Insurance companies that provide coverage to Medicare-eligible beneficiaries must disclose its status as creditable or non-creditable coverage. A disclosure is mandatory whether the insurer is primary or secondary to Medicare.
The Medicare Modernization Act (MMA) requires insurers (whose policies may or may not include prescription drug coverage) to notify Medicare eligible policyholders whether their coverage is creditable coverage.
Creditable vs. Non-Creditable Coverage
Creditable coverage means the coverage is expected to pay on average as much as the standard Medicare prescription drug coverage.
Entities that are required to provide creditable coverage include, but are not limited to:
- group health plans
- department of veterans affairs
- federal state and
- local governments.
You’ll get this notice each year if you have drug coverage from an employer/ union or other group health plan. Keep this notice, you may need it if you decide to join a Medicare drug plan later.
Creditable Coverage Applies to all Insurance Types
In the Medicare arena, it’s mostly applicable to prescription drug plans, but does include medicare advantage plans, and medicare supplement plans which are also known as medigap plans.
Having creditable coverage notifies your new insurance company that you had similar benefits under a prior insurance plan. It means you get credit for the coverage you had previously.
It’s a way the insurance company can provide you health care and prescription protection, while being able to expect that you would have reached out for medical treatment should the need have arisen. It’s a reassurance that you are not simply purchasing coverage because you are now sick.
Medicare Part B
With Medicare Part B, the portion that covers physicians, outpatient services and durable medical equipment, you pay a monthly premium. If you don’t enroll in Medicare Part B when you are eligible, you will pay a penalty unless you have creditable coverage through another plan.
If you’re going to delay enrolling in Part B, your creditable coverage needs to be from a current employer sponsored plan (yours or your spouse’s).
The Medicare Part B penalty is 10% each year that you do not have creditable coverage. This penalty is added to your premium when you do enroll in Medicare Part B and it never ceases.
When enrolling in a Medigap plan, you’ll have to complete an enrollment form. If you are in your Open Enrollment Period (OEP), are turning 65 and eligible for Medicare, then you are eligible to enroll in the supplement plan of your choice.
This is the only time a Medicare beneficiary can enroll in a Medigap plan without underwriting and without the need to show any prior creditable coverage, while having a pre-existing condition covered.
However, in most cases a certificate of creditable coverage is available to you and should be forwarded to your new insurance company to show you have incurred no lapse in coverage.
With Prescription Drug Coverage, Creditable Coverage is Imperative.
For each month that you are eligible for medicare and do not have a prescription drug plan in place, a 1% penalty will be assessed when you do enroll in a Part D drug plan. If you wait a full year to enroll in a prescription drug plan, you will pay an additional 12% in premium, forever.
It would be more cost effective to purchase a Part D drug plan when Medicare eligible, unless you have prescription drug coverage that provides creditable coverage.
For example, if you continue to work and your employer is providing your prescription drug coverage or through the employer sponsored plan available to a spouse. You will receive a disclosure notice in the mail to advise if you have creditable coverage.
In addition, you can contact your insurance provider at the number listed on the back of your ID card.
Medicare states that to be to be considered creditable coverage, a prescription drug plan must:
- Provides coverage for brand and generic prescriptions
- Provides reasonable access to retail providers
- The plan is designed to pay on average at least 60% of participants’ prescription drug expenses
- Satisfies at least one of the following:
- The prescription drug coverage has no annual benefit maximum benefit or a maximum annual benefit payable by the plan of at least $25,000, or
- The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare individual.
- For entities that have integrated health coverage, the integrated health plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000 and has no less than a $1,000,000 lifetime combined benefit maximum.
These figures were released May 23, 2005 in the Creditable Coverage Guidance. The maximum deductible amount can change yearly. The 2018 maximum initial deductible is $405. Follow this link for more information on prescription drug creditable coverage.
The medicare rules and regulations regarding Creditable Coverage can be a little intimidating, considering all the penalties. It would be prudent to seek guidance from a licensed insurance agent that can assist you in navigating the options available. Contact us today, or complete our online rate form to see rates in your area now.