Medicare Part D Creditable Coverage Method Changing effective for Plan Years Beginning January 1, 2027
Medicare Part D Creditable Coverage Method Changing effective for Plan Years Beginning January 1, 2027
8/31/2026
New Medicare Part D Creditable Coverage Determination Method
Starting in 2027, plan sponsors will no longer be permitted to use the original simplified determination method to determine whether their coverage is creditable.
Only the revised simplified determination method or an actuarial determination will remain available.
Employers applying for the retiree drug subsidy are not eligible to use either simplified method and must instead use an actuarial determination.
The chart below compares the original and revised simplified determination methods, including the criteria that plans must meet under each.
| Criteria | Original Simplified Method | Revised Simplified Method for Plan Years beginning January 1, 2027 and after |
|---|---|---|
| Minimum drug expense | Plans must be designed to pay, on average, at least 60% of participants' drug expenses | Plans must be designed to pay, on average, at least 72% of participants' drug expenses for 2026 and at least 73% of participants’ drug expenses for 2027 |
| Brand-name drug coverage | Reasonable coverage required | Reasonable coverage required (retained) |
| Generic drug coverage | Reasonable coverage required | Reasonable coverage required (retained) |
| Biological products | Not addressed | Explicitly included in the criteria |
| Retail pharmacies | Reasonable access required | Reasonable access required (retained) |
| Annual/lifetime limits | Minimum limit standards required, though largely prohibited under the Affordable Care Act | Eliminated as an outdated criterion |
| Annual deductible | Specific deductible-related standards applied | Removed (reflects that most employer plans integrate medical and drug coverage) |
| Effect on high-deductible health plans (HDHPs) | Deductible rules could make qualification harder | While higher-deductible plans (including HDHPs) may seem less likely to meet the higher drug expense threshold, the risk can be mitigated by other plan design features (e.g., not applying a deductible to preventive medications, a reasonable and supportable allocation of the deductible attributable to prescription drug expenses, or offering lower cost sharing than standard Part D coverage once the deductible is met) |
Key Compliance Reminders
- Separate testing: For plans with multiple benefit options (e.g., PPO, HMO, and HDHP), the creditable coverage test must be applied separately for each option.
- Notice deadlines: Employers must provide notices to Medicare-eligible individuals before Oct. 15 each year.
- CMS reporting: The online disclosure form must be submitted to the Centers for Medicare and Medicaid Services (CMS) within 60 days of the start of the plan year (e.g., March 1 for calendar year plans).
- Account-based plans: HRAs, HSAs, and FSAs are exempt from the creditable coverage disclosure requirements for coverage beginning on or after January. 1, 2027.
Resources
- Amwins Compliance Library – More detail on the Medicare Part D program and Listing of Carriers’ Non-Creditable Plans by State
- Inflation Reduction Act – Expanding the Medicare Part D Prescription Drug Coverage
While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice or services. Readers should always seek professional advice before entering into any commitments.
