Most brokers know the term “creditable coverage,” but it’s still one of the easiest Medicare details to get wrong — and one of the most expensive mistakes a client can make.
Creditable prescription drug coverage simply means a client’s existing plan is expected to pay at least as much, on average, as standard Medicare Part D. If it is, they can delay Part D without penalty. If it isn’t and they go more than 63 days without qualifying coverage, Medicare adds a late enrollment penalty that follows them for life. So this isn’t just a technicality — it’s a financial risk issue.
What many people miss is that creditable status isn’t based on copays or whether the plan “looks rich.” It’s based on actuarial value. Plan sponsors compare expected drug spend, plan-paid costs, formularies, and overall protection against the standard Part D benefit to determine whether the coverage meets Medicare’s benchmark. In short, it’s math, not design — which is why brokers shouldn’t try to eyeball it and should always rely on the carrier or employer’s annual creditable coverage notice.
Starting with plan years after 2025, this gets even more important. Because Part D has become richer under recent reforms, CMS updated the safe-harbor method plans can use to deem coverage creditable. The new simplified test requires plans to cover brand, generic, and biologic drugs, provide reasonable pharmacy access, and be expected to pay roughly 72% of prescription costs on average — up from the old 60% threshold. That higher bar means some employer or retiree plans that used to qualify may no longer pass without redesign or an actuarial review.
Plan sponsors also have required notice and reporting obligations tied to creditable coverage. Medicare-eligible participants, including active employees, retirees, and COBRA participants, must receive a Part D creditable coverage notice each year before Medicare’s Part D open enrollment begins on October 15, as well as when someone first becomes eligible, coverage begins, or their status changes.
Separately, employers must disclose the plan’s creditable or non-creditable status to CMS through the CMS online disclosure process within 60 days after the start of the plan year, even if no Medicare-eligible participants are enrolled. For calendar-year plans, this means the annual CMS disclosure is due by March 2, 2026.
For brokers, the takeaway is simple: never assume employer coverage is creditable. Confirm it, document it, and revisit it annually. A quick check can save a client from a lifetime penalty — and positions you as the advisor who catches the details others miss.
