CMS Updates Medicare Part D Creditable Coverage Notice Guidance
by Christopher S. Sears, Ice Miller LLP, Indianapolis, IN
On April 21, 2006, the Centers for Medicare and Medicaid Services ("CMS") issued an Updated Guidance ("Updated Guidance") on the disclosure of creditable coverage to Medicare Part D eligible individuals. This Updated Guidance was effective May 15, 2006. Health lawyers advising employers that sponsor prescription drug plans should be aware of this important update because it requires their clients to make affirmative revisions to the Creditable Coverage Notices used prior to May 15.
As a result of the Updated Guidance, certain sponsors of prescription drug coverage (notably, employer-sponsored group health plans) must immediately take action to:
- Ensure that their prescription drug coverage remains "creditable" under clarifications related to "integrated health coverage" provided in the Updated Guidance;
- Update the Creditable Coverage Notice they provide to Part D eligible individuals;
- Consider strategies for providing "personalized" Creditable Coverage Notices; and
- Ensure that all categories of Part D eligible individuals are receiving a Creditable Coverage Notice.
Who may enroll in Part D and when?
CMS began offering prescription drug coverage on January 1, 2006 through the Medicare Part D ("Part D") prescription drug program as authorized by the Medicare Modernization Act ("MMA"). An individual is eligible to enroll in Part D if he or she is entitled to Medicare benefits under Part A or enrolled in Medicare Part B and lives in the service area of a Part D plan.
Eligible individuals may begin enrolling in Part D during their "initial enrollment period." An individual who was first eligible to enroll in a Part D plan on or prior to January 31, 2006 had an initial enrollment period from November 15, 2005 through May 15, 2006. An individual who was first eligible to enroll in a Part D plan in February 2006 had an initial enrollment period from November 15, 2005 through May 31, 2006. An individual who first becomes eligible for Part D in March 2006 or thereafter has the same initial enrollment period as he does under Medicare Part B. Each year, there will be an "annual coordinated election period" during which eligible individuals may enroll in Part D or change their Part D prescription drug plan choices for the following calendar year. That period is from November 15 to December 31 of each year. In addition, an otherwise eligible individual may also enroll or disenroll during mid-year "special enrollment periods" such as when the individual loses other creditable prescription drug coverage, the individual mistakenly enrolled or disenrolled because of misinformation from other prescription drug plans or a Federal employee, or the individual moves out of a region covered by the prescription drug plan in which he or she is enrolled.
If the individual fails to apply for Part D by the end of his or her initial enrollment period for Part D and does not have other prescription drug coverage that is "creditable coverage" for any continuous sixty-three day period or longer, he or she may be subject to a late penalty if the individual later enrolls in Part D. That late penalty is paid on a permanent basis through increased Part D premiums. The higher premium is based on the number of months the individual does not have creditable coverage and does not enroll in Part D. The Updated Guidance clarifies that the premium that would otherwise apply is increased by at least 1% of the national benchmark beneficiary premium (which is set by CMS and published each year) for each month without creditable coverage. This increased premium will apply for as long as the person remains enrolled in Part D and the higher premium will increase each year because the increase will be applied to each subsequent year's national benchmark beneficiary premium.
If the individual does have creditable coverage and fails to enroll in Medicare Part D when he or she is initially eligible, the individual will not be penalized. However, if the individual loses creditable coverage and experiences a continuous period of 63 days or longer without creditable coverage, the individual will be subject to the higher premium for late enrollment commencing with the month his creditable coverage is no longer in effect. Medicare provides for special enrollment periods when a Part D eligible individual loses coverage during the middle of the year. Therefore, such an individual can avoid the gap in coverage (and resulting late penalty) if s/he enrolls within 63 days of losing creditable coverage.
What is "creditable" coverage?
Prescription drug coverage is "creditable coverage" for these purposes if the actuarial value of the plan coverage equals or exceeds the actuarial value of Part D Medicare standard prescription drug coverage. The actuarial value of a plan's prescription drug benefit is determined through the use of generally accepted actuarial principals and in accordance with CMS actuarial guidelines (and generally looks to expected amount of paid claims). This generally means that the prescription drug plan's expected amount of paid claims is at least as much as the expected amount of paid claims under the standard Medicare prescription drug benefit. Plans with multiple benefit options must determine whether each option is creditable coverage. A benefit option is a particular benefit design, category of benefits, or cost-sharing arrangement offered within a group health plan.
