CMS Medicare Part D Redesign Program Effective 2025

Jul 15, 2024

CMS Part D Redesign Program Instructions – Creditable Coverage Status

The Medicare Part D prescription drug coverage will expand in 2025 as required under the Inflation Reduction Act (IRA), which could impact whether an employer’s group health plan provides creditable prescription drug coverage. An employer's prescription drug coverage is "creditable" if the actuarial value of the coverage equals or exceeds the value of standard prescription drug coverage under Medicare Part D.

Some plan sponsors have historically relied on a simplified method for determining whether prescription drug coverage provided under a group health plan is creditable. Coverage meeting certain standards as defined in the simplified method provided back in 2009 are deemed creditable. Recent guidance via final instructions from CMS allows use of the simplified method through 2025 but suggests there may be changes in 2026. In addition, for the many plans (e.g., HDHPs) that do not meet the simplified method and that must determine creditable status on an actuarial basis, the increased coverage available via Medicare Part D beginning in 2025 may cause more plans to be non-creditable.

Changes to Medicare in 2025 include

A new $2,000 out-of-pocket spending cap.
Elimination of the coverage gap phase.
Higher share of drug costs paid by Part D plans in the catastrophic phase.
New manufacturer price discount and reduced liability for Medicare in this phase.
Changes to plan costs and the manufacturer price discount in the initial coverage phase.

Additionally, Medicare Part D creditable coverage changes in 2025 include

Creditable coverage determination methods will be revised.
Employer impact will be affected.
The definition of creditable coverage will not take into account the value of discounts provided under the new Manufacturer Discount Program.

Creditable Coverage Determination Methods

To determine creditable coverage, group health plans have two methods available. The first is an actuarial determination method that uses actual claims experience and demographic data, making it a more expensive and labor intensive option. This option is generally used for plans that receive a Retiree Drug Subsidy (RDS). The second option is the simplified determination method that provides employers (who do not participate in the RDS program) with a more straightforward approach for determining creditable status that does not require complicated actuarial tests.

Initially, CMS proposed eliminating the simplified determination method for 2025 but noted that a change this late in the year could cause substantial disruption for both employers and employees. As such, CMS opted to keep this method as an option for 2025. Further guidance will dictate the availability of the simplified determination method for 2026.

Benefit Changes

Significant changes were made to the Part D plan design, which includes a reduction of the maximum out-of-pocket amount to $2,000 in 2025 (a $6,000 reduction from 2024). This, along with other benefit improvements, means employers may have a higher threshold for meeting creditable plan status.

For example, this change will likely preclude high deductible health plans (HDHPs) from qualifying as creditable coverage. As such, employers may want to revamp their communication strategy to ensure Part D eligible employees understand their penalty risk if enrolling in a HDHP (and any other plans with non-creditable coverage) for the 2025 plan year. In doing so, employers should keep in mind the Medicare Secondary Payer (MSP) rules which prohibit employers from providing incentives to employees who drop employer coverage in favor of Medicare.

Employer Impact

Employers may continue to use the simplified determination method for 2025 but should be aware that their options for determining creditable coverage status may change in 2026.
With Medicare creditable coverage status notices due to employees by October 15, employers will want to determine if any changes need to be made to maintain creditable coverage in 2025. Note, while employers must notify employees of their plan’s creditable coverage status, they are not required to offer creditable coverage.
Employers may want to consider (while keeping MSP rules in mind) providing additional communications to employees with any non-creditable coverage notices to ensure that Part D eligible employees are aware of the penalty for not enrolling in creditable coverage.

More Resources from CMS

Amwins Connect will continue to monitor this Redesign Program between now and January 1, 2025.

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