By: HUB’s EB Compliance Team

With more employees working past age 65 than in prior generations, employers have needed to pay closer attention to maintaining creditable group health coverage under the Medicare Part D rules. Important changes coming for 2027 plan years make now a pivotal time for employers to determine whether their plans will continue to be creditable and make any design changes to maintain that status.

The Part D rules and employer-sponsored plans

Under the Part D rules, individuals eligible for Medicare Part D must maintain creditable coverage if they continue working past age 65 and choose not to enroll in Medicare during their initial enrollment period. “Creditable coverage” refers to prescription drug coverage that is actuarially equal to or greater than the Part D coverage. Creditable coverage can come from various sources, including an employer-sponsored plan, a retiree plan or a traditional Part D policy. Those who fail to maintain creditable coverage for more than 63 days after their initial enrollment period will face a penalty equal to 1% of the national average premium for each month they delay enrollment. This penalty is added to the Part D premium and generally remains as long as the individual has Medicare prescription drug coverage.

Employers are not required to offer creditable coverage, but they must provide Part D-eligible individuals with a notice indicating which of the employer’s health plan options, if any, meet the definition of creditable coverage to help those individuals make informed decisions and avoid the late enrollment penalty. More detailed information about the Part D notice can be found in this previous HUB article.

Determining whether coverage is creditable

There are two ways to determine whether a plan’s coverage is creditable: the actuarial determination method or the simplified method. Although quite complex, the simplified method allows employers to determine whether coverage is creditable without engaging an actuary to make the determination.

The Centers for Medicare and Medicaid Services (CMS) first released the simplified method in 2009. The method remained unchanged until CMS released updates to it in 2025. 2026 plan years were treated as a transition period, which allowed plan sponsors to use either the prior simplified method or the revised method under the 2025 update to assess creditability. For plan years starting in 2027 and beyond, only the revised simplified method can be used.

The revised simplified method is both easier to understand and more difficult to satisfy. The increased difficulty is based on the requirement for employers to now provide reasonable coverage for biological products (in addition to brand-name and generic prescription drugs) and the requirement that the plan be designed to pay on average at least 73% of participants’ prescription drug expenses (up from 60% under the prior method and 72% for 2026).

Under the revised simplified method, a plan is considered creditable if the plan:

  • Provides reasonable coverage for brand-name and generic prescription drugs and biological products;
  • Provides reasonable access to retail pharmacies; and
  • Is designed to pay, on average, at least 73% of participants’ prescription drug expenses.

Analysis

The coverage jump from 60% to 73% is by far the most significant change for employers to understand. Since employers were able to use the prior simplified method for so long, it was possible for health plans with consistent designs to remain creditable year over year. Many such plans’ prescription drug coverage rates likely fall between 60% and 73%, which means that without changes, these long-standing plan designs will no longer be creditable.

CMS forecasts the 73% actuarial value to increase to 75% by 2030 and stabilize thereafter. Thus, even employers who make changes for their 2027 plan years may need to make future changes to maintain a creditable plan.  

Next steps

Employers should consider the following points as they plan for their 2027 plan years:

  • Determine whether the current plan options are creditable or non-creditable under the revised simplified method realizing that with the changes in methodology, a plan that was creditable under the prior simplified method for 2026 may not be creditable under the revised simplified method for 2027.
  • Determine whether there is a need to ensure that at least one plan option is creditable. This varies by employer. Some employers may have leadership teams or large populations of employees over age 65, or a culture that supports offering a creditable plan option.
  • desired, consider making the necessary plan design changes. For fully-insured plans, this may mean adding a completely different plan option to those currently being offered. For self-insured plans, making minor changes to existing plans could suffice.
  • , and those efforts may need to go beyond providing the creditable coverage notice. Employers can also consider additional communications such as benefits guides, flyers and meetings to help their employees understand the importance of creditable coverage.

Conclusion

The changes to the simplified method have the potential to affect whether many employer-sponsored plans are creditable. Employers should understand what this means and may need to make plan design changes if they wish to offer a creditable plan option for 2027.

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.