Creditable coverage is health insurance that offers equal or greater coverage compared to Medicare.
A person who qualifies for Medicare can choose to keep creditable health insurance instead, and not incur a late enrollment penalty.
Without creditable coverage, delaying Medicare enrollment will result in late fees and penalties. Make sure your health insurance plan qualifies as creditable coverage before you defer enrolling in Medicare.
Some types of health insurance can be considered creditable coverage for Part D (prescription drug coverage) but not for Part B.
What is Creditable Coverage for Medicare?
In Medicare, creditable coverage means coverage that is as good as or better than the coverage offered by Medicare Parts A, B or Part D prescription drug coverage.
Medicare does not deem all coverage creditable. Medicare beneficiaries need to be aware of the rules for such coverage before they defer signing up for original Medicare.
If you have creditable coverage, you can delay enrolling in Medicare Part B and Medicare Part D plan without incurring a high, indefinite late enrollment penalty. This can save you lots of money and ensure you have continuous access to healthcare services and prescription drugs without disruption.
Should you lose your existing creditable group health coverage, you’ll need to enroll in Medicare within 8 months, which is referred to as a Special Enrollment Period. Failing to enroll during this time frame will result in late enrollment penalties.
Your prior creditable coverage doesn’t affect enrolling in Medicare Parts A & B if you decide to transition to Medicare benefits.
What is Considered Creditable Insurance Coverage for Medicare Part B?
Here are some examples of common creditable coverage options:
Large employer health coverage group health plans.
Health plans sponsored by unions.
If your employer or union covers over 20 individuals and you are age 65 or older, plus you are actively employed, your group health plan qualifies as creditable coverage, allowing you to postpone enrolling in Part B and/or Part D Medicare coverage.
Similarly, if you are covered by your spouse’s union or large group health plan during their employment, you will also have non-Medicare creditable coverage in this situation.
What are the Common Mistakes with Creditable Coverage?
The most common (and costly) mistake we see people make about creditable coverage is thinking their small company group plan will cover them until they retire and that they can delay enrolling in Medicare Part B without penalties.
The reality is that if you are 65 or older and your employer or spouse’s employer has fewer than 20 employees, that coverage is not creditable for Medicare.
Some employers pay healthcare benefits after a person has stopped actively working. You must be actively working for your health insurance plan to be considered creditable.
If you are under age 65, your employer must have at least 100 employees to be creditable coverage.
If you don’t have creditable coverage and enroll in Part B late, you will pay a 10% penalty for every 12 months without coverage, indefinitely. Consequently, upon enrolling in Medicare Part B, you will be required to pay both the penalty and your monthly Medicare Part B premium. Know the rules and avoid the hit to your wallet.
Lastly, COBRA is not creditable coverage for Medicare Part B.
The second most common mistake is assuming that your employer health insurance is creditable coverage after you stop working. You must be actively working for your employer plan to be considered creditable. Once you stop actively working, you need to enroll in Medicare.
What’s Creditable Prescription Drug Coverage?
For a plan to qualify as creditable coverage for Part D prescription drug coverage, it needs to have all of the following:
Covers 60% or more of the prescription drug costs
Covers a lot of different pharmacies (has a large network) or offers mail orders
Has no annual benefit cap or has a low deductible
Includes brand-name as well as generic medications.
Here are some examples of creditable coverage for Part D:
Champ VA (Civilian Health and Medical Program of the Department of Veterans Affairs)
Employer coverage (with 20 or more employees)
Any drug plan that meets the creditable coverage requirements.
If you delay enrollment in Part D without creditable coverage, when you do enroll, you’ll have to pay your monthly higher monthly premium plus the indefinite penalties. The penalty for Medicare Part D amounts to 1% of the national base beneficiary premium, multiplied by the number of months you lacked creditable coverage.
To avoid that, make sure to enroll in a Part D plan within 63 days after losing or discontinuing your previous plan and/or your former creditable drug coverage.
You can get Medicare prescription drug coverage through either a standalone Part D prescription drug plan or as a part of a Medicare Advantage plan (Part C) that will provide prescription drug coverage.
