Understanding Creditable drug Coverage
Creditable coverage refers to healthcare or prescription drug insurance coverage that is at least as good as the standard Medicare coverage or has been deemed by Medicare to be “close enough”. This type of coverage is typically provided by employers, union-sponsored plans, or other entities that offer health insurance to Medicare-eligible individuals.
In theory, to be considered creditable, the coverage must meet certain requirements, including paying, on average, at least as much as a Original Medicare or the Medicare Part D prescription drug plan .
Creditable coverage is important because it can help Medicare-eligible individuals avoid a late enrollment penalty when they sign up for a Medicare. I a Medicare eligible person does not enroll in Medicare during their initial enrollment period and does not have health insurance or prescription drug coverage that is deemed by Medicare to be creditable, they may be subject to a late enrollment penalty.
If an individual has creditable coverage, they may not need to enroll in a Medicare during their Initial Enrollment Period, and they will not be subject to a late enrollment penalty.
To help you determine if your current coverage is creditable, I have created a Creditable Coverage cheat sheet. Please print, save and share. You can easilty determine if your current coverage meets creditable coverage requirements.
Medigap Seminars Insurance Agency Reviews.
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. The plans must have at least 20 employees if you are age 65 or over or at least 100 employees if you are under age 65 and disabled.
Health plans sponsored by unions.
If you or your spouse’s employer or union covers at least 20 individuals and you are age 65 or older, plus you are actively employed, your group health plan typically qualifies as creditable drug coverage, allowing you to postpone enrolling in Part B and/or Part D Medicare coverage.
How to Determine if Coverage is Creditable
To determine if coverage is creditable, individuals can follow these steps:
Check their health insurance plan documents: Review your health insurance plan documents to see if they include prescription coverage that meets the requirements for creditable coverage. Keep in mind, your insurance can be creditable health coverage and not creditable drug coverage.
Contact their employer or health insurance provider: Reach out to your employer or health insurance provider to ask if your prescription drug coverage is creditable. They should be able to provide you with the necessary information.
Employers and other entities that offer health insurance to Medicare-eligible individuals are required to notify their policyholders about creditable coverage. They must provide a notice to their Medicare-eligible policyholders each year, usually by October 15, to inform them whether their prescription drug coverage is creditable or not. This notice is crucial for avoiding late enrollment penalties and ensuring you have the necessary documentation when enrolling in a Medicare drug plan.
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.
If you are under age 65, your employer must have at least 100 employees to be creditable drug coverage.
Are you Actively Working or Retired?
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.
We can’t stress this enough, your current plan is not creditable coverage if you are not actively working.
This is a very common mistake; 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.
Late Enrollment Penalties
If you don’t have creditable coverage and enroll in Part B or Part D late, you may be required to pay a financial penalty with every Medicare premium, indefinitely. Consequently, upon enrolling in Medicare Part B or Part D, 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.
What’s Creditable Prescription Drug Coverage?
For a plan to qualify as creditable coverage for Part D medicare 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.
Must have a maximum out-of-pocket limit similar to Medicare Part D.
Here are some examples of potentially creditable coverage for Part D:
Federal Insurance
Champ VA (Civilian Health and Medical Program of the Department of Veterans Affairs)
VA insurance
Union coverage
Employer coverage (with 20 or more employees)
Any drug plan that meets the creditable drug coverage requirements.
If you delay enrollment in Part D without creditable drug 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 drug 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:
COBRA
Veterans Benefits
Healthcare sharing ministry plans
These prescription drug plans are not considered creditable 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.
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 drug coverage?
VA benefits do not serve as creditable coverage for delaying enrollment in Part B. Nevertheless, they do qualify as creditable drug 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 drug 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!
