This article provides context and instruction for employers creating annual notices to Medicare-eligible plan members.

The Medicare Modernization Act (MMA) requires employers sponsoring prescription drug benefits to distribute an annual notice to Medicare-eligible individuals enrolled in their plans. The annual notice informs participants whether their plan provides creditable or non-creditable coverage compared to the standard Medicare prescription drug coverage. The notice must also be delivered to new participants in the plan who are Medicare-eligible by age or disability status. A Medicare-eligible participant may be an employee or a dependent.

Creditable or Non-Creditable Coverage

An employer may use the simplified determination of creditable coverage status annually to determine whether its prescription drug plan coverage is creditable or not, except if they are applying for the retiree drug subsidy. Creditable coverage means the prescription drug coverage is equal to or better than the standard Medicare Part D plan. The insurance carrier should be able to advise, in writing, if the plan is creditable for insured plans. The plan will be determined as creditable if the prescription drug plan design meets all four of the standards set forth below. However, the standards listed under steps 4(a) and 4(b) may not be used if the entity’s plan has prescription drug benefits that are integrated with benefits other than prescription drug coverage (e.g., medical, dental, etc.). Integrated plans must satisfy the standard in step 4(c).

A prescription drug plan is deemed to be creditable under the simplified determination method if it:

1. Provides coverage for brand and generic prescriptions;
2. Provides reasonable access to retail providers and, optionally, for mail-order coverage;
3. Is designed to pay, on average, at least 60% of participants’ prescription drug expenses; and
4. Satisfies at least one of the following:

• • (a) The prescription drug coverage has no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000;
  • (b) The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare-eligible individual; or
  • (c) For entities that have integrated health coverage, the integrated health plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000, and has no less than a $1,000,000 lifetime combined benefit maximum.

Note: The Inflation Reduction Act of 2022 included provisions affecting Medicare Part D. See GHP: Medicare As Secondary Payer (MSP) Rules for details.

An integrated plan is any plan of benefits that is offered to a Medicare-eligible individual where the prescription drug benefit is combined with other coverage offered by the entity (e.g., medical, dental, vision, etc.), and the plan has the following provisions:

• A combined plan year deductible for all benefits under the plan;
• A combined annual benefit maximum for all benefits under the plan; and/or
• A combined lifetime benefit maximum for all benefits under the plan.

A prescription drug plan that meets the above parameters is considered an integrated plan to use the simplified determination method and would have to meet steps 1, 2, 3, and 4(c) of the simplified method. If it does not meet all the criteria, it is not considered an integrated plan and would have to meet steps 1, 2, 3, and either 4(a) or 4(b).

Note: If an employer cannot use the simplified determination method to determine the creditable coverage status of the prescription drug plan offered to Medicare-eligible individuals, it must make an actuarial determination (by assessing the coverage using mathematics, statistics, and financial theory to analyze value) annually of whether the expected amount of paid claims under the prescription drug coverage is at least as much as the expected amount of paid claims under the standard Medicare prescription drug benefit. Employers with self-funded plans should work with an actuary to make the determination.

Creditable Coverage Notice

The Centers for Medicare & Medicaid Services (CMS) provides creditable coverage model notices in English and Spanish. The model notice must be customized.

Model Notice Customization Review

Areas that require customization in the model notice will appear in bracketed text.

• The beginning header in blue text may be removed before distributing the notice. Additional instructions are as follows:
• Although it is only necessary to provide this notice to Medicare-eligible plan participants, most employers distribute it to all plan participants regardless of Medicare status.
• If using the model notice, complete or remove items in the bracketed orange text with appropriate text.
• This notice must stand alone (e.g., if distributed with other materials in the same envelope). This notice should be either on top or loose.

Note: If multiple plans are offered, and at least one plan is creditable, include this notice and identify the creditable plan.

Several areas in the notice require customization of “name of entity.” The entity’s name is generally the name of the employer sponsoring the plan (e.g., ABC Manufacturing Company).

Other areas in the notice require customization of “group health plan name.” Employers should enter the name of the applicable health plan(s) (e.g., ABC insurance plans or XYZ PPO plan).

The “What happens to your current coverage if you decide to join a Medicare drug plan” section is often the most confusing area to customize. Review the terms of the benefit plan and plan documents. Generally, an active employee eligible for employer-sponsored benefits, regardless of age, cannot be denied an opportunity to enroll in their employer’s benefits during open enrollment.

The final customization section of the notice requires a telephone number an individual may call if they have questions. This is usually the employee responsible for administering the benefit plan.

Non-Creditable Coverage Notice

The CMS provides non-creditable coverage model notices in English and Spanish. The model notice must be customized.

Model Notice Customization Review

Areas that require customization in the notice will appear in bracketed text. The non-creditable coverage notice fields for customization are similar to the creditable coverage instructions above.

Distribution Methods and Deadlines

Distributing the creditable or non-creditable coverage notice to participants may be accomplished by hand delivery or First-Class Mail. The notice is intended to be a standalone document. It may be distributed simultaneously with other plan materials, but it should be a separate document. If the notice is incorporated with other material (such as stapled items or in a booklet format), the notice must appear in 14-point font, be bolded, offset, or boxed, and be placed on the first page. Alternatively, you can put a reference (in 14-point font, either bolded, offset, or boxed) on the first page, telling the reader where to find the notice within the material. Suggested text from the CMS for the first page is “If you (and/or your dependents) have Medicare or will become eligible for Medicare in the next 12 months, federal law gives you more
choices about your prescription drug coverage. Please see page XX for more details.” Make sure to fill out the correct page number.

Electronic distribution is allowed but only for employees with regular email access as an integral part of their job duties. Employees must also have access to a printer, be notified that a hard copy of the notice is available at no cost upon request, and be informed that they are responsible for sharing the notice with any Medicare-eligible family members enrolled in the employer’s group plan.

The notices must be distributed at least annually on or before October 15 to correspond with Medicare’s annual enrollment period of October 15 through December 7.

The applicable notice is also required for new Medicare-eligible enrollees at the time of enrollment and if a plan change causes a change in creditable status (e.g., plan renewal occurs on July 1 and there is a change in coverage).

When an Employee Decides to Enroll in Medicare

When an employee is ready to transition out of their employer sponsored health plan and enroll in Medicare outside their initial enrollment or annual enrollment period, they will require information regarding their employer-sponsored benefit plan to enroll in Medicare Part B through a special enrollment period.

Employers will be asked to complete the CMS L564 form, which is a request for employment information and is available in English and Spanish.

In addition to the form, an employee must send any required proof of employment, group health plan (GHP), or large group health plan (LGHP) coverage.

Both sections of the form must be completed:

• Section A: The employee or retiree completes Section A so that the employer can find and complete the information about the individual’s employment and coverage periods.
• Section B: The employer is responsible for filling in Section B and returning it to the employee or retiree.

Employers will need to have the following information available, as outlined in the instructions on page three of the CMS L564 form, when completing the form:

• Whether the individual is or was covered under the employer’s group health plan;
• The date coverage began;
• Whether coverage has ended;
• The date coverage ended;
• The month and year of the employee’s hire date; and
• For large groups, when the employee is disabled, the month and year beginning and ending dates that the group plan was the primary payer of claims.

Section B also includes a subsection for employees eligible for Medicare based on disability. This qualification is not based on age or covered under an hours-banked arrangement.

The form requires a signature from an official company representative, including the date signed, their title, and phone number if a representative from the Social Security Administration has questions.

Once the form is completed, employers are directed to return the form to the employee for processing.

*Information in this article is general in nature and not intended to replace legal advice in any particular manner. 

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