Changes to Medicare Part D parameters for 2024 and 2025 — Effects on creditable coverage determinations

As we head into 2024, employers need to be aware of upcoming Medicare Part D parameter changes. While the changes will affect a small portion of Medicare enrollees in 2024, they will have a wider impact in 2025. The upcoming changes will impact Medicare Part D creditable coverage determinations.

What is creditable coverage testing? 

Employer group health plans providing prescription drug coverage must provide an annual Medicare Part D creditable or non-creditable coverage notice. These annual notices must go to all Medicare-eligible employees and dependents before the annual October 15 Medicare Part D enrollment period. This rule primarily applies to medical and Rx coverages, including self-insured and fully insured plans. It can also apply to health reimbursement arrangements (HRAs), particularly standalone HRAs for retirees.

Simply put, prescription drug coverage is creditable if it offers benefits at least as generous as Medicare Part D’s prescription drug coverage. Employers with fully insured coverage should ask their insurer to provide this information. For employers with self-insured coverage, the process is a bit different. If the plan’s pharmacy benefits manager (PBM) does not provide this information, the employer may request its insurance broker or consulting firm perform an actuarial analysis.

What’s changing for 2024 and 2025?

In 2023, the Inflation Reduction Act rolled out provisions to help with various Part D concerns. Some of these challenges included a lack of a hard cap on out-of-pocket spending for Part D enrollees, the federal government not being able to negotiate drug prices with manufacturers, and the relatively weak financial incentives that Part D plan sponsors faced as they tried to control high drug costs. The changes planned for Part D in 2024 and 2025 aim to help overcome these obstacles.

In 2024, Part D enrollees’ 5% share of catastrophic coverage will no longer apply. In 2025, enrollees’ 25% share of the coverage gap will no longer apply. These adjustments aim to create lower out-of-pocket expenses for members. The new designs are anticipated to materially reduce member cost sharing in the standard plan benefit. With a richer plan benchmark to compare against, passing the creditable coverage testing will likely become more complex for employer plans.

How will Medicare changes impact employers and what do they need to do?

Employers who have plans that no longer meet the standard for creditable coverage will have to:

1. Disclose that their plan no longer meets this creditable coverage standard; OR
2. Make changes to the benefits to improve the design so they can offer creditable coverage against the new designs for 2024 and 2025

Employer plan changes usually aim to lower copays, coinsurance, deductibles, and out-of-pocket maximums to make their plans creditable. Employers who offer retiree drug coverage and obtain a retiree drug subsidy may also have to evaluate the contribution strategy for the retirees to satisfy the Net Test. The Net Test is an evaluation that determines whether a plan's benefits after considering employee contributions are greater than those provided by a standard Medicare Part D plan.

How are Medicare changes anticipated to impact members?

Members enrolled in a Prescription Drug Plan or Medicare Advantage Prescription Drug Plan that remains creditable may see benefit enhancements. Employers can improve their design to meet the set standards if the standard benefit changes cause their prior plan not to satisfy the requirements. Although some employers will make changes to keep plans creditable, others will allow them to fail the creditability test.

Members should pay special attention to the creditable coverage notices over the upcoming years to ensure they can enroll in a creditable plan. Medicare-eligible individuals enrolled in non-creditable prescription drug coverage can incur late enrollment penalties for failing to enroll in Medicare Part D. An individual with non-creditable coverage should generally enroll in Medicare Part D when initially eligible to avoid potential penalties. An individual who loses creditable coverage has 63 days from the loss of coverage to enroll in Medicare Part D to avoid potential penalties.

What if I have questions about Medicare Part D creditable coverage changes?

If you have questions about complying with the Medicare Part D notification requirements, contact Marsh McLennan Agency’s Compliance Center of Excellence.

Most employers can obtain testing results from their carrier if they’re fully insured or their PBM if they are self-funded. If testing is not provided or you’d like a second opinion, please reach out to the Actuarial Services team or your Marsh McLennan Agency consultant.