or not the plan provides creditable coverage. Keep this notice because you may need it later if you enroll in a Medicare plan providing prescription drug coverage.  If you did not receive this Notice, or you misplaced it, you can contact the plan administrator of your group health coverage and request a copy.

What other plans may be creditable coverage?

In addition to employer and union group health plans, these organizations may provide creditable prescription drug coverage to qualified members:

  • The Department of Veterans Affairs
  • The Federal Employee Health Benefits Program
  • The Indian Health Service
  • Qualified State Pharmaceutical Assistance Programs

If you have prescription drug coverage from one of these programs, you may wish to defer enrolling in a Medicare plan that provides prescription drug coverage until you no longer have your current insurance coverage.

Avoiding a Medicare Part D late-enrollment penalty

By checking that you have creditable employer retiree drug coverage, you may be able to avoid a late-enrollment penalty. If you have creditable coverage or you sign up for a stand-alone Medicare Part D Prescription Drug Plan or a Medicare Advantage Prescription Drug plan when you’re first eligible, you won’t be assessed a late enrollment penalty. However, if you go 63 consecutive days or more without creditable coverage or Part D coverage at any time after your Initial Enrollment Period, you may incur a penalty.

The late-enrollment penalty is calculated by multiplying 1% of the “national base beneficiary premium” by the number of months you were eligible but didn’t enroll in a Medicare Part D Plan and went without creditable prescription drug coverage. The amount is rounded to the nearest $0.10 and added to your monthly Part D premium. The national base beneficiary premium can increase each year, so the total penalty can also increase each year. This penalty may last as long as you have prescription drug coverage from a stand-alone Medicare Part D Prescription Drug Plan or a Medicare Advantage Prescription Drug plan.