In general, prescription drug plans must make an actuarial determination annually of whether the coverage is expected to equal or exceed the expected amount of paid claims under the standard Part D prescription drug benefit. However, prescription drug plans that meet the following requirements are deemed to be "creditable coverage" without further need for actuarial analysis:
- The plan provides coverage for brand and generic prescriptions;
- The plan provides reasonable access to retail providers and, optionally, for mail order coverage;
- The plan is designed to pay on average at least 60% of participants' prescription drug expenses; and
- The plan satisfies at least one of the following:
- The prescription drug coverage has no annual benefit maximum benefit or a maximum annual benefit payable by the plan of at least $25,000;
- The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 per Medicare eligible individual in 2006;
- For entities that have integrated health coverage, the integrated health plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000 and has no less than a $1,000,000 lifetime combined benefit maximum.
The Updated Guidance clarifies that integrated health coverage is any plan of benefits that is offered to a Part D eligible individual where the prescription drug benefit is combined with other coverage that is offered by the entity ( e.g., medical, dental, vision, etc.) and the plan has all of the following provisions:
- A combined plan year deductible for all benefits under the plan;
- A combined annual benefit maximum for all benefits under the plan; and
- A combined lifetime benefit maximum for all benefits under the plan.
If a plan offers integrated health coverage, then it must meet steps 1, 2, 3, and 4(c) of the simplified method to be deemed "creditable." If it does not offer integrated health coverage, then it must meet steps 1, 2, 3, and either 4(a) or 4(b).
How do eligible individuals know if they have "creditable" coverage?
In order for individuals to know whether they may safely waive Part D coverage during their initial enrollment period without incurring the late penalty, most entities that offer prescription drug coverage to Part D eligible individuals (including sponsors of employer-sponsored prescription drug plans) must provide written notice to those individuals about whether their coverage is "creditable coverage" ("Creditable Coverage Notice"). Creditable Coverage Notices are not required to be sent for coverage under health savings accounts, Archer medical savings accounts, or medical flexible spending accounts; however, Creditable Coverage Notices must be issued for health reimbursement accounts that provide coverage for prescription drugs.
The ultimate responsibility for providing the Creditable Coverage Notice falls to the sponsor of the prescription drug plan ( i.e., generally the employer in an employer-sponsored group health plan). Some third-party administrators and insurance companies may send the notices as a service to the employer/sponsor. In such cases, the employer/sponsor should contractually bind the vendor to sending the Creditable Coverage Notice, review the content of the Creditable Coverage Notice to make sure it contains the required information, ensure that their vendors have proper procedures in place to provide the Creditable Coverage Notice, and follow-up to make sure that the Creditable Coverage Notices actually get sent.
Who should receive the Creditable Coverage Notice?
The Creditable Coverage Notice must be provided to any Part D eligible individual who is enrolled, or is seeking enrollment, in the entity's prescription drug coverage, regardless of whether the drug coverage is primary or secondary to Part D. Creditable Coverage Notices must be provided even if the prescription drug plan does not cover retirees. CMS' Updated Guidance makes clear that the Creditable Coverage Notice must be provided to Part D eligible individuals who are active employees, disabled, on COBRA, and those individuals who are retired, as well as Part D eligible individuals who are covered as spouses or dependents (including those spouses or dependents that may be disabled or on COBRA) under active employee coverage and retiree coverage. Because accurately identifying all of these classes of individuals (particularly spouses and dependents who are Medicare beneficiaries) can be burdensome and risky, many advisors recommend providing the Creditable Coverage Notice to all individuals who are eligible for the prescription drug plan, regardless of whether they are Part D eligible individuals, to avoid missing a Part D eligible individual.
What must the Creditable Coverage Notice say?
Previous CMS guidance issued in May 2005 set forth the detailed information that must be in the notices for both creditable and non-creditable coverages and provided model notices that could be issued to Part D eligible individuals that contain the required information. The previous guidance and models applied to Creditable Coverage Notices issued through May 14, 2006. CMS Updated Guidance provides revised content for Creditable Coverage Notices and new model Creditable Coverage Notices that may be used by sponsors of prescription drug coverage.
CMS' Updated Guidance refines and clarifies the content of Creditable Coverage Notices and provides new models. The Updated Guidance makes clear that sponsors of prescription drug plans are not required to use the models, but if they do not, they must ensure that their Creditable Coverage Notices contain certain required pieces of information. CMS also recommends that Creditable Coverage Notices include a number of optional clarifications. Required elements include:
- Whether the prescription drug coverage is creditable or not creditable;
- The meaning of "creditable" coverage;
- An explanation of why creditable coverage is important and a caution that failing to enroll in Part D without otherwise maintaining creditable coverage (or after a period of sixty-three or more days without creditable coverage) can result in a late penalty upon Part D enrollment; and
- For non-creditable coverage plans, that an individual generally may only enroll in a Part D plan from November 15 through December 31 of each year.
