Medicare Part D Rules Are Changing

As per the Inflation Reduction Act of 2022, the following CMS changes will impact Medicare Part D creditable coverage processes for Group Health Plans beginning in 2026.

The Medicare Part D rules require those who are eligible for Part D to have creditable coverage. This coverage may be obtained through an employer sponsored plan, a retiree plan, or a traditional Part D policy coverage. To satisfy the “creditable coverage” requirement, the prescription drug coverage of a Part D eligible individual must be actuarially is equal to or greater than the coverage provided under Part D. 

Although there is no requirement for employers to provide creditable coverage, employers must provide Part D eligible individuals with a notice identifying which plan they sponsor that meets the definition of creditable coverage. By providing this notice, employees and their spouses are given the necessary resources to enroll in the plan that meets their needs while also avoiding a late enrollment penalty.

For 2026, Medicare Part D coverage rules are as follows:

• Existing Simplified Determination Method. For 2026, employers will have a final year to use the Existing Simplified Determination to establish that its plan is “designed to pay on average at least 60% of participants’ prescription drug expenses.”  The plans may also continue to use the actuarial method as well. The option to choose either method does not apply to plans applying for the retiree drug subsidy (RDS).
• Increased Coverage Requirement Introduced. For 2026, CMS is offering a “Revised Simplified Method” for determining “creditable coverage”. This requires establishing that the prescription plan is designed to pay on average 72% of the prescription drug costs of a participant. The prior requirement was 60%.
• Notification Requirement due date of October 14. Employers must inform Medicare-eligible employees and CMS which of their prescription drug coverages are creditable.
• Impact on Enrollment. Individuals with non-creditable coverage who delay their enrollment in Part D coverage shall be subject to a Late Enrollment Penalty (LEP).

Employers can continue to rely on their insurance carriers, third-party administrators (TPAs), pharmacy benefit managers (PBM), and administrative services only (ASO) partners to receive guidance to establish whether their programs meet the 2026 “creditable coverage” requirements.

It is important for employers to remember that although 2026 introduces the “Revised Simplified Method”, 2026 is the final year to utilize the Existing Simplified Method. This provides employers with a transitional year to address their plan design to ensure that they will meet the Revised Simplified Method beginning in 2027.

DISCLAIMER

The information provided by The Fedeli Group’s Compliance Alert is not intended to be, nor should it be, interpreted as conferring legal advice to the reader of the Compliance Alert. The Fedeli Group Compliance Alerts are designed specifically and solely for informational purposes. Should the reader have any legal questions or concerns after reading this Compliance Alert, it is recommended that the reader seek counsel for a formal opinion.