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The Centers for Medicare & Medicaid Services (CMS) has finalized important changes affecting Medicare Part D creditable coverage determinations beginning with plan years starting on or after January 1, 2027. The updates will impact the way employer-sponsored health plans evaluate prescription drug coverage and comply with Medicare Part D disclosure requirements.
The final rules arrive after significant Medicare Part D redesign changes that took effect in 2025 and increased the actuarial value of standard Medicare prescription drug coverage. As a result, many employer-sponsored prescription drug plans needed to reassess whether they still qualified as “creditable” under CMS standards.
In addition to revising the methodology used to determine creditable coverage, CMS also finalized relief for certain account-based plans, eliminating the requirement for some employers to provide Medicare Part D creditable coverage notices for those arrangements.
Understanding Creditable Coverage
Medicare Part D imposes a late enrollment penalty on individuals who fail to maintain creditable prescription drug coverage for 63 consecutive days or longer after becoming eligible for Part D. Creditable coverage generally means prescription drug coverage that is expected to pay at least as much, on average, as standard Medicare Part D coverage.
Employers offering prescription drug coverage must notify Medicare-eligible individuals each year whether the coverage is considered creditable or non-creditable. These notices are typically distributed before October 15 so participants can make informed Medicare enrollment decisions and avoid potential penalties.
CMS Retires the Older Simplified Testing Method
Since 2009, employers relied on a simplified safe harbor methodology to determine whether prescription drug coverage was creditable. Under that approach, plans generally qualified if they:
- Covered brand and generic drugs
- Provided reasonable pharmacy access
- Paid at least 60% of prescription drug costs on average
- Met certain deductible or benefit limit requirements
CMS determined that this older standard no longer accurately reflected the richer Medicare Part D benefit structure created by the 2025 redesign. As a result, CMS introduced a revised simplified methodology for 2026 and has now eliminated the older 2009 methodology beginning in 2027.
Starting in 2027, employers generally can determine creditable coverage through actuarial equivalence testing or the revised simplified determination methodology.
Under the revised methodology, prescription drug coverage generally will be considered creditable if the plan:
- Covers brand-name drugs, generic drugs, and biological products.
- Provides reasonable access to retail pharmacies.
- Pays, on average, at least 73% of participants’ prescription drug expenses for 2027.
This represents an increase from the 72% threshold permitted during 2026. CMS also indicated that the required actuarial value percentage is expected to continue increasing in future years and could reach 75% by 2030.
Because of these higher standards, some employer-sponsored prescription drug plans that previously qualified as creditable may no longer automatically satisfy CMS requirements.
High-Deductible Health Plans May Face Additional Challenges
CMS acknowledged that high-deductible health plans (HDHPs) may face more difficulty meeting creditable coverage standards because these plans shift more up-front costs to participants. However, CMS clarified that HDHPs are not automatically considered non-creditable.
The agency identified several plan design features that may help HDHPs meet the actuarial value requirements, including
- Carving out preventive or maintenance medications from the deductible.
- Allocating a reasonable portion of the deductible toward prescription drug expenses during actuarial testing.
- Offering lower participant cost-sharing after the deductible is satisfied.
Employers sponsoring HDHPs may want to review current plan designs carefully to determine whether adjustments may be necessary.
CMS Provides Relief for Account-Based Plans
CMS removed the requirement that employers determine creditable coverage status and distribute Medicare Part D notices for certain account-based plans, including health reimbursement arrangements (HRAS), individual coverage HRAs (ICHRAs), and similar account-based arrangements.
CMS explained that these arrangements function differently from traditional prescription drug plans and therefore are not appropriate for direct comparison to Medicare Part D coverage. According to CMS, evaluating an account-based arrangement against a prescription drug plan is not an “apples to apples” comparison because the arrangements primarily provide financial reimbursement rather than direct prescription drug coverage.
Employer Action Items
As employers prepare for the 2027 changes, reviewing prescription drug plan structures and compliance procedures may become increasingly important.
- Coordinate with carriers, pharmacy benefit managers, third-party administrators, actuaries, and benefits consultants to confirm whether current prescription drug coverage satisfies the revised actuarial thresholds. Special attention may be needed for integrated medical and prescription drug plans as well as HDHP arrangements.
- Ensure that Medicare Part D notices accurately reflect the plan’s creditable coverage status and maintain documentation supporting the determination methodology, including actuarial analyses or records demonstrating compliance with the revised simplified methodology.
As Medicare Part D standards continue evolving, proactive planning and periodic plan reviews may help reduce compliance risks and avoid participant confusion regarding Medicare enrollment obligations.
This information has been prepared by UBA. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
