Though most employers do not provide prescription drug benefits for their retirees, most nonetheless will be impacted by a particular provision of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MAA)-namely, the requirement that individuals who are eligible for Medicare prescription drug coverage be notified as to whether they have creditable coverage under their employer's plan.
The MMA created a new Medicare Part D-a voluntary program for which eligible individuals who choose to enroll pay a premium for outpatient prescription drug coverage. The Notice of Creditable Coverage is required in order to help individuals who are eligible for Part D decide whether to enroll for Part D coverage. Individuals eligible for Part D who decline enrollment when first eligible will be assessed a penalty if they later decide to enroll, unless they have had "creditable coverage" in the meantime. The late enrollment penalty is in the form of a higher premium, which will be applied for the duration of the individual's enrollment in Medicare Part D. The late enrollment penalty applies to Part D individuals who go without creditable coverage for any continuous period of 63 days or longer after the end of their initial Part D enrollment period.
The reason the Notice of Creditable Coverage affects most employers is that it is required if the employer plan that provides prescription drug benefits covers any Medicare-eligible individuals. For example, if an active employee medical plan with prescription drug benefits covers any spouses who are Medicare-eligible for any reason-age, disability or end-stage renal disease-the notice is required. Furthermore, the notice is required whether the employer's plan is primary or secondary to Medicare. (For employers that do provide prescription drug coverage to retirees, the notice is not required if that coverage is directly through a Medicare Part D plan.)
The notice must disclose whether the prescription drug coverage under the employer's plan is "creditable." Essentially, coverage is creditable if it is at least as good as the coverage under the standard Medicare Part D plan. "At least as good as" means that the actuarial value of the coverage equals or exceeds the actuarial value of standard Medicare Part D coverage. Guidance from the Centers for Medicare and Medicaid Services (CMS) indicates that this determination measures whether the expected amount of paid claims under the employer's prescription drug coverage is at least as much as the expected amount of paid claims under the standard Medicare prescription drug benefit.
Actual attestation of equivalence by an actuary is required only if the employer offers-and intends to continue to offer-prescription drug coverage to retirees and is seeking the subsidy available under the MMA for doing so. Employers that are not seeking this subsidy-i.e., most employers-can apply a design-based comparison to determine whether their prescription drug coverage is creditable. According to CMS guidance, prescription drug coverage is considered creditable if it-
- Provides coverage for brand and generic medications;
- Provides reasonable access to retail providers and, optionally, for mail-order;
- Is designed to pay on average at least 60% of participants' prescription drug expenses; and
- Has no annual benefit maximum or a maximum that is at least $25,000 (or an actuarial expectation that the amount payable by the plan in 2006 will be at least $2,000 per Medicare-eligible individual). However, if the prescription drug coverage is integrated with other health benefits, the integrated health plan must have an annual deductible not greater than $250; no annual benefit maximum or a maximum of at least $25,000; and a lifetime maximum of at least $1 million.
The notice must state whether or not the prescription drug coverage is creditable; the meaning of creditable coverage; and why creditable coverage is important, including the penalties an individual can be subject to if he or she does not have creditable coverage and declines enrollment in Medicare Part D within the required time period. Additionally, if the coverage is non-creditable, the notice must explain the time period during which the individual can enroll in Medicare Part D. The CMS also recommends additional items for the notice. CMS has model notices and model language that can be used for employers that choose to prepare their own notices. An employer can arrange for a third-party vendor to provide the notice on its behalf.
With Medicare Part D coverage first becoming available January 1, 2006, the initial Notice of Creditable Coverage is required prior to the opening Medicare Part D election period, which starts November 15, 2005. However, the notice must be provided on an annual basis, upon beneficiary request, and at certain other times. Employers will need to review these requirements with their benefits professional to make sure that they are meeting the Medicare Part D Notice of Creditable Coverage requirements.