Guest Article

(From the June 6, 2005 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

CMS Guidance on Creditable Coverage Notices

The Centers for Medicare and Medicaid Services (CMS) has issued additional guidance on the creditable coverage disclosure notices that group health plans providing prescription drug benefits to active employees or retirees must give to participants eligible for the new Medicare Part D prescription drug benefit before November 15, 2005. These notices are extremely important, because eligible Part D participants who do not enroll when first eligible will pay higher premiums if they enroll later, unless they can show they had "creditable coverage" during that time. The guidance also addresses certain issues relating to determining whether a prescription drug plan provides creditable or noncreditable coverage, including a design-based safe harbor that will enable some group health plans to avoid calculating actuarial equivalence for this purpose.

The additional guidance clarifies and supplements the final Part D regulations, which provide only basic information about the creditable coverage disclosure requirements. The guidance is available on the CMS's Web site [click here].

Overview

All Medicare beneficiaries will have an initial opportunity to enroll in the new Part D prescription drug benefit during the six-month period beginning November 15, 2005 and ending May 15, 2006 (the "Initial Open Enrollment Period for Part D"). Everyone who subsequently becomes Medicare-eligible will be able to enroll in Part D anytime during the seven-month period that begins three months before the month they first meet the eligibility requirements for Part B and ends three months after the first month of eligibility. Thus, the Part B and Part D Initial Enrollment Periods (IEP) will run concurrently.

The Initial Open Enrollment Period and IEPs for Part D are not the only opportunities Medicare-eligible individuals will have to enroll in Part D. But they may have to pay a substantial late enrollment penalty unless they maintain "creditable" prescription drug coverage during the period between the end of the Initial Open Enrollment Period (or the end of their IEP, if later) and the date they actually enroll in Part D. Brief gaps in creditable prescription drug coverage are permitted, but only if they do not last for a continuous period of sixty-three days or longer. So it is important for Part D-eligible individuals to know if any other prescription drug benefit options they have are creditable coverage. The new Medicare law makes these group health plans responsible for furnishing them with this information.

Notice Requirement

Before November 15, 2005, most group health plans that provide prescription drug benefits to Part D-eligible individuals must--

This notice requirement applies regardless of whether the group health plan's coverage is primary or secondary to Medicare Part D. Even group health plans that provide prescription drug benefits only to active employees are subject to the notice requirement. Note that because open enrollment for many employers' active employee health plans may begin as early as June for the next plan year that will extend into 2005, these employers should be prepared to offer such Medicare Part D notices now for their Medicare-eligible population. Some employers may not know whether certain employees, and especially their dependents, are Medicare eligible. But these employers still will want to provide the notices of creditable or noncreditable coverage as part of their enrollment materials to avoid later issues.

The notice requirement does not apply to entities that contract with Medicare directly as a Part D plan or that contract with a Part D plan to provide qualified prescription drug coverage.

Creditable Coverage

According to the Part D regulations, coverage is creditable if its actuarial value equals or exceeds the actuarial value of the standard Part D benefit. This determination is made using the first prong of the actuarial equivalence test (the gross test) the regulations prescribe for determining eligibility for the 28 percent employer subsidy. (The gross test does not take into account who pays the premiums for the prescription drug benefit.) Thus, it is possible that employer-sponsored prescription drug plans will be creditable coverage even if the employer is not eligible for the 28 percent subsidy.

The additional CMS guidance clarifies that there is no attestation requirement associated with the determination of creditable coverage. This is another difference between the actuarial equivalence standards for purposes of the creditable coverage rules and the 28 percent employer subsidy. An attestation of actuarial equivalence by a qualified actuary is still required for employers applying for the 28 percent subsidy.

As an alternative to determining actuarial equivalence, the additional CMS guidance offers a design-based safe harbor for determining creditable coverage status. Specifically, a prescription drug plan is deemed to be creditable if it:

The standard under the last item (4) is different for plans that integrate prescription drug coverage with other benefits (i.e., medical, dental, etc.). Specifically, the integrated plan's annual deductible must be $250 or less, the maximum annual benefit payable must be at least $25,000, and the lifetime combined benefit maximum must be at least $1 million.

Timing of Notices

In addition to providing a notice of creditable coverage before the Initial Open Enrollment Period for Part D begins on November 15, 2005, group health plans must disclose their creditable coverage determinations to Part D eligible individuals at the following times:

According to the additional guidance, the "prior to" requirement is satisfied if the beneficiary has been given the notice of creditable coverage anytime within the past 12 months. Group health plans can satisfy the first and second requirements by providing the notice of creditable coverage to all plan participants on an annual basis.

Providing Notices

The additional guidance clarifies the notice of creditable coverage does not have to be distributed separately. Instead, it can be combined and provided with other plan materials, such as enrollment and renewal materials. But if the notice of creditable coverage is included with other plan materials, it must be "prominent and conspicuous." According to the guidance, "This means that the statements (or a reference to the section in the document being provided to the beneficiary that contains the required statement) must be prominently referenced in at least 14-point font in a separate box, bolded, or offset on the first page that begins the plan participant information being provided." The guidance also provides sample reference language.

The notice of creditable coverage can be furnished electronically, but only if the Medicare beneficiary consents to this method of delivery. The beneficiary's consent must be submitted electronically in order to ensure the beneficiary is able to access the information and that the system results in actual receipt. The group health plan must send the notice to the beneficiary's e-mail address and post it to the plan's Web site, if any.

Content of Notices

The additional guidance includes links to sample notices of creditable and noncreditable coverage, which are available online [click here]. The guidance also outlines specific content requirements for group health plans that choose not to use the sample notices. These model notices and content requirements can be used only for disclosures required before November 15, 2005. Revised guidance will be issued for disclosures required after that date.

Special Rule for Medigap Issuers

Medigap issuers are subject to the notice of creditable coverage rules. However, these issuers must send a separate notice to policyholders with prescription drug coverage during the period of September 15 through November 14, 2005. This separate notice must disclose whether the prescription drug coverage is creditable, among other things. As a result, this notice will satisfy a Medigap issuer's obligation to furnish a notice of creditable coverage before November 15, 2005. (The CMS is working on a model notice Medigap issuers must use to satisfy this requirement. It will be available on the CMS's Web site when completed.)

Notice to CMS

Group health plans also must disclose annually to CMS whether their prescription drug coverage is creditable or noncreditable. CMS will provide the timing, format, and model language for disclosure statements to CMS in future guidance.

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 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, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879.5608, Bart Massey 202.220.2104, Diane McGowan 202.220.2077, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955 Copyright 2005, Deloitte.