Medicare Part D Creditable Coverage: What Employers Need to Know Before 2027
- On August 10, 2026
The rules are changing. If your clients haven’t started thinking about how they determine Medicare Part D creditable coverage, now is the time.
Starting in 2027, the original simplified determination method will no longer be an option. Plan sponsors will need to transition to either the revised simplified determination method or a full actuarial determination. The 2026 plan year is the last window to use the original method, making this a critical time to review current plan designs and confirm they’ll still qualify under the new rules.
Why This Matters
Creditable coverage status has real consequences for employees. If an employer plan is non-creditable and a Medicare-eligible employee doesn’t know it, they risk a lifetime late-enrollment penalty when they eventually sign up for Part D. That penalty compounds for every month they went without creditable coverage. Employers have a compliance obligation to get this right, and that starts with using the correct determination method.
What’s Changing: The Three Methods Side by Side
Original Simplified Method (available through 2026 only)
Plans must be designed to pay at least 60% of participants’ drug expenses on average. Includes specific deductible-related standards and annual/lifetime limit requirements, many of which are already outdated under the ACA.
Plans must be designed to pay at least 60% of participants’ drug expenses on average. Includes specific deductible-related standards and annual/lifetime limit requirements, many of which are already outdated under the ACA.
Revised Simplified Method (available 2026 forward)
Plans must meet a higher drug expense threshold: 72% for 2026, 73% for 2027. Biological products are now explicitly included. The deductible-related standards have been removed, which actually simplifies things for most employer plans that integrate medical and drug coverage. Annual/lifetime limit criteria are also eliminated.
Plans must meet a higher drug expense threshold: 72% for 2026, 73% for 2027. Biological products are now explicitly included. The deductible-related standards have been removed, which actually simplifies things for most employer plans that integrate medical and drug coverage. Annual/lifetime limit criteria are also eliminated.
Important note for HDHPs: the higher expense threshold may seem like a tougher bar to clear, but it’s not automatic disqualification. Plan design features can help, including not applying a deductible to preventive medications, a reasonable allocation of the deductible to Rx expenses, or offering lower cost sharing once the deductible is met.
Actuarial Determination
Always available, and the only option for employers applying for the Retiree Drug Subsidy (RDS). Neither simplified method is permitted for RDS-eligible retiree plans.
Always available, and the only option for employers applying for the Retiree Drug Subsidy (RDS). Neither simplified method is permitted for RDS-eligible retiree plans.
Key Compliance Reminders
- Test each plan option separately. If you offer a PPO, HMO, and HDHP, each one requires its own creditable coverage determination.
- Annual employee notices are due before October 15. Medicare-eligible individuals must receive their notice before the Medicare Annual Election Period opens.
- CMS disclosure is due within 60 days of plan year start. For calendar year plans, that’s March 1.
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Account-based plans get a break. Effective January 1, 2027, HRAs, HSAs, and FSAs are exempt from the creditable coverage disclosure requirements.
What To Do Now
- Identify which clients are currently using the original simplified method and flag them for review before their 2026 renewal.
- Run the numbers under the revised simplified method to see if current plan designs hit the 72%/73% threshold. OneDigital’s analytics team has tools to support this.
- Flag HDHP clients for a closer look — they may need plan design adjustments to maintain creditable status.
- Confirm retiree plan strategy — if any clients offer retiree coverage with RDS, they must use an actuarial determination and should coordinate with an actuary now.
- Update notice and CMS reporting workflows for any clients where status changes under the new method.
Questions on creditable coverage testing or plan design implications? Reach out to your team at Kistler Tiffany!
This document is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
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