Medicare Part D Creditable Coverage
Every September, the same reminder lands in your inbox. Medicare Part D notices are due before October 15. Send them out, check the box, move on.
That reminder is still correct. It is also no longer the most important thing happening with creditable coverage this year.
The rule underneath the notice changed. CMS retired the payment threshold that most employer plans have quietly relied on for two decades, and the transition period that softened the blow has now closed. If your plan was creditable last year because it always has been, that assumption is worth retesting before you print a single notice.
Here is what actually changed, what it means for the notices you send this fall, and what it costs your Medicare-eligible employees if you get it wrong.
The Deadline Everyone Remembers, and the Rule Change Most Will Miss
The October 15 date is not new and it is not the story. CMS requires plan sponsors to send a written disclosure notice to all Medicare eligible individuals annually, prior to October 15 each year. That timing exists because Medicare’s Annual Enrollment Period opens on October 15, and your employees need to know where they stand before they make a decision they cannot easily undo.
What is new is the standard your plan has to clear to call its drug coverage creditable in the first place.
Prescription drug coverage counts as creditable coverage when its actuarial value equals or exceeds the actuarial value of defined standard Part D coverage. For years, most employers never ran that calculation. They used a shortcut called the simplified determination method, and the shortcut asked for a plan designed to pay at least 60 percent of participants’ prescription drug expenses.
That shortcut is gone.
What Medicare Part D Creditable Coverage Actually Requires
Start with the mechanics, because two separate obligations get collapsed into one in most conversations.
Two Disclosures, Two Different Deadlines
The first obligation is the notice to your people. You provide a written disclosure to every Medicare eligible individual covered under your prescription drug plan, before October 15 annually. This is broader than most employers assume. It covers Medicare eligible active employees and their dependents, Medicare eligible COBRA participants and their dependents, Medicare eligible disabled individuals on your plan, and retirees and their dependents.
The second obligation is the disclosure to CMS. You complete the online Disclosure to CMS Form annually, no later than 60 days after the start of your plan year, within 30 days after terminating a prescription drug plan, and within 30 days after any change in creditable coverage status.
That last trigger matters more than usual this year. If your status flips, you owe CMS an update inside 30 days.
Worth naming plainly: no federal agency fines you for offering drug coverage that falls short of creditable coverage. Offering prescription drug benefits at all is voluntary. What is not voluntary is determining the status accurately and telling your people the truth about it.
The 2026 Transition Year Has Closed
CMS overhauled the Part D benefit under the Inflation Reduction Act. Beneficiaries got a hard cap on annual out-of-pocket drug spending, the coverage gap phase disappeared, and cost sharing in the catastrophic phase went away. Richer benefits for beneficiaries meant a higher actuarial value for standard Part D coverage, which raised the bar every employer plan has to clear.
CMS responded in the Final CY 2026 Part D Redesign Program Instructions with a revised simplified determination method built around a 72 percent payment threshold instead of 60 percent. To keep employers from getting caught flat-footed, the agency allowed non-RDS group health plans to use either the old 60 percent method or the revised 72 percent method to establish creditable coverage for calendar year 2026 only.
That grace period is over. The old method cannot be used for plan years beginning on or after January 1, 2027.
The Creditable Coverage Standard That Applies Now
CMS did not just sunset the old method. In the Contract Year 2027 Medicare Advantage and Part D final rule issued April 2, 2026, the agency wrote the revised method directly into regulation and raised the number again.
Under 42 CFR 423.56, a non-RDS group health plan meets the simplified creditable coverage determination standard when it does three things. It provides reasonable coverage for brand name drugs, generic drugs, and biological products. It provides reasonable access to retail pharmacies. And it is designed to pay, on average, at least 73 percent of participants’ prescription drug expenses for 2027.
60% → 72% → 73%The payment threshold your plan must hit to be creditable, across three plan years. The 2026 transition option is closed, and CMS has signaled the number keeps moving.
| Plan year | Methods available to non-RDS plans | Payment threshold |
|---|---|---|
| 2025 | Existing simplified method or actuarial equivalence | 60 percent |
| 2026 | Existing or revised simplified method, or actuarial equivalence | 60 percent or 72 percent |
| 2027 | Revised simplified method or actuarial equivalence only | 73 percent |
| 2028 and beyond | Revised simplified method or actuarial equivalence only | Set by CMS in subregulatory guidance |
Read that middle detail carefully, because it is easy to skim past. The threshold is 73 percent for 2027, not 72. The 72 percent figure belonged to the 2026 transition year. Anyone still quoting 72 percent for next year’s creditable coverage determination is working from last year’s guidance.
