Guest Article

(From the November 5, 2007 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

November 14 Deadline for Group Health Plans to Provide Part D Creditable Coverage Notices

The November 14, 2007 deadline for group health plans to provide creditable coverage disclosure notices to participants who are eligible for Medicare Part D is approaching once again.

The Centers for Medicare and Medicaid Services (CMS) has tried to ease the associated compliance burden for plans by providing a design-based safe harbor test for creditable coverage status, and model "fill-in-the-blank" disclosure notices plans can use. Additionally, CMS guidance permits plans flexibility to package creditable coverage disclosure notices with other plan materials -- including open enrollment materials -- and to distribute creditable coverage disclosure notices electronically. But the process is more involved than simply adding the disclosure notice to a pile of materials, posting it to a Web site, or attaching it to an e-mail.

CMS earlier this year provided updated guidance on these notices and updated model notices for disclosure notices issued on or after February 17, 2007. The updated guidance and model notices are available on the CMS's Web site.

Overview of Creditable Coverage Disclosure Notice Requirement

Individuals generally must enroll in Medicare Part D when they first become eligible, or face substantial late enrollment penalties if they sign up later. However, these late enrollment penalties do not apply to individuals who maintain "creditable coverage" during the interval between first becoming eligible for Part D and actually enrolling in a Part D plan. (Brief gaps in creditable coverage are permitted, but only if they do not last for a continuous period of sixtythree days or more.) Late enrollees' Part D premiums are permanently increased by at least one percent for each month without creditable coverage.

Obviously, those who choose to remain in another prescription drug plan instead of enrolling in Part D when first eligible need to know whether the other coverage is "creditable coverage." Thus, the law requires group health plans that offer prescription drug benefits to determine if their benefits are "creditable", and to provide creditable coverage disclosure notices ("Disclosure Notices") to all participants and beneficiaries who are eligible for Medicare Part D -- including active employees, retirees, and covered spouses and dependents of active employees or retirees -- at certain specified times. These required times are:

For purposes of these timing requirements, the term "prior to" means within the past twelve months. Plans are deemed to satisfy the requirements to provide a Disclosure Notice before the Medicare Part D ACEP and an individual's IEP if they provide a Disclosure Notice to all plan participants -- regardless of Medicare eligibility -- on an annual basis. This might be the easiest way to comply with the Disclosure Notice requirements, especially because the employer might not know which participants and beneficiaries are eligible for Medicare.

Note the Disclosure 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.

What Is Creditable Coverage?

Basically, prescription drug coverage is "creditable" if its actuarial value equals or exceeds the actuarial value of the standard Part D benefit. This standard is similar, but not identical, to the "actuarial equivalence" standard used to determine if an employer that provides prescription drug benefits to retirees is eligible for the 28 percent retiree drug subsidy (RDS). In fact, the threshold for determining if coverage is creditable is lower than the threshold for determining eligibility for the RDS. As a result, any plan eligible for the RDS necessarily is creditable coverage.

For plan sponsors who are not applying for the RDS and do not want to compare the actuarial value of their prescription drug benefits to Part D, a design-based safe harbor for determining creditable coverage status is available. This design-based safe harbor is detailed in CMS's Disclosure of Creditable Coverage to Medicare Part D Eligible Individuals Guidance, which is available online.

Distributing Disclosure Notices

Like other plan notices, the Disclosure Notice can be distributed by "traditional" methods such as hand delivery or first-class mail. The plan may provide a single Disclosure Notice to the covered Medicare individual and all his/her Medicare eligible dependents covered under the same plan. However, the plan must provide a separate notice if it knows that any Medicare eligible spouse or dependent lives at a different address.

The Disclosure Notice can be combined and provided with other plan materials, such as open enrollment and renewal materials. But if the Disclosure Notice is included with other plan materials, it must be "prominent and conspicuous." According to CMS guidance, "[t]his 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."

Electronic Distribution

The Disclosure Notice can be furnished electronically, but only to Medicare beneficiaries who give prior consent to this method of delivery. Before giving consent, the Medicare beneficiary must be told of their right to obtain a paper version of the Disclosure Notice, how to withdraw consent, how to update address information, and be advised of any hardware or software requirements needed to access and retain the Disclosure Notice. The beneficiary must submit his/her consent electronically and provide the plan with a valid e-mail address. The group health plan must send the Disclosure Notice to the beneficiary's e-mail address and post it to the plan's Web site, if any.

Notice to CMS

In addition to the Disclosure Notice, group health plans also must disclose their creditable coverage status to CMS annually. This notice to CMS is due by March 31 each year, and must be submitted electronically through the CMS Creditable Coverage Disclosure Web page.

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, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2007, Deloitte.