Guest Article

(From the April 2, 2007 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

CMS Updates Guidance on Notice of Creditable or Noncreditable Coverage Under Part D

The Centers for Medicare and Medicaid Services (CMS) has issued updated guidance on the creditable coverage disclosure notices that most group health plans with prescription drug benefits must give to Medicare Part D eligible individuals who apply for coverage, and to existing participants and beneficiaries who become eligible for Part D benefits. The updated guidance and accompanying model disclosure notices apply to disclosure notices issued on or after February 15, 2007. These notices are extremely important, because individuals who do not enroll in Part D when first eligible will pay higher premiums if they enroll later, unless they can show they had "creditable coverage" during that time. This disclosure requirement applies regardless of whether the plan's prescription drug coverage is primary or secondary to Part D.

CMS first issued guidance on providing these notices before November 15, 2005, the beginning of the Initial Open Enrollment Period for Part D. That initial guidance was superseded by updated guidance CMS issued early in 2006. This latest update supersedes all previous guidance and, as noted, applies to disclosure notices issued on or after February 15, 2007. The updated guidance and updated model notices are available on the CMS's Web site, at http://www.cms.hhs.gov/CreditableCoverage/Downloads/Updated_Guidance_02_15_07.pdf.

Overview

All Medicare beneficiaries had an initial opportunity to enroll in the new Part D prescription drug benefit during the Initial Open Enrollment Period for Part D, which ran from November 15, 2005 through May 15, 2006. The Initial Enrollment Period (IEP) for anyone who becomes Medicare-eligible after May 15, 2006 is the seven-month period that begins three months before the month s/he first meets 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 have to enroll in Part D. But they may have to pay a substantial late enrollment penalty in the form of higher Part D premiums (also called a "Higher Premium Charge") 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 whether any other prescription drug benefit options they have qualify as creditable coverage. The Medicare law places the responsibility for furnishing these creditable coverage notices to Part D eligible individuals on the group health plans providing these prescription drug benefits.

An individual is eligible for Part D if s/he:

Note that a person is "entitled" to Medicare Part A when s/he actually has Part A coverage, and not simply when s/he first becomes eligible for Part A.

Notice Requirement

Prior to November 15, 2005, most group health plans that provide prescription drug benefits to Part D-eligible individuals were required to --

But the notice of creditable coverage requirement did not end on November 15, 2005. Going forward, group health plans must disclose their creditable coverage determinations to Part D eligible individuals at each of the following times:

The "prior to" requirement is satisfied if the beneficiary has been given the notice of creditable coverage anytime within the past twelve 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.

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. According to the updated guidance, the notice requirement "applies with respect to Medicare beneficiaries who are active employees, disabled, on COBRA and those individuals who are retired, as well as Medicare beneficiaries who are covered as spouses or dependents (including those spouses or dependents that may be disabled or on COBRA) under active employee coverage and retiree coverage."

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 can be made in either of two ways. The plan may establish its creditable status 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.

There is no attestation requirement associated with this 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. However, an attestation of actuarial equivalence by a qualified actuary is still required for employers applying for the 28 percent subsidy.

The updated CMS guidance also 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.) and has all of the following provisions:

The safe harbor for these integrated plans is basically the same as for other plans, except instead of satisfying either option "a" or "b" under item 4, they must satisfy the following option "c":

Content of Notices

The guidance includes links to model/sample notices of creditable and noncreditable coverage, as well as a model personalized disclosure notice, which can be used on or after February 15, 2007 for annual disclosure, for new plan enrollees (those with Part D IEPs on or after February 15, 2007), and upon request by the beneficiary. These model/sample notices are available at:

The guidance also outlines specific content requirements for group health plans that choose not to use the sample notices, including mandatory and optional provisions.

Delivery of Notices

The updated guidance explains that notices do not have to be sent as a separate mailing, and can be provided as part of enrollment/renewal or other plan information materials. If the notice is included with other plan information, the notice must be "prominent and conspicuous." According to the guidance:

Additionally, a single notice can be provided to a covered Medicare individual and all his or her covered Medicare eligible dependents. However, a separate notice is required "if it is known that any spouse or dependent that is Medicare eligible resides at a different address than from where the participant/policyholder materials were provided."

The updated guidance also clarifies that notices can be distributed electronically by following the requirements set out in DOL Reg. ? 2520.104b-1(c)(1). The significance of incorporating these regulations is that they permit electronic distribution to participants "who have the ability to access electronic documents at their regular place of work if they have access to the plan sponsor's electronic information system on a daily basis as part of their work duties." This electronic distribution option was not available under prior 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 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, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Laura Morrison 202.879-5653, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2007, Deloitte.