354 / What notices must an employer that maintains an accident or health plan offering prescription drug coverage to Medicare-eligible individuals provide?
Editor's Note: Beginning January 1, 2027, a CMS-issued final rule will exclude HRAs, ICHRAs, FSAs and other similar account-based plans from the creditable coverage notice requirements discussed below.CMS' rationale is that these accounts do not directly provide prescription drug coverage, but instead reimburse clients for qualifying medical expenses.By excluding these account-based plans from the requirement, CMS intends to reduce confusion for Medicare-eligible individuals who may have received dual notices in the past.CMS was clear that group health plans that provide prescription drug coverage remain fully subject to the notice requirements even if they also offer an account-based plan.1
Employers and plan sponsors that offer prescription drug coverage to individuals eligible for Medicare Part D must advise those individuals whether the offered coverage is creditable. Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), eligible individuals who do not enroll in Part D when first available, but who enroll later, have to pay higher premiums permanently unless they have creditable prescription drug coverage.
____________________________________________________________________________________Planning Point: Starting in 2025, the Inflation Reduction Act (IRA) caps annual out-of-pocket expenses for Medicare Part D at $2,000 per person (the amount is adjusted for inflation, to $2,100 in 2026. In 2024, the limit was $8,000). Because of the change, many employer plans may not be deemed credible under the new rule, so employees will have to reevaluate whether to enroll in Part D coverage.
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Under CMS guidance, once a sponsor determines whether coverage is creditable, the sponsor must provide notice to all Part D-eligible individuals covered by or applying for the plan, including Part D-eligible dependents. In lieu of determining who is Part D eligible, an employer sponsor may provide notice to all active employees, along with an explanation of why the notice is being provided.
The required notice to beneficiaries must, at a minimum:
- Contain a statement that the employer has determined that the coverage is creditable or not creditable;
- Explain the limits on the periods in a year when individuals can enroll in Part D plans; and
- Explain that the individual may incur late enrollment penalties.2
The CMS guidance includes model initial notices that a sponsor may choose to use. Sponsors were required to provide initial notices to beneficiaries by November 15, 2005. CMS later issued updated guidance with model notices for use following the May 15, 2006 close of the initial enrollment period for Medicare Part D.
Following the initial enrollment period, sponsors must, at a minimum, provide the required notice to beneficiaries:
- Prior to an individual's initial enrollment period for the Medicare prescription drug benefit;
- Prior to the effective date of enrolling in the sponsor's plan and on any change that affects whether the coverage is creditable prescription drug coverage;
- Prior to the commencement of the annual coordinated election period that begins on October 15 of each year; and
- On beneficiary request.
The final regulation does not specify a specific time limit within which disclosure must be provided; it only requires that it be provided prior to any of the above events.3
Sponsors also must disclose to CMS annually whether coverage is creditable and any change that impacts whether the coverage is creditable. CMS has outlined the requirements for this disclosure in separate guidance and provides disclosure forms on its website at http://www.cms.hhs.gov/CreditableCoverage.4
1. CMS has released a fact sheet outlining these changes, available at: https://www.cms.gov/newsroom/fact-sheets/contract-year-2027-medicare-advantage-part-d-final-rule (last accessed April 14, 2026).
2. 42 CFR § 423.56(d).
3. 42 CFR § 423.56(f).
4. 42 CFR § 423.56(e).