Optional recommended language includes items such as an explanation of an individual's right to a Creditable Coverage Notice, an explanation of the benefit plan's provisions that can affect Part D eligible individuals (or their dependents) ( e.g., whether they can retain their current prescription drug coverage when they enroll in Part D), an explanation of whether an individual can re-enroll in the plan after dropping it in favor of Part D, and information on the Part D low income subsidy.
What is the new "personalized" Creditable Coverage Notice?
The Updated Guidance introduces a new "personalized" Creditable Coverage Notice that can be provided to a Part D eligible individual upon request or in lieu of the model Creditable and Non-Creditable Coverage Notices if it contains all of the required content standards. The Updated Guidance goes on to state that the "personalized disclosure notice should be provided upon request by the beneficiary." CMS provides a Model Personalized Disclosure Notice on its Creditable Coverage website. A personalized Creditable Coverage Notice must contain:
- The beneficiary's first and last name;
- The beneficiary's social security number or health insurance claim number;
- The entity name and contact information;
- A statement that the entity's plan was determined by the entity to be creditable or non-creditable coverage; and
- The date ranges of creditable coverage.
The personalized Creditable Coverage Notice is designed to allow a Part D eligible individual to provide proof of prior creditable coverage when enrolling in the future in a Part D plan.
How must the Creditable Coverage Notice be provided?
The Updated Guidance confirms that entities have flexibility in the form and manner of providing Creditable Coverage Notices. The Creditable Coverage Notice need not be sent as a separate mailing and may be distributed with other materials sent to the eligible individual ( e.g., an employer plan's summary plan description or enrollment and/or renewal materials) or as a separate document. If an entity chooses to incorporate its Creditable Coverage Notice with other plan participant information (such as in a summary plan description), the Creditable Coverage Notice must be prominent and conspicuous. The Creditable Coverage Notice (or a reference to the section in the document being provided to the beneficiary that contains the required Creditable Coverage Notice) must be prominently referenced in at least fourteen-point font in a separate box, bolded, or offset on the first page that begins the plan participant information being provided. CMS provides the following updated example in the Updated Guidance: "If you (and/or your dependents) have Medicare or will become eligible for Medicare within the next 12 months, a Federal law gives you more choices about your prescription drug coverage. Please see page xx for more details."
A single Creditable Coverage Notice can be provided to the covered Part D eligible individual and all Part D eligible dependents covered under the entity's prescription drug plan. However, a separate Creditable Coverage Notice must be sent if the entity knows that the spouse and/or dependent who are Part D eligible individuals do not live at the same address as the covered participant. Creditable Coverage Notices may also be provided through electronic means. The Updated Guidance also restates the administratively difficult and complex conditions that must be met for electronic distribution.
Creditable Coverage Notices must be provided at a minimum at the following times: (1) within 12 months prior to an individual's initial enrollment period for Part D; (2) within 12 months prior to the commencement of the annual coordinated election period that begins on November 15 of each year; (3) within 12 months prior to the effective date of a Part D eligible individual's enrollment in the entity's prescription drug coverage; (4) when the prescription drug coverage ends or changes so that it is no longer creditable coverage; and (5) upon request by the individual. If the Creditable Coverage Notice is provided annually to all plan participants, CMS will consider items (1) and (2) to be met.
The newly revised Creditable Coverage Notices should be distributed to new employees joining a plan (and beneficiaries requesting a notice) on and after May 15, 2006. However, if a plan sponsor issued the annual notice prior to November 15, 2005, the new Notices of Creditable Coverage do not need to distributed en masse until the plan sponsor's regular annual distribution cycle (before November 15, 2006).
What are some additional resources?
CMS has posted all of the guidance referenced in this article, in addition to a number of other resources, on its website. The following websites have helpful information: [what is I/1781316 below?]
- General overview of the prescription drug benefit and resources: http://www.cms.hhs.gov/PrescriptionDrugCovGenIn/01_Overview.asp.
- Information about creditable coverage (including model Creditable Coverage Notices): http://www.cms.hhs.gov/CreditableCoverage/.
- Information targeted to employer- and union-sponsored group health plans: http://www.cms.hhs.gov/EmplUnionPlanSponsorInfo/.
- Employer Retiree Drug Subsidy information: http://www.cms.hhs.gov/EmployerRetireeDrugSubsid/ and http://rds.cms.hhs.gov/ (Retiree Drug Subsidy application homepage).