To enroll in a standalone Part D prescription drug plan, you must have Part A and/or Part B. For Medicare Advantage plans, both Medicare Parts A & B are required.
What is NOT Creditable Coverage for Medicare Part B and Part D?
Not all health insurance plans are eligible to be creditable coverage so you will need to double check with your insurance plan.
For example, here are the plans that are not creditable coverage for Medicare Part B:
These prescription drug plans are not considered creditable coverage for Medicare Part D:
Prescription coupon programs
Prescription discount programs
Drug coverage that is not equal to or greater than Medicare Part D.
Other types of non-creditable coverage include:
Indian health services
Small (less than 20 employees) employer coverage
State discount programs
Sometimes, the coverage can be deemed creditable for Medicare Part D drug coverage but not for Medicare Part B. So it may be more convenient for you to postpone enrollment in a Medicare drug plan to avoid incurring the late enrollment penalty.
Is My Health Coverage Creditable?
As a part of the Medicare Modernization Act, businesses, whether they offer creditable drug coverage or not, are obligated to annually inform Medicare-eligible beneficiaries.
To determine whether your health insurance coverage is creditable or not, use our cheat sheet , plus you should look out for an annual notice of creditable coverage from your insurance provider, such as:
Group health plans
Department of Veterans Affairs (VA)
Federal, state, and local governments.
When you initially become eligible for Medicare, the notice of creditable coverage will be your proof to avoid the late penalties after the Initial Enrollment Period.
If you have it, you will receive a letter by mail from your employer or union every year in September, before the start of the Medicare Annual Enrollment Period.
You’ll need the Creditable Coverage Notice if you enroll in Medicare Part B after the Medicare Initial Enrollment Period.
If you misplace the notice or have more questions about your health coverage, you can request a replacement or more information from your benefits administrator or insurance company. You can ask them about the group coverage or group insurance from your employer plan to make sure it’s credible coverage.
Are Veterans Benefits considered creditable coverage?
VA benefits do not serve as creditable coverage for delaying enrollment in Part B. Nevertheless, they do qualify as creditable coverage for Medicare Part D drug coverage.
Even if you have Veteran benefits, you might still want to consider enrolling in Medicare which can cover your medical expenses outside of the VA facility or system.
Is COBRA creditable coverage for Medicare?
COBRA coverage can be considered creditable for Medicare Part D, but it is not creditable coverage for Medicare Part B.
If you lose your group or employer coverage and are enrolled in COBRA, you will have an 8-month Special Enrollment Period to enroll in Original Medicare without facing penalties.
Take advantage of this period. After that, you’ll need to wait for an eligible enrollment period and will pay late enrollment penalties.
Should I switch to Medicare coverage if I have a pre-existing condition?
If you have a pre-existing condition, some policies may still allow exclusion periods, so it would make more sense for you to transition to Medicare.
In the past, individuals with pre-existing conditions often faced exclusion from their health insurance plans, but this practice has become less common thanks to the Affordable Care Act (ACA).
While the ACA has restricted most insurers from applying exclusion periods to these conditions, some health coverage policies may still allow it, leading to increased out-of-pocket costs and more hassle.
Although the ACA has largely prevented this medical care practice, it can still occur if the conditions were covered by previous policies. Fortunately, in most situations, Medicare covers pre-existing conditions without significant waiting periods.
In this case, it would be best to sign up for Medicare in the qualifying enrollment period, to have better healthcare coverage.
In most states, you have guaranteed issue rights when you first become eligible for Medicare Part B, which means private insurance companies must offer you any Medigap policy they sell, regardless of your pre-existing conditions.
During this Open Enrollment Period, insurers cannot charge you more due to your health status or deny you coverage.
But don’t wait too long – if you apply for Medigap coverage outside your Open Enrollment Period, insurers in some states may impose a pre-existing condition waiting period.
Medicare doesn’t have to be complicated or intimidating… Give us a call and let us walk you through your options when it comes to creditable coverage or a Medicare plan!
You’re not alone – our friendly and knowledgeable team is always on your side and at your service!