By: HUB’s EB Compliance Team
2025 brought about significant changes to Medicare Part D under the Inflation Reduction Act (“IRA”). The most impactful change for employers was the addition of a $2,000 out-of-pocket-maximum (“OOPM”) for Part D plans. As part of these changes, the Centers for Medicare and Medicaid Services (“CMS”) first took away the “simplified method” for determining creditable coverage, only to once again allow it to be used for 2025. CMS left the door open to making changes to the simplified method for 2026, which is the focus of this piece.
The Part D Rules and Employer Sponsored Plans
Under the overall Part D rules, those who are eligible for Part D need to have creditable coverage. “Creditable coverage” refers to prescription drug coverage that actuarially is equal to or greater than the coverage provided under Part D. Creditable coverage can come from practically any source including an employer sponsored plan, a retiree plan, or a traditional Part D policy. Those who fail to maintain creditable coverage for a period greater 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 are required to provide Part D eligible individuals with a notice indicating which, if any, plan options that they offer meet the definition of creditable coverage. The purpose of this notice is to enable employees and spouses eligible for the employer sponsored plan to make informed decisions and avoid the late enrollment penalty. This previous article provides more specific details on the notice itself.
The (Existing) Simplified Method
There are two ways to determine whether a plan’s coverage is creditable…via actuarial determination, or via the simplified method. Although actually quite complex, the simplified method allows employers to determine whether coverage is creditable without engaging an actuary to make the determination. Hub discussed the simplified method in detail here.
The existing simplified determination methodology contains two potential pathways for determining whether coverage is creditable. One path is for plans deemed to be integrated, and the other path is for plans that are non-integrated. The determination of whether a plan is considered integrated is complex and nuanced. Much of this complexity comes from the fact that the simplified method originated in 2009, which means it pre-dates the Affordable Care Act (“ACA”). Thus, it contains references to annual and lifetime benefit maximums, and those features are largely prohibited by the ACA.
In addition to the integrated/non-integrated feature, the existing methodology also includes a requirement that creditable plans “be designed to pay on average at least 60% of participants' prescription drug expenses.”
The (Revised) Simplified Method
In an effort to bring the simplified method up-to-date, CMS recently released a new and revised simplified method. The new methodology removes the current integrated and non-integrated pathways and instead opts for a single pathway. At the same time, the new methodology raises the existing 60% requirement significantly to 72%.
Under the revised simplified method, a plan is considered to be creditable if it meets all of the following criteria:
- 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 72% of participants’ prescription drug expenses.
In making these changes, CMS pointed to the ACA having essentially eliminated annual and lifetime maximums, and the fact that separate medical and prescription drug plans are incredibly rare. Biological products were added to reflect changes in the prescription drug landscape since the last time the methodology was formulated. CMS also determined that the 60% threshold “is no longer an accurate representation of the value of the Part D benefit” and that 72% is required in order equal or exceed the actuarial value of standard Part D coverage, as required by the IRA.
Flexibility for 2026
In response to the comments received, for calendar year 2026 only, CMS will permit group health plans to use either the existing simplified determination methodology or the revised simplified determination methodology to determine whether their prescription drug coverage is creditable. This flexibility does not apply to plans applying for the retiree drug subsidy (“RDS”).
Thus, non-RDS plans have a choice between:
- Using the existing simplified methodology, which requires determining whether the plan is integrated or non-integrated, but only being held to the 60% actuarial value;
- Using the revised simplified methodology, which requires the inclusion of biological products and meeting or exceeding the 72% actuarial value; or
- Obtaining an actuarial determination.
Next Steps
The simplified method for determining whether prescription drug coverage is creditable is still a great option for employer sponsored plans and is likely less expensive than acquiring an actuarial determination. However, the simplified method does not mean it is actually simple. The good news is that for 2026 only, plans have the choice between the existing and revised simplified methods.
Plan sponsors of employer-sponsored plans are urged to continue to work with their insurance carriers, Third Party Administrators (“TPAs”), and Pharmacy Benefit Managers (“PBMs”) to understand whether their plans are creditable or not.
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.