The addition of biological products is not filler either. The old method predated the current biosimilar market, and a plan that covers brand and generic drugs well but handles biologics poorly now has a gap worth examining.
The regulation also states that percentages for subsequent years will be updated by CMS through subregulatory guidance to track the actuarial value of defined standard Part D coverage. Translation: this number is designed to keep climbing. Plan for a moving target, not a one-time fix.
Why 13 Percentage Points Changes the Math on Your Plan
Going from 60 percent to 73 percent is a 13 point jump in what your plan has to shoulder. For a rich PPO with a low copay structure on prescriptions, that gap is probably comfortable. For plenty of other designs, it is not.
High Deductible Plans Carry the Most Exposure
When members pay the full negotiated price of prescriptions until they hit a deductible measured in thousands of dollars, the share of drug expenses the plan actually pays across the population drops fast. A plan that cleared 60 percent without breaking a sweat can land below 73 percent and lose creditable coverage status on a design that never changed.
CMS acknowledged this and offered three design levers that help an HDHP get there:
- Decline to apply the deductible to preventive and maintenance medications.
- Use a reasonable and supportable allocation of the deductible attributable to prescription drug expenses.
- Offer lower cost sharing than standard Part D coverage once the deductible is satisfied.
None of these is a formality. Each one is a real plan design decision with real cost implications, which is exactly why creditable coverage belongs in your renewal conversation and not in your compliance calendar.
If your plan cannot clear 73 percent under the simplified method, you are not automatically non-creditable. You still have the actuarial equivalence route, where a qualified actuary compares your plan’s expected paid claims against the standard Part D benefit. That path takes more work and more lead time, which is the argument for starting the analysis now rather than in late September.
One More Change: HRAs, FSAs, and HSAs Come Off the List
The same April 2026 final rule delivered a piece of genuine relief. CMS exempted account-based plans, including health reimbursement arrangements, flexible spending accounts, and health savings accounts, from the creditable coverage disclosure requirements. The exemption applies to coverage beginning January 1, 2027.
CMS reasoned that comparing the value of an account-based arrangement to the actuarial value of prescription drug coverage was both a poor fit and an administrative burden that created more confusion than clarity.
Two things to hold onto:
- The exemption is narrow. It covers account-based plans only. If you sponsor a group health plan with prescription drug coverage, your creditable coverage obligations are untouched.
- ICHRAs benefit most. Individual coverage HRA sponsors were the ones most likely to be sending notices for an arrangement where the creditable coverage concept never really applied.
What It Costs Your Employees When Creditable Coverage Is Misreported
There is no CMS fine sitting at the end of this process for the employer. That fact leads a lot of plan sponsors to file this under low-stakes paperwork. It should lead them somewhere else entirely, because the cost does not land on the company. It lands on the employee, and it never goes away.
The Part D Late Enrollment Penalty Is Permanent
A Medicare beneficiary can incur a late enrollment penalty when there is a continuous period of 63 days or more, after the end of their Part D initial enrollment period, during which they were eligible to enroll but had neither a Part D plan nor creditable prescription drug coverage.
The penalty math is simple and unforgiving. It equals 1 percent of the national base beneficiary premium for every full month the person went uncovered, rounded to the nearest 10 cents and added to their monthly Part D premium. The national base beneficiary premium is $38.99 for 2026, and CMS has set it at $41.33 for 2027. Because the base premium changes annually, the penalty amount recalculates every year.
30 months uncovered = a 30% lifetime surchargeAn employee who went 30 months without enrolling because a notice told them they had creditable coverage when they did not pays that surcharge every month, in every Part D plan they ever switch to, for the rest of their life.
There is a narrow escape hatch, and it should not be your plan. An individual who establishes to CMS that they were not adequately informed their coverage was not creditable can apply to have it treated as creditable coverage for penalty purposes. That is a remedy built for people your notice failed. It is not a strategy.
That is the outcome your notice is either preventing or causing. It is also why creditable coverage deserves a real determination rather than a copy-paste from last year’s file.
Your Creditable Coverage Checklist for This Fall
Six steps, in the order they need to happen.
- Confirm which determination method your plan is using for 2027. If the answer is the 60 percent simplified method, that answer is no longer available and you need a new one before your notices go out.
