What Is Medicare Part D?

Medicare Part D is the federal prescription drug benefit available to individuals enrolled in Medicare. It is offered through private insurance companies approved by the Centers for Medicare & Medicaid Services (CMS) and helps cover the cost of outpatient prescription drugs.

Individuals can receive Part D coverage either by enrolling directly in a standalone Part D plan or through a Medicare Advantage plan that includes prescription drug coverage.

What Is Creditable Coverage?

Creditable coverage refers to prescription drug coverage that is expected to pay, on average, at least as much as the standard Medicare Part D benefit.

If an individual has creditable coverage and delays enrolling in Medicare Part D, they will not be subject to late enrollment penalties. If coverage is non-creditable and the individual delays enrollment, penalties may apply.

What Is Medicare Part D Creditable Coverage?

Medicare Part D creditable coverage specifically applies to employer-sponsored, union, or group prescription drug plans. These plans must be evaluated to determine whether their prescription drug benefit meets or exceeds the actuarial value of Medicare Part D.

This determination is not optional — it is a formal compliance requirement governed by CMS guidance.

Who Is Required to Determine Creditable Status?

Any organization that offers prescription drug coverage to individuals who are eligible for Medicare Part D must determine whether that coverage is creditable.

This typically includes:

• Employers

• Plan sponsors

• Unions

• Governmental plans

• Organizations sponsoring retiree or dependent coverage

The obligation exists regardless of whether Medicare-eligible individuals are actively enrolled in the plan.

Who Is Responsible for Determining Creditable Coverage?

The plan sponsor is ultimately responsible for determining creditable coverage status.

While brokers, TPAs, carriers, or consultants may assist, CMS places responsibility on the employer or plan sponsor — not the carrier and not Medicare.

This distinction is critical in audits and enforcement scenarios.

What Is a Part D Notice?

A Medicare Part D Creditable Coverage Notice is a written disclosure provided to Medicare-eligible individuals informing them whether their prescription drug coverage is creditable or non-creditable.

The notice allows individuals to make informed decisions about enrolling in Medicare Part D and protects them from unnecessary penalties.

Are Employers Required to Send Part D Notices?

Yes. Employers and plan sponsors are required to provide Part D notices to all Medicare-eligible individuals covered under their prescription drug plan.

This includes:

• Active employees

• Retirees

• COBRA participants

• Covered spouses or dependents who are Medicare-eligible

Notices must be provided even if the employer does not know whether an individual has enrolled in Medicare.

When Must Determinations Be Made?

Creditable coverage determinations must be made:

• Annually

• Whenever prescription drug benefits change

• Before each plan year

• When a plan is newly implemented

• When CMS guidance changes materially

A determination from a prior year cannot be reused if plan design or costs have changed.

How Often Must Determinations Be Made?

At a minimum, determinations must be made once per plan year, but best practice — and CMS expectation — is that determinations are revisited whenever plan changes could affect actuarial value.

Failing to reassess after changes is a common compliance failure.

Can Carriers Provide Determinations?

Carriers may provide guidance or estimates, but they do not assume compliance responsibility.

Carrier statements:

• Are often high-level

• May not account for employer-specific contributions

• May not meet CMS audit documentation standards

Plan sponsors remain accountable for the final determination and supporting documentation.

Actuarial Threshold Explanation

CMS defines creditable coverage as prescription drug coverage whose actuarial value is expected to be at least equal to the standard Medicare Part D benefit.

This is determined using:

• Plan design

• Deductibles

• Copays and coinsurance

• Employer contributions

• Maximum out-of-pocket limits

• Utilization assumptions

The comparison is actuarial in nature — not a simple cost or premium comparison.

Data Inputs Required

To perform a compliant determination, the following data is typically required:

• Prescription drug plan design

• Cost-sharing structure

• Employer contribution levels

• Enrollment assumptions

• Plan year details

• Coverage limits and exclusions

Incomplete or inaccurate inputs can invalidate a determination.

What Documentation Is Required for CMS Audits?

CMS expects plan sponsors to maintain documentation that includes:

• The creditable or non-creditable determination

• Methodology used

• Data inputs

• Actuarial rationale

• Copies of notices provided to participants

• Evidence of distribution timing

Lack of documentation is treated the same as lack of compliance.

What Happens If a Notice Is Incorrect?

Incorrect notices can result in:

• Participant complaints

• Retroactive Medicare penalties for individuals

• CMS audit findings

• Employer exposure to corrective action

• Reputational risk with brokers and TPAs

Errors are often discovered years later — when documentation is hardest to recreate.

Risks of Getting It Wrong

The most common risks include:

• Late enrollment penalties for employees or retirees

• CMS audit failures

• Inability to substantiate determinations

• Legal and fiduciary exposure

• Loss of trust with clients or employees

Because Part D compliance is often treated as an afterthought, errors are widespread.

CMS Guidance References

Creditable coverage requirements are governed by guidance issued by Centers for Medicare & Medicaid Services, including:

• Medicare Prescription Drug Benefit Manual

• CMS Creditable Coverage Disclosure requirements

• Annual CMS updates and thresholds

CMS guidance evolves, making static or one-time determinations risky.

How Documentation Is Generated

A compliant determination requires:

• Applying current CMS actuarial thresholds

• Using plan-specific data

• Producing a defensible outcome

• Generating participant-ready notices

• Creating audit-ready documentation

Documentation should be clear, repeatable, and timestamped.

How Determinations Are Stored

Best practice is to store determinations:

• By plan year

• With underlying inputs

• Alongside participant notices

• In a centralized, retrievable system

This ensures continuity even when vendors, brokers, or staff change.

How Creditable Helps

Creditable automates Medicare Part D creditable coverage determinations and documentation so employers, brokers, and TPAs can meet compliance requirements with confidence.

By standardizing inputs, applying CMS-aligned methodology, and generating audit-ready documentation, Creditable removes guesswork from one of the most overlooked compliance obligations in employee benefits.