By: HUB’s EB Compliance Team

As discussed here, significant changes are coming to Medicare Part D in 2025. This makes creditable coverage determinations for employer sponsored prescription drug plans more important than ever. Initially, the Centers for Medicare and Medicaid Services (“CMS”) stated the simplified method for making these determinations would not be available in 2025. CMS has since reinstated the simplified method for 2025, but indicated changes will be coming in future years. Given the additional difficulty of satisfying the creditable coverage requirements, the simplified method will be an important tool for employer plans in 2025.

Part D and Employer Plans

In 2009 CMS released the simplified method which allows employers whose plans fit within certain requirements to determine creditability of their prescription drug plans without an actuarial determination. Not all plans will qualify for the simplified method and those who do not will need an actuarial determination instead.

The simplified method provides two potential paths for determining creditable coverage: one for integrated plans and another for non-integrated plans. Integrated plans are those which combine prescription drug benefits with other benefits under the same plan and meet specific requirements. Other benefits could be health, dental or vision benefits. However, even if other benefits are provided, many plans will be considered non-integrated.

Integrated Plans

To be an integrated plan, a plan must have:

  1. a combined plan year deductible for all benefits under the plan,
  2. a combined annual benefit maximum for all benefits under the plan,
  3. a combined lifetime benefit maximum for all benefits under the plan,
  4. a deductible of no more than a $250 per year,
  5. no annual benefit maximum or a maximum annual benefit of at least $25,000, and
  6. no less than a $1,000,000 lifetime combined benefit maximum.

The plain meaning of “integrated” would normally lead one to believe most plans are integrated, however the additional requirements make this less likely. First, it is not very common but plans with separate deductibles for medical and prescription claims do not meet the first requirement. More common are plans that have separate annual benefit maximums or lifetime maximums on non-essential health benefits (such as a plan that provides fertility related coverage with a $25,000 lifetime maximum). These limits cannot apply to essential health benefits and therefore the presence of a limit in any allowable category of benefits means the plan does not have combined annual or lifetime benefit maximums. Finally, consistent with the instructions to the simplified method, a plan with no annual or lifetime maximums is not integrated and must use the test for non-integrated plans.

Beyond that, few plans have deductibles of no more than $250, so this requirement will exclude most plans, especially high deductible health plans. If a plan happens to satisfy this, it must have either no benefit maximum or a maximum annual benefit of at least $25,000. Finally, the plan must have a lifetime benefit maximum of no less than $1 million. Most plans will satisfy these requirements in compliance with the Affordable Care Act (“ACA”).

Takeaway: Many health plans are not “integrated” for purposes of the simplified method.

Non-Integrated Plans

Plans that do not meet the requirements of integrated plans are considered non-integrated and must follow the path for non-integrated plans to determine creditability.

  1. Provide coverage for brand-name and generic prescriptions;
  2. Provide reasonable access to retail providers;
  3. Be designed to pay on average at least 60% of participants' prescription drug expenses; and
  4. Satisfy one the following standards:
    1. The prescription drug coverage has no annual benefit maximum benefit or a maximum annual benefit payable by the plan of at least $25,000; or
    2. The prescription drug coverage has an expectation that the amount payable by the plan will be at least $2,000 annually per Medicare eligible individual.

Providing coverage for brand name and generic prescriptions and reasonable access to retail providers are fairly straightforward, also most plans should meet them. However, some Minimum Essential Coverage (“MEC”) only plans only cover generic prescriptions which would take them out of the simplified method. Similarly, plans that require the use of mail order pharmacies, or only cover prescriptions at a single pharmacy on-site at a hospital would not provide reasonable access to retail providers.

Next, the plan must be designed to pay on average at least 60% of participants’ prescription drug expenses. Sixty percent may sound familiar as this is the minimum actuarial value required for plans to meet the Minimum Value (“MV”) component of the ACA. The MV analysis applies to the entire plan, while the creditable coverage analysis only applies to prescription drug expenses. Because of plan design flexibility, a plan that meets the MV requirement will not necessarily be creditable, however the higher the actuarial value of the plan in general, the greater likelihood the plan will be creditable.

As to the last prong, by eliminating annual limits on essential health benefits, the ACA has largely limited the number of plans that will not meet this requirement. However, plans with limits on certain categories of drugs may need to make sure those limits are at least $25,000. The other option (the plan will pay at least $2,000 annually per Medicare eligible individual) is more of an actuarial determination.

Next Steps

The simplified method for determining whether prescription drug coverage is creditable is a great resource for employer sponsored plans. It is likely less expensive than an actuarial determination, however this does not mean it is actually simple.

Plan sponsors are urged to work with their insurance carriers, Third Party Administrators (“TPAs”), and Pharmacy Benefit Managers (“PBMs”) to understand whether their plans are creditable or not.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.