- Get the 73 percent test run. Your carrier, TPA, or PBM should be able to tell you whether the plan is designed to pay at least 73 percent of participants’ prescription drug expenses. Ask in writing and keep the reply.
- Test every plan option separately. Creditable coverage is determined option by option. A creditable PPO does not make your HDHP creditable, and a single organization can easily owe creditable coverage notices for one plan and non-creditable notices for another.
- Model your HDHP design levers before renewal. Preventive drug carve-outs, deductible allocation, and post-deductible cost sharing all move the number. They also move your budget, so decide on both together.
- Send the correct notice version. CMS publishes model creditable and non-creditable disclosure notices, in English and Spanish. Sending the wrong version is the failure mode that actually hurts people, since a non-creditable plan described as creditable is what triggers a penalty nobody saw coming.
- Document the determination and the date you distributed. Keep the methodology, the supporting analysis, and proof of distribution. Then update your Disclosure to CMS Form, and file an update within 30 days if your status changed.
If documentation discipline is the weak link, our ERISA compliance checklist covers the wider set of notices and filings that tend to slip through the same gaps.
Creditable Coverage Is a Fiduciary Question, Not a Paperwork Question
The status quo answer here is to send the same notice you sent last year and hope nothing changed. That answer was defensible when the threshold sat at 60 percent for twenty years. It is not defensible now.
Managing a health plan means making decisions with other people’s money and other people’s health on the line. A creditable coverage determination is a small decision with a permanent consequence for a specific group of your employees, most of whom are late in their careers and least able to absorb a lifetime premium surcharge.
You already run the rest of your business on strategy and documentation. Benefits compliance deserves the same treatment. Getting creditable coverage right is not about avoiding a penalty you will never personally pay. It is about protecting people who trusted the notice you sent them.
If you want a partner who reads the regulation before the deadline instead of after it, our health benefits services team handles compliance, employee communications, and the plan design analysis behind determinations like this one. Our fiduciary framework is built on a simple idea: every decision gets filtered through what is actually best for the people it affects.
Not sure your plan still clears the bar?
Let’s run the 73 percent test before your notices go out, not after.
Schedule a CallFrequently Asked Questions
When are Medicare Part D notices due in 2026?
Before October 15, 2026. CMS requires the creditable coverage disclosure notice to reach all Medicare eligible individuals covered under your prescription drug plan annually, prior to October 15, ahead of Medicare’s Annual Enrollment Period.
Can we still use the 60 percent simplified determination method?
No. The old simplified determination method was permitted through calendar year 2026 only. For plan years beginning on or after January 1, 2027, non-RDS group health plans must use either the revised simplified determination method or an actuarial equivalence determination.
Is the creditable coverage threshold 72 percent or 73 percent?
Both numbers are real, and the year is what separates them. 72 percent applied to the revised method during the 2026 transition year. 73 percent applies for 2027, codified at 42 CFR 423.56, with later years to be updated by CMS in subregulatory guidance.
Do we still send creditable coverage notices for our ICHRA?
Not for coverage beginning January 1, 2027. CMS exempted account-based plans, including HRAs and ICHRAs, FSAs, and HSAs, from creditable coverage disclosure requirements. Group health plans with prescription drug coverage still send notices as usual.
Are employers penalized for offering non-creditable coverage?
No. You are not required to offer creditable prescription drug coverage, and there is no employer penalty for offering coverage that falls short. What you are required to do is determine the status accurately and disclose it, because your Medicare eligible employees rely on that disclosure to avoid a permanent late enrollment penalty.
What if our creditable coverage status changes mid-year?
Notify affected Medicare eligible individuals, and update your Disclosure to CMS Form within 30 days of the change in status.
Does creditable coverage apply to our retirees?
Yes. Retirees and their dependents who are Medicare eligible receive the notice, along with active employees, COBRA participants, and Medicare eligible disabled individuals covered under the plan. Employers receiving the Retiree Drug Subsidy follow a different path and cannot use the simplified determination method at all.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal, tax, actuarial, or benefits advice. Creditable coverage determinations depend on the specific design of your prescription drug plan and should be confirmed with your carrier, third party administrator, pharmacy benefit manager, qualified actuary, or legal counsel. Regulatory guidance may change after publication. Ethos Benefits does not provide legal advice, and reading this article does not create an advisor relationship.
