Jeffrey Wade
Medicare prescription drug coverage, also known as Medicare Part D, is a benefit offered to individuals who are already enrolled in Medicare Part A or Part B. Creditable prescription drug coverage is insurance that is expected to pay, on average, at least as much as Medicare drug coverage. This can include drug coverage from a current or former employer, union, TRICARE, the Indian Health Service, or the Department of Veterans Affairs. It's important to understand what constitutes creditable drug coverage to make informed decisions about enrolling in Medicare Part D and to avoid late enrollment penalties.
| Characteristics | Values |
|---|---|
| Definition | Prescription drug coverage that’s expected to pay, on average, at least as much as Medicare drug coverage |
| Examples | Drug coverage from a current or former employer or union, TRICARE, the Indian Health Service, or the Department of Veterans Affairs (VA) |
| Requirements | Two disclosure requirements: a written disclosure notice to all Medicare-eligible individuals annually before 15 October and completion of the Online Disclosure to CMS Form |
| Enrollment | If you go 63 days or more without Medicare or other creditable prescription drug coverage after becoming eligible, you may have to pay a Part D late enrollment penalty |
| Loss of coverage | You, your spouse, or dependents may lose all of your employer or union health coverage if you get Medicare drug coverage |
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What You'll Learn
What is creditable prescription drug coverage?
When you join a Medicare drug plan or health plan, you may receive a letter asking if you have creditable prescription drug coverage. Creditable prescription drug coverage is prescription drug coverage that is expected to pay, on average, at least as much as Medicare drug coverage. This could include drug coverage from a current or former employer or union, TRICARE, the Indian Health Service, or the Department of Veterans Affairs (VA). Your current plan can inform you if your drug coverage is creditable prescription drug coverage.
Even if you don't take any medications now, consider getting Medicare drug coverage when you first sign up for Medicare. If you go 63 days or more without Medicare drug coverage or other creditable prescription drug coverage after becoming eligible for Medicare, you may have to pay a Part D late enrollment penalty if you sign up for Medicare drug coverage later. Generally, you'll pay this penalty for as long as you have Medicare drug coverage.
There are two main ways to get Medicare drug coverage. You can either join a Medicare Advantage Plan (Part C) or other Medicare health plan with drug coverage. Alternatively, you can get your Part A, Part B, and Medicare drug coverage (Part D) through a single plan. Remember, you must have Part A and Part B to join a Medicare Advantage Plan, and you'll usually get your drug coverage through that plan. You can only join a separate Medicare drug plan without losing your current health coverage if you're in a Private Fee-for-Service Plan that doesn't include Part D.
It's important to understand that prescription drug coverage is a type of insurance. Doctor samples, discount cards, free clinics, or drug discount websites do not qualify as drug coverage. If you have other types of drug coverage or are eligible for them, it's recommended to read all the materials provided by your insurer or plan provider. Before making any changes to your current coverage, talk to your benefits administrator, insurer, or plan provider.
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How to notify your Medicare plan about other coverage
When you join a Medicare drug plan or health plan, it may send you a letter asking if you have creditable prescription drug coverage. You can inform your Medicare plan that you have other creditable prescription drug coverage by completing and returning the form by the deadline stated in the letter.
Creditable prescription drug coverage refers to prescription drug coverage that is expected to pay, on average, at least as much as Medicare drug coverage. This can include drug coverage from a current or former employer or union, TRICARE, the Indian Health Service, or the Department of Veterans Affairs (VA). Your current plan can inform you if your drug coverage is creditable prescription drug coverage.
If you have other health insurance or drug coverage, it is important to talk to your benefits administrator or other insurance provider before making any changes to your current coverage. You can also contact your local State Health Insurance Assistance Program (SHIP) to receive free personalized health insurance counselling. They are not affiliated with any insurance company or health plan.
There are two main ways to obtain Medicare drug coverage:
- Enroll in a Medicare Advantage Plan (Part C) or another Medicare health plan that includes drug coverage.
- Enroll in a separate Medicare drug plan (Part D) in addition to your Part A (Hospital Insurance) and/or Part B (Medical Insurance) coverage.
You can make changes to your Medicare Advantage and Medicare drug coverage during Special Enrollment Periods, which occur when certain life events take place, such as moving or losing other coverage. You have two full months after the month you lose your creditable coverage or are notified that your current coverage is no longer creditable to join a Medicare Advantage Plan with drug coverage or a Medicare drug plan.
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How to avoid losing employer health coverage
If you have employer-sponsored health insurance, you may lose your coverage if you leave your job or if your employer cancels your plan. Here are some ways to avoid losing employer health coverage:
Understand the terms of your employer's health plan
Review your summary plan description (SPD) to understand the terms of your employer's health plan, including any mid-year changes that may affect your coverage. Know your rights under the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA). For example, if your employer reduces your hours to fewer than 30 hours per week, you may be eligible to cancel your group coverage and enrol in a marketplace plan.
