Medicare Part D Annual Notice: October 15 Deadline Approaching

Each year, employers offering group health plans must provide an annual notice informing Medicare-eligible individuals whether the employer’s prescription drug coverage is creditable or non-creditable. The Medicare Part D Creditable Coverage or Non-Creditable Coverage Disclosure Notice must be provided:

• Annually before October 15;
• Upon initial eligibility
• Upon request; and
• Whenever there is a change in the creditable status of the coverage (e.g. plan renewal is June 1 and there is a change in coverage)

What is the purpose of this notice?

The Medicare Part D notice is designed to give Medicare-eligible individuals important information to make informed decisions about whether to enroll in Medicare Part D prescription drug coverage during the Medicare annual enrollment period which for 2026 runs from October 15 to December 7.

The notice tells Medicare-eligible individuals whether the employer’s prescription drug coverage is expected to pay, on average, at least as much as the standard Medicare Part D prescription drug benefit – meaning the coverage is “creditable” – or whether it is “non- creditable.”

Medicare-eligible individuals must enroll in Medicare Part D coverage when first eligible or be enrolled in other creditable prescription drug coverage. Usually, enrollment in the employer’s group health plan satisfies this requirement. If Medicare-eligible individuals do not enroll in Medicare Part D when first eligible or if they go without creditable prescription drug coverage for a continuous period of 63 days or more – they risk a late enrollment penalty under Medicare Part D. The late enrollment penalty is 1% of the national base beneficiary premium, which is $38.99 in 2026, for each full month without creditable prescription drug coverage. For a person who goes without creditable coverage for 12 months, the monthly penalty is $4.68 and continues for as long as they are enrolled in Medicare.

Who must receive the notice?

The notice must be provided to the following Medicare-eligible individuals:

• Active employees;
• Spouses and dependents;
• COBRA participants; and
• Retirees

Since most employers do not know who is Medicare-eligible, most employers send the notice to all plan participants. The Centers for Medicare & Medicaid Services (“CMS”) provides a model notice.

How is the notice delivered?

Some carriers may have already sent the required notice directly to individuals. Employers should confirm whether their carrier has done so before distributing the notice separately.

The notice may be distributed by hand delivery or first-class mail and may be distributed with other plan materials. If the notice is included with other plan materials, such as an annual notices packet or booklet, the notice must appear in 14-point font, bolded, and offset, telling individuals where to find the notice within the plan materials.

Additionally, the notice may be distributed electronically to employees with regular email access as an integral part of their job duties. If sent electronically, the notice must let employees know that a hard copy is available at no cost.The notice may be distributed by hand delivery or first-class mail and may be distributed with other plan materials. If the notice is included with other plan materials, such as an annual notices packet or booklet, then the notice must appear in 14-point font, bolded, and offset telling individuals where to find the notice within the plan materials. Additionally, the notice may be distributed electronically to employees with regular email access as an integral part of their job duties. If sent electronically, the notice must let employees know that a hard copy is available at no cost.

How is creditable coverage determined?

In most cases, the health plan carrier, pharmacy benefit manager (“PBM”), or third-party administrator (“TPA”) will be able to determine whether the plan is creditable.

If not, employers will need to perform actuarial equivalence testing or complete an analysis using the simplified determination methodology to determine prescription drug creditability status.

For 2026, employers that use the simplified determination methodology may use either:

• the existing simplified determination method established in 2009; or
• the revised simplified determination method applicable for 2026

For prescription drug coverage to be creditable under the existing simplified determination method, the plan must:

• provide coverage for brand and generic prescription drugs
• provide reasonable access to retail providers and an option for mail order coverage;
• be designed to pay on average, at least 60% of participants’ prescription drug expense; and
• satisfy at least one of the following:
  • the prescription drug coverage has no annual benefit maximum 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.
  • For entities that have integrated health coverage (meaning both medical and prescription drug coverage deductibles and maximums are combined), 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 no less than a $1,000,000 lifetime combined benefit maximum.

Under the revised simplified determination methodology, group health plan prescription drug coverage provides creditable coverage if the prescription drug plan:

• offers reasonable coverage for brand-name and generic prescription drugs and biological products;
• provides reasonable access to retail pharmacies; and
• pays on average, at least 72% of participants’ prescription drug expenses

Heads-up for 2027; CMS has raised the bar

For calendar year plans beginning in 2027, CMS has retired the use of the longstanding simplified determination method (2009).   With this change, prescription drug plans will need to pay on average, at least 73% of participants’ prescription drug expenses. For employers that previously used the 2009 simplified determination method for their 2026 determination, they may find that their prescription drug plans will no longer be creditable. While employers who opted to use the revised simplified determination method in 2026, using a 72% average, may see less of an impact on creditability for 2027 with the increase to 73%. Employers may still use actuarial equivalence testing.

As a result of this change, employers should test creditability early for all plan options and be prepared to make any necessary plan design changes or use CMS’s non-creditable coverage notice to communicate to Medicare-eligible individuals.

In addition, certain account-based plans such as health reimbursement arrangements (“HRAs”), individual coverage health reimbursement arrangements (“ICHRAs”), flexible spending accounts (“FSAs”), and health savings accounts (“HSAs”) will be exempt from creditable coverage disclosure requirements. With this change, employers will no longer need to disclose or determine creditability for these account-based plans.

Don’t forget the CMS disclosure

The employee notice is only one part of the compliance requirement. Employers must also disclose to CMS whether their prescription drug coverage is creditable or non-creditable. The CMS disclosure must be completed within 60 days after the beginning of the plan year and is completed using the online form.

Please contact your Fedeli Group Team for assistance.