Introduction – What is Creditable Drug Coverage Under Medicare?

When turning 65 you face a multitude of decisions.  When should you take I Social Security? Do I need to sign up for Medicare?  Are there penalties for waiting?  Am I missing out on benefits by not signing up now?  These decisions can be further complicated if you are still working and covered by a group health insurance plan. 

Because every person’s situation is different there are no absolutes regarding when and what plans an individual should sign up for.  In this article we will give you the information you need to make an informed decision regarding your prescription coverage so you can avoid a lifetime Late Enrollment Penalty.

Anytime you have Medicare Part A or Part B or Both, the government requires that you have drug coverage which is at least as good as Medicare’s Standard Model. They call coverage that meets this standard “Creditable coverage.”

The Medicare Part D standard model is the benchmark for prescription coverage. It sets the minimum limits for a plan to be considered “creditable.”  It sets a maximum deductible and outlines what classes or tiers of drugs must be covered. It also includes an actuarial standard, which is a fancy way of saying that on average, the plan will cover a certain amount of costs. All of this is designed to ensure that plans provide the right level of coverage for prescription drugs.

What Happens if You Don’t Have Creditable Drug Coverage Under Medicare?

If you don’t have creditable drug coverage under Medicare, you may face a Part D Late Enrollment Penalty when it comes time to sign up for a Part D plan. Furthermore, not having creditable drug coverage could mean that you will have higher prescription costs in the meantime.

If, at any time while you are on Medicare, you have a 63 day gap (or longer) without creditable drug coverage you will be subject to a late enrollment penalty. This penalty is a permanent penalty, which means you will pay that penalty every month for as long as you are on Medicare.

The Part D Late Enrollment Penalty (LEP) is calculated by taking the national base beneficiary premium for the current year, which can be found on the CMS.gov website, and multiplying it by 1% for each full month you were without creditable drug coverage. For example, in 2023 the national base premium will be $32.74 and if you didn’t have creditable drug coverage for two years then your penalty would be $7.90 ($32.74 x .01 x 24 months). This amount will be added to your monthly Part D plan premium every month as long as you are on Medicare Part D.

How Can You Get Creditable Drug Coverage Under Medicare?

Hopefully you are already aware that the only time you can delay enrolling in Medicare past age 65 is if you have group health insurance through active employment. That employment can be your’s or a spouse’s. If you do not have group health insurance, you will need to sign up for Medicare and obtain prescription drug coverage.

If you do have group health insurance that plan might be deemed to be creditable coverage and satisfy the government’s requirements. But you will want to verify this each year or any time when that plan changes. Federal law requires your employer to provide you a notice as to whether your coverage is or is not coverage at least once per year.

Creditable drug coverage can also be obtained through VA benefits, Medicaid, or a Medicare Part D plan.

Who Needs to Be Concerned About Having Creditable Drug Coverage Under Medicare?

Anyone who is over the age of 65 and not enrolled in Medicare should be aware of what creditable drug coverage is, how to obtain it, and how a late enrollment penalty can be avoided. Even if you are not yet enrolled in Medicare because your employer provides group health insurance, you will want to verify each year that your coverage remains creditable under Medicare.

Once it’s time for you to transition from employer based to Medicare, it is important for you to understand exactly when you need sign up for Part D in order to avoid a lifetime Late Enrollment Penalty.

As always, we recommend speaking with a qualified agent who can review your situation so that you make sure you have the right coverage to meet your needs. Everyone’s situation is different and it is important to make sure that you are making the best decision for your individual circumstances. If you ever have questions, don’t hesitate to reach out so we can help you find a plan that works for you.

Conclusion 

Having creditable drug coverage is an important part of protecting your health and ensuring you have access to the medications you need. It helps to prevent gaps in coverage, lifetime penalties, and unexpected increases in what you pay for prescription drugs each month.

If you don’t already have creditable drug coverage, it is important to understand the options available to you. Depending on your situation, a separate stand-alone prescription plan may be necessary in order to avoid any late enrollment penalties associated with Medicare Part D. Speak with a knowledgeable agent who can help review all of your options so that you choose the right plan for yourself or your family. With the right information, planning ahead and making informed decisions is the key to ensuring you have the best coverage for your individual needs.

IRMAA and Part D

In some cases, your Medicare Part D premiums could be affected by the amount of income that you make. If your income is above a certain threshold, you may become subject to an Income Related Monthly Adjustment Amount, or IRMAA. This monthly additional charge can increase the cost of your part D premium.

In 2023 IRMAA surcharges affect less than 5% of all Part D beneficiaries, but it is important to understand how this works and who will be affected. IRMAA tiers are based on the income reported on your taxes two years prior, so even if your current income has decreased due to retirement or other circumstances, you may still be subject to an IRMAA surcharge. If you’re a single beneficiary and your income exceeds $97,000 or if you’re a married couple with joint incomes over $194,000 then you may be subject to an additional Medicare Part D premium surcharge for 2023.

I mention the IRMAA surcharge because some high income individuals decided that facing a penalty in the future could be less costly that purchasing Part D now due to the increased cost.  If you are considering forgoing Part D coverage, I strongly recommend that you consult a knowledgeable independent agent before making a decision that could have lifelong repercussions.

Thanks for considering our content! We hope this information helps answer any questions you may have about creditable drug coverage under Medicare Part D. Please remember that everyone’s individual situation is different and it’s important to speak with a qualified agent who can review your particular case and help you make the best decision for your needs. Having creditable drug coverage can save you from incurring expensive late enrollment penalties, so it’s important to understand if, when and how to obtain it if you don’t already have it in order to avoid any potentially costly surprises down the road.