Stay up to date with premium payments
Ensure you pay all your health insurance premiums on time to avoid losing your coverage due to non-payment. If you pay your premiums through payroll deductions on a pre-tax basis, be aware that you may only be able to modify your group coverage under specific circumstances, such as changes in marital status, dependents, employment, or ZIP code.
Understand your options if you leave your job
If you leave your job, you may be able to keep your employer-sponsored health insurance plan through COBRA, a federal law that allows eligible employees to continue their coverage after a "qualifying event". You must elect COBRA within 60 days of the qualifying event, and there may be options to extend your coverage. Alternatively, you may be eligible for a Special Enrollment Period to enrol in a Marketplace plan, where you can qualify for savings based on your income.
Understand how Medicare may affect your employer coverage
If you enrol in Medicare drug coverage, you, your spouse, or dependents may lose your employer health coverage. Before making any changes, talk to your benefits administrator and read all the materials provided by your insurer or plan provider.
Consider the cost and coverage of alternative plans
Before cancelling your employer health coverage, carefully consider the cost and coverage of alternative plans. Compare the monthly premiums, out-of-pocket expenses, and total annual cost of different plans to determine which option is best for you.
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Understanding late enrollment penalties
Late enrollment penalties refer to the additional costs you may have to pay if you don't sign up for Medicare coverage during your Initial Enrollment Period (IEP). Here's what you need to know about understanding and avoiding late enrollment penalties:
Initial Enrollment Period (IEP)
Your IEP is a seven-month window that starts three months before you turn 65, includes your birthday month, and ends three months after you turn 65. It's important to enroll in Medicare during this period to avoid late enrollment penalties.
Medicare Part A (Hospital Insurance)
If you or your spouse worked and paid Medicare taxes for at least 10 years, you're automatically eligible for premium-free Medicare Part A. In this case, you don't need to worry about late enrollment penalties. However, if you don't qualify for premium-free Part A, you can purchase it during your IEP. If you don't sign up during this period, you may be subject to a late enrollment penalty, and your monthly premium may increase. The Part A penalty is based on how long you go without coverage similar to Medicare.
Medicare Part B (Medical Insurance)
You may be eligible for a Special Enrollment Period for Part B, in which case you generally won't have to pay a late enrollment penalty. If you don't qualify for a Special Enrollment Period and wait to sign up for Part B, you'll pay an extra 10% for each full year you could have signed up but didn't. This late enrollment penalty is added to your monthly premium.
Medicare Part D (Prescription Drug Coverage)
If you go 63 days or more in a row without creditable drug coverage (coverage that's similar in value to Part D) after becoming eligible for Medicare, you may have to pay a Part D late enrollment penalty. The penalty is calculated by multiplying 1% of the average monthly plan price ("national base beneficiary premium") by the number of months you were without coverage. This penalty is then added to your monthly premium for as long as you have Medicare drug coverage.
Avoiding Late Enrollment Penalties
To avoid late enrollment penalties, enroll in Medicare coverage during your Initial Enrollment Period or Special Enrollment Period, if eligible. Maintain creditable drug coverage to avoid Part D late fees. Consider getting a drug plan with a low monthly premium to minimize potential penalties.
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How to know if your current plan is creditable
To know if your current plan is creditable, you must first understand what creditable drug coverage is. Creditable prescription drug coverage is insurance that is expected to pay, on average, at least as much as Medicare drug coverage (Part D). This includes drug coverage from a current or former employer or union, TRICARE, the Indian Health Service, or the Department of Veterans Affairs (VA).
Your current plan provider can tell you if your drug coverage is creditable. You should receive a notice from your employer or plan around September of each year, informing you if your drug coverage is creditable. If you have not received this notice, contact your human resources department, drug plan, or benefits manager. This information may be included with other materials, such as a plan newsletter.
Additionally, when you join a Medicare drug plan or health plan, you may be sent a letter asking if you had creditable prescription drug coverage. You can inform your Medicare plan that you have creditable prescription drug coverage by completing and returning the form by the specified deadline.
Having creditable coverage means that if you lose this coverage and want Part D coverage, you will have a two-month Special Enrollment Period (SEP) to enroll in a Part D plan. If you go 63 days or more without Medicare or other creditable prescription drug coverage after becoming eligible for Medicare, you may have to pay a Part D late enrollment penalty.
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Frequently asked questions
Creditable prescription drug coverage is insurance that is expected to pay, on average, at least as much as Medicare drug coverage.
Creditable prescription drug coverage can include drug coverage from a current or former employer or union, TRICARE, the Indian Health Service, or the Department of Veterans Affairs (VA).
You should receive a notice from your employer or plan around September of each year, informing you if your drug coverage is creditable. If you have not received this notice, contact your human resources department, drug plan, or benefits manager.
You may have to pay a Part D late enrollment penalty if you sign up for Medicare drug coverage later. You will likely have to pay this penalty for as long as you have Medicare drug coverage.
