Guest Article

(From the August 8, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Medicare Part D Creditable Coverage Notices Are Updated

The Centers for Medicare & Medicaid Services (CMS) issued updated creditable coverage notices for use on and after June 15, 2008. Employers and other entities that provide prescription drug coverage to Medicare-eligible individuals other than through a Medicare Part D plan must provide notice regarding whether that coverage is "creditable" -- that is, whether the actuarial value of the coverage equals or exceeds that of standard Medicare Part D. Notice must be given before November 15th of each year and at specified additional times. The updated notices are posted on the CMS website at: www.cms.hhs.gov/CreditableCoverage/09_CCafterJune15.asp.

Updated Notices Primarily Reflect Format Changes

CMS's three Model Notices are revised primarily to reflect formatting and organization changes. Substantive changes appear minor but include:

CMS's general guidance on the topic was unchanged, meaning the February 15, 2007 "Disclosure of Creditable Coverage to Medicare Part D Eligible Individuals Guidance" is still applicable. CMS does not require use of the Model Notices, but entities that choose not to use the Model Notices must provide disclosures that meet the content standards set forth by CMS.

Overview of Disclosure Requirement

Medicare Part D eligible individuals who fail to join a Medicare Part D plan when they are initially eligible will generally pay a higher premium if they later enroll. However, if during the interim the individual is covered by a drug plan that provides coverage whose actuarial value is at least equal to that of standard Medicare Part D prescription drug coverage ("Creditable Coverage"), the premium penalty for a late enrollment in Medicare Part D will not be imposed -- provided that the individual has not gone 63 continuous days without Creditable Coverage.

The premium penalty can be substantial, depending on the length of time the individual went without Creditable Coverage. The monthly Medicare Part D premium is increased by at least 1% of the Medicare base beneficiary premium for each month that the individual did not have Creditable Coverage. This penalty may apply for as long as the individual remains enrolled in Part D. Further, the higher premium will be recalculated each year, because the base beneficiary premium changes annually.

Therefore, Medicare Part D eligible individuals who elect not to enroll in a Medicare Part D plan because they are covered under another plan have an economic interest in monitoring whether that plan provides Creditable Coverage.

When Creditable Coverage Notice Is Required

Toward that end, employers and other entities that provide prescription drug coverage to Medicare Part D eligible individuals other than through a Medicare Part D plan must disclose whether the plan provides Creditable Coverage:

If the Creditable Coverage disclosure is provided to all plan participants annually prior to November 15 each year, CMS considers Items (1) and (2) to be met. "Prior to" means that the individual was provided the disclosure within the past twelve months.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.