Insights

FAQ: What are the Medicare prescription drug (Part D) disclosure requirements? How does an employer comply?


To comply with Medicare Part D, an employer that sponsors a group health plan offering prescription drug coverage must satisfy two basic disclosure requirements.

First, the plan must notify all Medicare Part D eligible individuals whether or not the prescription drug coverage is creditable, meaning it is expected to pay on average as much as the standard Medicare Part D coverage. The creditable status of the coverage can be determined through actuarial analysis or via the CMS Creditable Coverage Simplified Determination. If a plan has several benefit options (e.g., PPO and HMO), the creditable coverage status must be determined separately for each option. However, generally, an employer can provide a single notice for an HRA integrated with a major medical plan.

CMS has provided Model Disclosure Notices (in English and Spanish) that an employer may use to meet this requirement. The notice must be provided annually prior to October 15, which is the beginning of the annual enrollment period for Medicare Part D. The notice must also be provided when a Medicare Part D eligible individual joins the plan, when the creditable coverage status changes, or upon request.

Medicare Part D eligible individuals may include active employees, disabled employees, COBRA participants and retirees, as well as their covered spouses and dependents. Because an employer cannot always identify these individuals (particularly if eligibility is not based on age), a practical approach is to provide notices to all enrolled in or eligible to enroll in the prescription drug coverage. Generally, a single disclosure notice may be provided to the employee and any dependents residing at the same address; the employee should be instructed to share the notice with any Medicare Part D eligible dependents. The Medicare Part D notice may be provided separately or combined with other benefit materials, such as enrollment packets, provided the notice is “conspicuous and prominently presented” in accordance with specific CMS instructions.

An employer may distribute the Medicare Part D notice by hand, by mail or by electronic delivery (in accordance with the DOL electronic disclosure safe harbor). Under this safe harbor, employees with integral access to the employer’s computer system at work can be defaulted to electronic delivery, with the option to opt out. For this population, if the employer posts the notice on the intranet, the employer must notify employees (e.g., via email) of the notice availability and significance, and the right to request a paper copy. Those without integral access to the employer’s computer system as part of their job would need to affirmatively consent to electronic delivery in accordance with the DOL guidance.

The purpose of the disclosure is to enable Medicare Part D eligible individuals to make informed decisions regarding their coverage and compare the available options. The notice is important because individuals who do not maintain creditable coverage for a period of 63 days or longer following their initial enrollment period for Medicare Part D are subject to late enrollment penalties. The penalties are based on the duration of the lapse in creditable coverage and continue for the duration of the Part D coverage. Although there are no specific employer penalties associated with this notice requirement, failing to provide the notice may be considered a breach of an employer’s fiduciary obligations to the plan.

The second requirement is that an employer must disclose the plan’s creditable coverage status to CMS within 60 days of the start of each plan year. A disclosure to CMS must also be made within 30 days of any change in the creditable coverage status or the termination of the plan. The process involves completion of a disclosure form on the CMS Creditable Coverage Disclosure webpage, which must be signed electronically by an individual authorized by the plan. For access to the form and related CMS guidance and instructions, please see: Disclosure to CMS Form  and Disclosure to CMS Guidance and Instructions | CMS

For more information, please ask your broker or consultant for a copy of our “Medicare Part D Disclosures: A Guide for Employers” white paper.