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Guest Article

Deloitte logo

(From the October 2, 2006 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

2007 Medicare Part D Prescription Drug Creditable Coverage Notices Due By November 14; Proposed Modified Notices

To avoid adverse selection in the Medicare Part D drug benefit, eligible individuals pay a permanently increased Medicare Part D premium if they do not enroll in Part D when first eligible for that benefit. However, if the individual had "creditable coverage" for prescription drugs under another drug plan when first eligible for Part D coverage, the premium increase is waived if the individual later joins a Part D plan. To ensure potential Part D enrollees know whether they have creditable coverage, Medicare Part D requires that all drug plans provide Medicare beneficiaries "certificates of creditable coverage." (Note, the "actuarially equivalent" test for creditable coverage is much less stringent than the "actuarially equivalent" test required to receive the employer drug subsidy, as discussed below.)

Notice Recipients and Timing

Under the Part D regulations (42 C.F.R. sec. 423.56(f)), the notice of creditable coverage disclosure must be provided to Part D eligible individuals, at a minimum, at the following times:

  1. Prior to an individual's initial enrollment period for Part D;
  2. Prior to the effective date of enrollment in the entity's coverage, and upon any change in creditable status;
  3. Prior to the commencement of the Part D Annual Coordinated Election Period (ACEP) which begins on November 15 of each year; and
  4. Upon request by the individual.

Notices for the 2007 calendar year must be delivered to their plan participants by November 14, 2006. This will include employers that provide their own drug coverage and are eligible to receive the Part D subsidy. (Employers and other 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 are exempt from the disclosure requirement, because they are Part D plans.) Thus, for example, an employer or union that provides prescription drug coverage to retirees through a Part D plan is exempt from the disclosure requirement because the burden will be on that Part D plan to provide the notice. See 42 CFR sec. 423.56(c). Of course, in those fairly rare cases in which the employer actually operates a Part D plan, that plan will be required to provide the notice.

Design-Based Safe-Harbor Test for Creditable Coverage

For an entity which is not an employer or union that is applying for the retiree drug subsidy, a design-based "safe harbor" for testing "creditable coverage" is available. This safe-harbor enables the entity to avoid having to conduct actuarial calculations to determine the plan's equivalency to Medicare Part D coverage. Such an entity can determine that its prescription drug plan's coverage is creditable if the plan design meets all four of the standards cited below. However, the standards listed under 4(a) and 4(b) may not be used if the entity's plan has prescription drug benefits that are integrated with benefits other than prescription drug coverage (i.e. medical, dental, etc.). Integrated plans must satisfy the standard in 4(c).

A prescription drug plan is deemed to be creditable if it:

  1. Provides coverage for brand and generic prescriptions;
  2. Provides reasonable access to retail providers and, optionally, for mail order coverage;
  3. Is designed to pay on average at least 60% of participants' prescription drug expenses; and
  4. Satisfies at least one of the following:
    • The prescription drug coverage has no annual benefit maximum benefit or a maximum annual benefit payable by the plan of at least $25,000, or
    • The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 per Medicare eligible individual in 2006.
    • For entities that have integrated health coverage, the integrated health plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000 and has no less than a $1,000,000 lifetime combined benefit maximum.

Model Notices Available at CMS Site

The Centers for Medicare and Medicaid Services (CMS) has produced various model creditable coverage notices for different circumstances. Recently, CMS has proposed a few relatively minor changes in the notices. First, the use of a Social Security or health plan claim number would be replaced with a requirement to use the individual's date of birth or a unique identification number. The notices also would state specifically that individuals who may lose previous drug coverage through no fault of their own are eligible for a 60-day special enrollment period that would enable them to avoid the late enrollment premium increase penalty. The notices are also changed to specify that creditable coverage, as used for Part D rules, means "63 days of continuous coverage" rather than "63 days" and substitutes "individual" for "beneficiary". Pending official adoption of these changes, either version of the notices can be used.

These notices, including the proposed changes, are available at:

CMS Seeks Comments on Notices

Based on comments received on the current May 2006 model notices, as part of the request for Paperwork Reduction Act (PRA) comments, CMS is seeking further guidance on the updated Creditable Coverage model notices that entities can use when disclosing creditable coverage status to beneficiaries. (The PRA package also includes conforming changes to previously released creditable coverage guidance.) (See 71 Fed. Reg. 55478 (September 22, 2006)). However, plan sponsors can continue to provide creditable coverage disclosures using the May 2006 model disclosure notices and guidance. Alternatively, plan sponsors can use the notices and guidance currently on the CMS website, until the materials are finalized and released by CMS.

Deloitte logoThe 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, 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, 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 2006, Deloitte.

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