Creditable Coverage

What Creditable coverage is

Creditable coverage is defined by CMS as prescription drug coverage generally from your employer or union, that affords you reasonable access to retail pharmacies and pays at least as much as Medicare Part D would pay. That means at least 60% of your total prescription drug expenses.

Why this is important

If you have health insurance that includes prescription drug coverage from another source, such as a current or former employer, 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, and will alert you as to whether you’re likely to be subject to a late-enrollment penalty if you wait to enroll in a Medicare plan for your prescription drug coverage.

How you can be sure

Your plan must provide you with a “Notice of Creditable Coverage” annually, which states whether or not the plan provides creditable coverage. It’s important to keep this notice; you may need it later if you enroll in a Medicare plan providing prescription drug coverage.  If you misplace your Notice, or didn’t receive it, a replacement may be requested by contacting the plan’s administrator.

Other plans that may be creditable

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 choose to defer enrolling in a Medicare plan providing prescription drug coverage until you no longer have your current insurance coverage.

The Part D Late-Enrollment penalty

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 way to avoid the penalty is to have creditable coverage or sign up for a stand-alone Medicare Part D Prescription Drug Plan (PDP) or a Medicare Advantage plan that includes prescription drugs when you’re first eligible.

CMS calculates the late enrollment penalty by multiplying 1% of the “national base beneficiary premium” by the number of months you were eligible but didn’t enroll in a Part D Plan and went without creditable prescription drug coverage. That 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.

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