The Centers for Medicare and Medicaid Services (CMS) recently issued guidance requiring group health plan sponsors that offer prescription drug coverage to provide notices of creditable or non-creditable prescription drug coverage to Medicare-eligible plan participants and beneficiaries. This means that even if your plan does not provide retiree prescription drug coverage, you are required to provide this notice if any of your participants or beneficiaries are Medicare-eligible (such as those individuals eligible based on disability). The notices are intended to help these individuals understand whether they should enroll in Medicare’s new voluntary prescription drug benefit (Part D) and the consequences of late enrollment. The notices may be included with other plan communications, but must be provided by November 15, 2005 and annually thereafter. This article provides additional details on the new Medicare notices.
The Medicare Part D drug benefit becomes effective January 1, 2006. Individuals who fail to enroll in Part D when they are first eligible are subject to a late enrollment penalty and will be required to pay higher premiums. The late enrollment penalty does not apply if an individual has "creditable" prescription drug coverage from the date of first becoming eligible for Part D until the date of actual enrollment in Part D (without any coverage gaps of 63 days or more). The Medicare notice of creditable prescription drug coverage is designed to help individuals avoid late enrollment penalties by letting them know whether their existing health plan coverage is (or is not) creditable.
Individuals for Whom Notices Are Required
The Medicare notices must be provided to every active employee, retired employee or dependent who is eligible for Part D and covered by a group health plan. Individuals are eligible for Part D if they are covered by Medicare Part A or Part B, including individuals who have Medicare coverage by reason of age (attainment of age 65), disability or end-stage renal disease. Thus, sponsors of group health plans covering active, disabled and retired employees will all be required to provide Medicare notices of creditable or non-creditable prescription drug coverage. In addition, group health plan sponsors are required to provide CMS with a copy of their notices on an annual basis.
Determining Whether Group Health Plan Coverage Is Creditable
A group health plan’s prescription drug coverage is creditable if the actuarial value of the coverage is equal to or better than the actuarial value of standard Part D coverage. This actuarial equivalence test measures whether the expected amount of paid claims under a plan’s prescription drug coverage is at least as much as the expected amount of paid claims under the standard Part D coverage. The determination of actuarial equivalence may be made for the group health plan as a whole or for each benefit option available under the plan (a "benefit option" includes a particular benefit design, category of benefits or level of cost-sharing). Participant contributions are not taken into account in determining whether group health plan coverage is creditable.
The CMS guidance includes a safe harbor method for determining whether group health plan coverage is creditable. Under this safe harbor, a group health plan’s prescription drug coverage is deemed to be creditable if the plan’s coverage: (1) includes brand and generic prescriptions; (2) provides reasonable access to retail providers and, optionally, mail order coverage; (3) pays on average at least 60 percent of the cost of prescription drug expenses; (4) for plans with non-integrated prescription drug and medical coverage, the plan either: (i) has no annual benefit maximum or an annual benefit maximum of at least $25,000, or (ii) the plan is expected to pay at least $2,000 per Medicare-eligible individual in 2006; and (5) for plans with integrated prescription drug and medical coverage, the plan’s annual deductible does not exceed $250, the plan either has no annual benefit maximum or an annual benefit maximum of at least $25,000 and the plan has at least a $1 million lifetime combined benefit maximum. Group health plan coverage that does not satisfy the safe harbor requirements may still be creditable, but actuarial resources may be necessary to confirm creditable coverage status.
Content of Notices
The CMS guidance provides content requirements for Medicare notices of creditable and non-creditable prescription drug coverage. A notice of creditable coverage must state that a group health plan’s prescription drug coverage is creditable, describe what creditable coverage means and why it is important and caution that individuals with a break in creditable coverage of 63 days or more could pay higher Part D premiums. A notice of non-creditable coverage must state that a group health plan’s prescription drug coverage is not creditable, describe what creditable coverage means and why it is important, caution that individuals who delay Part D enrollment could pay higher Part D premiums and specify that individuals may first enroll in Part D from November 15, 2005 through May 15, 2006 and only during specified times thereafter. The CMS guidance recommends including additional information in both notices, but group health plan sponsors are not required to provide this information. The CMS guidance also includes model notices for creditable and non-creditable prescription drug coverage that group health plan sponsors may, but are not required to, use. Indeed, some group health plan sponsors may be reluctant to use the model notices because they may raise more questions then they answer.
Delivery of Notices
A group health plan sponsor may provide the Medicare notices as part of other communication materials by direct mail or by electronic delivery. If notices are provided as part of other communication materials, they must be displayed "prominently and conspicuously" (meaning that they must be prominently referenced in at least 14-point font in a separate box, bolded or offset on the first page of the communication materials). If notices are sent by direct mail, a single notice may be mailed to each employee or retiree for all Medicare-eligible family members residing at the same address (unless the sponsor knows that a participant and a dependent reside at different addresses). Notices may be sent by electronic delivery only if a participant consents to electronic delivery and the sponsor posts a link to the notice on its website. The CMS electronic delivery rules are more stringent than the Department of Labor’s electronic delivery rules for ERISA disclosures, and group health plan sponsors may find it difficult to obtain the necessary consents.
Timing of Notices
Medicare notices of creditable and non-creditable coverage must be provided at each of the following times: (1) prior to the annual Part D enrollment period (November 15 through December 31 of each year); (2) prior to the individual’s initial Part D enrollment period; (3) prior to the individual’s effective date of coverage under the plan; (4) when the plan’s coverage ends or creditable status changes; and (5) upon an individual’s request. The CMS guidance clarifies that the first two timing requirements are satisfied if notices are provided to all plan participants. In addition, the CMS guidance clarifies that the "prior to" condition is satisfied if notices have been provided within the past 12 months. Group health plan sponsors may find that the simplest way to satisfy these timing requirements is to include the Medicare notices as part of the plan’s enrollment materials.
The CMS guidance comes late in the year, and many group health plan sponsors will be hard pressed to adjust their communication strategies to incorporate the new Medicare notices on a timely basis—especially those group health plan sponsors who had not yet considered the Medicare Part D provisions because the plan does not offer retiree prescription drug coverage. Sponsors will need to determine whether a group health plan provides creditable coverage under the CMS safe harbor and, if not, whether an actuarial opinion can be obtained to demonstrate that the plan provides creditable coverage. Sponsors will also need to determine whether the new Medicare notices will be incorporated in existing group health plan documentation, how the notices will be coordinated with other communication materials (an especially significant issue for sponsors of retiree health plans) and whether the notices will be sent only to Medicare-eligible individuals or to all plan participants. A group health plan sponsor may delegate the preparation and delivery of the Medicare notices to third-party administrators or insurance carriers, but doing so will require contract modifications and fee adjustments.
The benefits lawyers at McDermott are uniquely qualified to assist you in complying with the Medicare notice requirement as well as other issues associated with the new Medicare Part D prescription drug benefit.