Every September the same reminder arrives: Part D notices are due before October 15. The reminder is still right. What changed is the test your plan has to pass before you can call its drug coverage creditable, and for 2027 the old shortcut is gone.
What is creditable coverage?
Prescription drug coverage is creditable when its actuarial value equals or exceeds the actuarial value of standard Medicare Part D coverage. In plain terms, your plan is expected to pay at least as much for drugs as a standard Part D plan would.
The rule, at 42 CFR 423.56, gives a group health plan two ways to prove it:
- An actuarial determination, using generally accepted actuarial principles and CMS guidelines.
- The simplified determination method, for plans that do not receive the Retiree Drug Subsidy. This is the route most employers use.
Offering drug coverage at all is voluntary, and no federal agency fines an employer for coverage that falls short. What is not voluntary is getting the status right and telling your people.
What do employers have to send, and when?
Creditable coverage carries two separate obligations, with two audiences and two deadlines. Employers often finish the first and miss the second.
| Notice to individuals | Disclosure to CMS | |
|---|---|---|
| Who receives it | Every Medicare-eligible person covered by your drug plan | CMS, through the online Disclosure to CMS Form |
| When | Before October 15 each year, plus when someone joins, when status changes, and on request | Within 60 days after the plan year starts, within 30 days after the drug plan ends, and within 30 days after any change in creditable status |
| What it says | Whether the coverage is creditable. A non-creditable notice must also explain enrollment limits and the late enrollment penalty | The plan’s creditable status |
| Template | CMS model notices, in English and Spanish | The CMS online form |
The notice group is wider than most employers assume. CMS lists Medicare-eligible active employees and their dependents, COBRA participants and their dependents, disabled individuals covered under the plan, and retirees and their dependents. For a calendar-year plan, the CMS disclosure lands in early March, and nobody sends a reminder.
What changed for 2027?
For 2027, the simplified method requires a plan designed to pay at least 73 percent of participants’ drug costs, up from 60 percent. The change traces back to the Inflation Reduction Act, which redesigned Part D. Medicare members now have a cap on yearly out-of-pocket drug costs, and the coverage gap is gone. A richer standard benefit raised the bar every employer plan has to clear.
For years, the simplified method asked whether a plan was designed to pay at least 60 percent of participants’ drug costs. In its Final CY 2026 Part D Redesign Program Instructions, CMS introduced a revised method built on 72 percent, and allowed plans to use either the old or the revised method for calendar year 2026 only.
Then the Contract Year 2027 final rule, issued April 2, 2026, wrote the revised method into regulation and raised the figure to 73 percent for 2027.
| Plan year | Methods available (plans without the Retiree Drug Subsidy) | Payment threshold |
|---|---|---|
| 2025 | Original simplified method or actuarial determination | 60 percent |
| 2026 | Original or revised simplified method, or actuarial determination | 60 or 72 percent |
| 2027 | Revised simplified method or actuarial determination | 73 percent |
| 2028 and later | Revised simplified method or actuarial determination | Set by CMS in guidance |
Under the revised method, a plan must do three things:
- Provide reasonable coverage for brand name drugs, generic drugs and biological products.
- Provide reasonable access to retail pharmacies.
- Be designed to pay, on average, at least 73 percent of participants’ prescription drug expenses for 2027.
The number will keep moving. In the rule, CMS said its modeling projects the standard benefit’s value to reach 75 percent in 2030. Treat this as a test you rerun every year, not a box you check once.
Which plans are most at risk?
High deductible plans are most at risk. Going from 60 to 73 percent is a 13 point jump in what your plan has to pay. A plan with low prescription copays will likely clear it. A high deductible plan may not, because members pay the full drug price until the deductible is met. A plan that passed easily at 60 percent can fall below 73 percent without a single design change.
CMS named three design choices that can help a high deductible plan qualify:
- Not applying the deductible to preventive or maintenance drugs.
- A reasonable and supportable allocation of the deductible to prescription drug expenses.
- Lower cost sharing than standard Part D once the deductible is met.
Each one is a plan design decision with a cost, which is why creditable status belongs in your renewal conversation, not just on the compliance calendar. If the plan cannot pass the simplified test, an actuarial determination is still available. It takes more time, so start early.
What happens to employees if the notice is wrong?
The cost of a wrong notice does not land on the company. It lands on the employee, for life.
A Medicare beneficiary can owe a late enrollment penalty after going 63 days or more in a row, after their initial Part D enrollment period, without Part D or creditable drug coverage. The penalty is 1 percent of the national base beneficiary premium for each full month uncovered, rounded to the nearest 10 cents and added to every monthly Part D premium for as long as the person has Part D.
| Year | National base beneficiary premium | Source |
|---|---|---|
| 2026 | $38.99 | Medicare.gov |
| 2027 | $41.33 | CMS announcement, July 28, 2026 |
Because the base premium changes every year, so does the penalty. An employee who skipped Part D for 30 months because your notice called the plan creditable when it was not would carry a 30 percent surcharge for life.
There is a narrow fix. A person who shows CMS they were not adequately told their coverage was not creditable can ask CMS to treat it as creditable for penalty purposes. That remedy exists for people a notice failed. It is not a plan.
What changed for HRAs, FSAs and HSAs?
The same final rule removed account-based plans, such as health reimbursement arrangements, health flexible spending accounts and health savings accounts, from the creditable coverage disclosure requirement. The change applies to coverage beginning January 1, 2027.
The exemption is narrow. If you sponsor a group health plan with drug coverage, your notice and CMS disclosure duties do not change.
What should employers do this year?
Employers should confirm their 2027 method, get the 73 percent test in writing for every plan option, and send the right notice before October 15.
- Confirm your method for 2027. If the answer is the 60 percent method, it is no longer available.
- Get the 73 percent test run in writing. Ask your carrier, TPA or pharmacy benefit manager whether each plan is designed to pay at least 73 percent of drug costs, and keep the reply.
- Test every plan option separately. A creditable PPO does not make your high deductible plan creditable. One employer can owe creditable notices for one option and non-creditable notices for another.
- Model design changes before renewal. Deductible carve-outs and post-deductible cost sharing move the number and the budget, so decide on both together.
- Send the right notice version. Describing a non-creditable plan as creditable is the mistake that hurts people.
- Document and disclose. Keep the determination, the analysis and proof of distribution. File the Disclosure to CMS Form on time, and update it within 30 days if status changes.
The Part D notice and CMS disclosure sit alongside the other dates in the year-end health plan compliance checklist and the wider ERISA compliance checklist. Because the test is about drug spending, it also ties into how your plan handles medical vs. pharmacy benefits.
How Ethos Benefits helps.
Ethos Benefits keeps creditable coverage notices and the CMS disclosure on your compliance calendar, with an owner and proof each was done, through Medicare coordination. We also help employees turning 65 understand how Medicare and your group plan fit together. If you are not sure your plan still passes, a Strategic Analysis starts with your plan documents and pharmacy terms.
This page is general information, not legal, tax or actuarial advice. Confirm your plan’s determination with your carrier, TPA, PBM, a qualified actuary or counsel.