October 15th is the deadline for employers to provide Medicare Credibility Notices to employees and file a report to the CMS. Here is what your clients need to know to stay compliant.
Medicare Part D coverage began in 2006, offering seniors the opportunity to purchase outpatient prescription drug coverage. Before 2006, Medicare paid for some drugs during a hospital stay under Medicare Part A or administered in a doctor’s office under Medicare Part B. But outpatient drugs filled at retail, mail order, home infusion and long-term care pharmacies were not covered. The Medicare Prescription Drug, Improvement and Modernization Act (MMA) authorized Part D coverage to help Medicare beneficiaries pay for these drugs, and along with it came employer notice and disclosure requirements.
Part D Late Enrollment Penalty
In order to have Part D coverage, beneficiaries must purchase a policy offered by a company contracted with Medicare. To motivate people to purchase a Part D plan rather than waiting until the need for retail drug coverage arose, a Late Enrollment Penalty was inserted into the regulations. If an individual enrolls on Part D after their Initial Enrollment Period and they were not covered under a “creditable” drug plan elsewhere, they would pay a lifetime penalty in the form of higher Part D premiums upon enrolling in Part D at a later date. Plans that are as good as or better than the Part D standard are deemed “creditable” to Medicare.
Every employer-sponsored drug plan, including one embedded in a group medical plan, will be deemed either “creditable” or “non-creditable” to Medicare. A Medicare beneficiary will avoid the Part D Late Enrollment Penalty for any months enrolled on a group-based “creditable” drug plan. Due to this, there are two requirements under the MMA for employers to comply with: employee notification and disclosure to CMS.
Notice to Employees
Employers must provide the Medicare Credibility Notice to anyone eligible for Medicare, whether their drug plan is “creditable” or not. This includes retirees (if offering a retiree plan) and COBRA members. It can be difficult for an employer to know which of these individuals are eligible for Medicare, since those under age 65 might be eligible due to disability or certain types of diseases. Therefore, it is recommended that employers provide this notice to all of their eligible employees, dependents, retirees (if applicable) and COBRA members.
There are three deadlines for providing the notice.
Disclosure to CMS
CMS requires that employers submit their plan’s “credibility” status directly on the CMS website annually, within 60 days after implementation or renewal. If an employer has missed this deadline, they should visit the CMS site as soon as possible and enter their plan information and status. Employers can submit their information to CMS here, and can obtain additional guidance here.
An Individual’s Decision
After a Medicare beneficiary’s Initial Enrollment Period, they can decide at least annually to enroll on or dis-enroll from Medicare D. Knowing whether other available coverage is “creditable” is one factor in making this decision. If the group-based plan is creditable, they can continue on that plan without incurring the Medicare Part D late enrollment penalty further down the line.
However, if the plan is not creditable, they will need to decide if they will continue only the group-based plan (resulting in a penalty later), dis-enroll from the group plan and enroll in Medicare D (and Part B plus a supplement to obtain coverage similar to the group plan), or continue on the group plan plus enroll under a Medicare D prescription plan (resulting in double drug coverage).
Late Enrollment Penalty
As we’ve said, enrolling in Part D after initial eligibility can lead to a late enrollment penalty which lasts the rest of a person’s life. The longer a person goes without creditable Part D coverage, the higher their penalty will be. The penalty is 1% of the “national base beneficiary premium” times the number of full, uncovered months without creditable coverage (rounded to the nearest 10 cents). The “national base beneficiary premium” changes every calendar year.
National base beneficiary premium
Here's a penalty example:
Vanessa’s Initial Enrollment Period under Medicare ended on 5/31/2016. She had no drug coverage from that time until enrolling on Medicare Part D on 1/1/2019. Therefore, she went without creditable coverage for 31 months.
When enrolling for Part D prescription coverage, the insurance carrier will notify the enrollee if they must pay a late enrollment penalty. The individual has 60 days from the date of the letter to dispute the penalty. Typically the person will need to attach proof, which would include a copy of the notice of creditable prescription drug coverage they received from their employer. It is not uncommon for an employer to receive a call from a prior employee years after they worked at the company, asking for copies of prior notices, so employers should keep good records.
THE BOTTOM LINE
Since it is not a given that a client’s carrier will provide the Medicare Part D Credibility notice, it is recommended that agents fill this compliance void. At a minimum, alerting employers to the requirements well before the October 15th deadline is crucial (see our sample email). Some agencies go the extra mile and provide their clients with an indication of whether their plans are creditable, draft a notice for the employer to disseminate, and even complete the employer disclosure on CMS’ website. Whichever level of service your agency provides, be sure to get the word out soon. October 15th will be upon us sooner than we all expect.
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I love numbers. I'm a math geek. I read benefits industry articles and periodicals for relaxation (but, honestly, I'm still a fun gal). I also like to share what I've learned and you'll find it all here.