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By October 14, 2025, employers with plans providing prescription drug coverage must distribute Medicare Part D creditable coverage notices. These notices help Medicare-eligible individuals – employees and dependent(s), including those eligible due to disability or End-Stage Renal Disease (ESRD) – decide whether to keep employer coverage or enroll in Part D for 2026.
 
Here’s the good news: for fully insured group health plans, the carrier makes the creditable coverage determination. Carriers typically publish this information each year and distribute it to employer clients and brokers. At Word & Brown, we’ve compiled these carrier determinations into state- and market-specific resources, making it easy to find what you need (references are at the end of this column). For most of your clients with traditional, fully insured group plans, that’s the whole story – they just need to complete and distribute their notices with the carrier’s given plan status.
 
Things get more complicated with self-funded and level-funded plans. In those cases, the determination usually comes from the plan’s Third-Party Administrator (TPA) or Pharmacy Benefit Manager (PBM). If it’s not provided, the employer must either rely on the Centers for Medicare & Medicaid Services (CMS) simplified test (if eligible) or obtain an actuarial certification.
 
And here’s the real headline for 2025: the testing methodology itself is changing. The longstanding standards for determining whether a plan is creditable (or non-creditable) are being phased out. Many plans that have historically qualified could soon lose that status . . . starting next year.
 

What is Creditable Coverage?

An employer’s drug plan is “creditable” if it’s expected to pay, on average, at least as much as the standard Medicare Part D drug plan. Employers do not have to offer creditable coverage, but they must determine the status each year, disclose it to Medicare-eligible plan participants, and file it with CMS.
 
If a Medicare-eligible person goes 63+ days without creditable drug coverage, they can face a lifetime Part D late enrollment penalty – hard-hitting at any time, and especially during retirement.
 

What’s Changing in 2025 and 2026?

The Inflation Reduction Act (IRA) redesigned Medicare Part D’s prescription drug benefits, making them much richer. Out-of-pocket drug costs are capped at $2,000 in Calendar Year (CY) 2025 (indexed to $2,100 in CY 2026), and the Part D deductible rises from $590 in CY 2025 to $615 in CY 2026. These benefit enhancements raise the bar for employer drug coverage to qualify as “creditable,” since most employer plans don’t use separate drug-only deductibles or out-of-pocket caps. High-deductible health plans (HDHPs) are especially at risk of losing creditable status, though other designs may also be impacted. Employers should pay close attention – HDHPs and other non-traditional designs are most at risk of losing creditable status under the new IRA changes and testing methodologies.
 

Determining Creditable Status: Old vs. New Testing

Until now, most employer plans could use a simplified determination method dating back to 2003 when such testing began: if the plan paid at least 60% of drug costs, covered generic and brand drugs, and offered reasonable access to pharmacies, it was deemed “creditable.” Otherwise, actuarial testing was required.
 
Starting with notices due October 14, 2025 (for selecting 2026 CY coverage), CMS is rolling out a revised simplified method with a 72% threshold to align with the richer IRA-enhanced Part D benefit.
 
2025 is a transition year. Employer plans may use either the old 60% simplified method or the new 72% test. But beginning with notices due October 14, 2026 (for selecting CY 2027 Medicare coverage), the old method disappears; plans must then use the new simplified method or get an actuarial testing certification.
 
Note: Retiree Drug Subsidy (RDS) plans always require actuarial certification. The simplified method applies only to non-RDS plans. RDS is a Medicare program where CMS subsidizes employers that keep retirees on their group drug plan instead of moving them into Part D.
 

Notices Due to Employees

Employers must give the notices:

• Annually, before October 15^th (the beginning of the Medicare Annual Enrollment period)
• At plan enrollment (e.g., new hires)
• If coverage changes from creditable to non-creditable, or vice versa
• Upon request

 
Because employers rarely know who is Medicare-eligible, the safest practice is to distribute to all plan participants. CMS model notices are available in English and Spanish, and notices must be prominent if bundled with other enrollment materials.
 

Filing with CMS

Beyond employee notices, employers must also file the status of their drug plans electronically with CMS online:

• Within 60 days of the start of the plan year
• Within 30 days of plan termination, if applicable
• Within 30 days of a status change, if applicable

 
(This is separate from Medicare Secondary Payer (MSP) reporting, which carriers/TPAs handle quarterly to tell CMS whether Medicare or the group health plan should pay first.)
 

Takeaways for Health Insurance Brokers

• Fully insured plans: Carriers handle the determinations; review the drug statuses collected by Word & Brown for all Small and Large Group plans quoted in California and Nevada.
  • California – Small Group Plans
  • California – Large Group Plans
  • Nevada – Small Group Plans
  • Nevada – Large Group Plans
• Self-funded and level-funded plans: Confirm whether the TPA or PBM provides a determination. If not, simplified or actuarial testing is required.
• Watch for the transition: Notices due by October 14, 2025, can use either the old 60% test or the new 72% standard. But for notices due by October 14, 2026, only the new method or actuarial method will apply.
• Help employers communicate: Especially if a plan is non-creditable, it’s important to clearly explain this to employees so they understand their potential Part D penalty risk and can make informed decisions during Medicare’s upcoming enrollment period.

 
This year is about transition. The IRA has raised the stakes for what qualifies as creditable coverage, and CMS is phasing in a new test. Brokers should make sure clients are ready for the October 14, 2025, deadline — and prepared for the stricter rules that follow in 2026.