Learn what minimum requirements a plan must have to qualify as creditable coverage and why it matters.
What Is Creditable Coverage?
Creditable coverage is health insurance that meets or exceeds the drug coverage benefits provided by Medicare. You’ll often hear this term associated with Medicare Part D, which is prescription drug coverage. Prescription drug plans must pay, on average, at least as much as Medicare Part D toward prescriptions to be considered creditable coverage. This way, your out-of-pocket expenses stay similar to what they would be if you had Part D. There are four basic requirements that plans must meet to qualify as creditable for prescription drug coverage:
Covers both brand name and generic prescriptionsOffers reasonable access to retail providersPays at least 60%, on average, of the drug costs for participantsMeets certain limits regarding minimum annual coverage amounts. For example, the maximum annual benefit payable by some plans must be at least $25,000 or plans are expected to pay at least $2,000 annually per Medicare-eligible individual.
If you have integrated health coverage—meaning the prescription drug benefit is combined with your other coverage (i.e., medical, dental, vision, etc.)—there are alternate requirements for determining creditable coverage. Your deductible would be no more than $250 per year, and you would have no annual benefit maximum (or a maximum annual benefit paid by the plan of at least $25,000). You’d also have no less than a $1 million lifetime combined benefit maximum. There are many different types of insurance plans that qualify. These can include:
Veterans’ benefitsFederal Employee Health Benefits Program (FEHB)TRICARE (military health benefits)Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA)Indian Health Services Private group health plans from your employer or trade union
If you have creditable coverage from another source and wish to keep it, you don’t have to sign up for Medicare Part D during your initial enrollment period. If your coverage ends in the future, you can use a two-month special enrollment period or the annual open enrollment to sign up for Medicare Part D. Be aware that if you go 63 days or more without creditable prescription drug coverage, you may owe a late enrollment penalty that will permanently increase your Part D premium.
How Creditable Coverage Works
Creditable coverage is health insurance not provided through Medicare that meets or exceeds the coverage Medicare provides. You may already have a plan through your employer, union, or another source that’s considered creditable—or you may be eligible to sign up for one. No matter your exact situation, if you are eligible for Medicare, the Medicare Modernization Act (MMA) requires your insurance company to send an annual notice about your coverage. This notice must be:
Provided in writingReceived before Oct. 15 each year Provided to a Medicare-eligible individual upon their enrollment in the plan
Once you receive your notice in the mail, it’s important to review it carefully. Check to make sure your coverage still qualifies as creditable. If it does, you can keep your current plan. However, if your plan no longer provides creditable coverage, you may want to sign up for Medicare Part D during a special enrollment period (triggered once you lose coverage) or the annual open enrollment period. Open enrollment runs from Oct. 15 through Dec. 7 each year. Don’t send your health insurance notifications to Medicare when you get them each year. Instead, hang onto them so you can verify your prior coverage if you apply for Medicare in the future.
Examples of Creditable Coverage
Here are two examples to help you better understand how creditable coverage works: Ms. Rosa is eligible for Medicare but is still working. She has health insurance from her employer and wants to keep it. Each year, she gets a notice that her current coverage is considered creditable. She files the notice away and doesn’t make any changes to her health insurance coverage. Mr. Chan is eligible for Medicare, but he currently has COBRA. He received notice that his plan includes creditable drug coverage. However, it’s set to end in six months. When it ends, he uses a special enrollment period to join Medicare Part D without a penalty.
The Bottom Line
If you are eligible for Medicare and have prescription drug coverage from a different source, your insurance company must send you a notice each year. This notice explains whether or not your current plan is considered creditable coverage. If it is, your coverage is at least as good as Medicare Part D. If it isn’t, you may want to sign up for Part D or a different plan that is creditable to avoid paying the Part D late enrollment penalty.
