Medicare Part D Creditability Determination

• Plan documents / SPD: The Summary Plan Description or benefit booklet for each health plan, showing prescription drug coverage tiers, formulary, deductibles, copays, and cost-sharing.
• Carrier written confirmation (revised simplified method): A letter or email from your insurance carrier stating whether each plan meets the revised simplified method criteria and confirming the actuarial analysis result. This is the most critical item for CY 2026 and later. See the Carrier Request Letter in the Templates & Resources section below.
• Formulary documentation: Confirms whether the plan covers brand-name drugs, generic drugs, and biological products, all three of which are required under the revised simplified method.
• Prior year determination records: Useful baseline if the plan design hasn't changed, though a re-test is still recommended annually.
• Benefits consultant or actuary contact: If your carrier won't provide the actuarial analysis, a benefits consultant or actuary can facilitate or run it using carrier claims data.

Which test applies?

• Plan year 2025: Original simplified method only (60% threshold).
• Plan year 2026: Your choice; you may use either the original (60%) or the revised (72%) simplified method.
• Plan year 2027 and later: The original simplified method is no longer permitted for non-RDS plans; you must use either the revised simplified method (73% threshold) or the actuarial determination method.

Step 1: Apply the original simplified method (2025; also permitted for 2026)

A plan is creditable if it meets all four of these conditions:

1. The plan covers both brand-name and generic drugs.
2. The plan provides reasonable access to retail pharmacies (and mail-order, if the plan offers it).
3. The plan is expected to pay, on average, at least 60% of covered prescription drug costs.
4. The plan has no annual dollar cap on prescription drug benefits.

Step 1 (alternate): Apply the revised simplified method (optional for 2026; required for 2027 and later, unless you use the actuarial determination method)

A plan is creditable if it meets all three of these conditions:

1. The plan covers brand-name drugs, generic drugs, and biological products. Coverage of all three categories is required; this is new compared to the original method.
2. The plan provides reasonable access to retail pharmacies (and mail-order, if the plan offers it).
3. The plan is expected to pay, on average, at least 72% of covered prescription drug costs for plan year 2026, rising to 73% for plan year 2027 and later. This higher threshold reflects the richer Part D defined standard benefit introduced under the Inflation Reduction Act.

Why the two criteria from the original method were dropped: The annual-cap condition was removed because the ACA effectively eliminated annual benefit limits; it's the default now, not a test. The separate deductible condition was dropped as uncommon in modern plan designs.

A note on HDHPs: High-deductible health plans are more likely to fall short of the revised threshold (72% for 2026, 73% for 2027 and later) because the plan deductible applies to prescription drugs before the plan pays anything. If you offer an HDHP, work with your carrier to explore options such as excluding preventive and maintenance medications from the deductible, a reasonable allocation of the deductible between medical and drug costs, or reduced cost-sharing once the deductible is met. Your carrier will need to model the effect on the actuarial calculation. See the HSA page for HSA-eligibility considerations.

Step 2: Contact your carrier and request written confirmation

Ask for a written determination for each plan: "Does this plan meet the Medicare Part D creditable coverage standard under the [original/revised] simplified method for plan year [year]?" Use the Carrier Request Letter in the Templates & Resources section below.

Step 3: If the carrier says it is the employer's responsibility

Some carriers are currently pushing back, claiming the employer must perform the 72% test. This reflects a misunderstanding of the revised method; the calculation requires actuarial modeling based on actual prescription drug claims that only the carrier (or a large TPA) holds. An employer cannot independently complete this analysis without that data. If your carrier refuses, escalate to your benefits broker. If needed, a benefits actuary can press the carrier or run the analysis using the carrier's claims data. This is an evolving area; carrier practices are expected to improve as they understand the requirement more fully.

Step 4: Document the result for each plan

Record the plan name, plan year, determination result (creditable / non-creditable), method used (original or revised), date of determination, and the supporting documentation. See Proof & Recordkeeping below.

Step 5: Proceed with downstream notices

Once you have the determination, issue the annual employee notice (due by October 15) and the CMS disclosure (due within 60 days after the plan year starts), whether the plan is creditable or not. See the Medicare Part D Creditable Coverage Notice page and the Medicare Part D CMS Disclosure page.

• Internal HR / benefits team: Must have the result before October 15 so employee notices can be issued on time. Don't wait for the carrier to send something unsolicited; request it proactively, with enough lead time.
• Benefits broker or consultant: Share the carrier's written confirmation with your broker. They may need it to help prepare the CMS disclosure or to advise on corrective action if a plan is non-creditable.
• TPA (self-funded plans): If a third-party administrator handles your self-funded plan, share the determination and supporting documentation with them so they can assist with the required filings and notices.
• Plan-by-plan: Keep the results separate for each plan offered. If you offer both a PPO and an HDHP, each needs its own determination, and the downstream notices for each must reflect that plan's result.

• Carrier written confirmationThe letter or email from your carrier confirming each plan's creditable or non-creditable status and the method used. This is the most important record to retain.
• Actuarial analysis (if applicable)If a benefits actuary performed the revised-method analysis, retain their written report, including the data inputs and methodology summary.
• Plan document snapshotA copy of the SPD or benefit summary that was current for the plan year being evaluated.
• Determination logA written record (even a simple spreadsheet) showing each plan, the plan year, the result, the method used, the date the determination was made, and who made it.
• Retention periodRetain all records for at least 6 years, consistent with ERISA recordkeeping standards.

Common traps

FAQs

My carrier says running the revised creditability test is the employer's responsibility. Is that right?

No, at least not in practice. The revised simplified method's higher threshold (72% for 2026, 73% for 2027 and later) requires actuarial modeling based on actual prescription drug claims data that only the carrier or a large TPA has access to. An employer cannot independently produce this analysis. If your carrier is pushing back, ask them to escalate to their compliance team. Some carriers are still working through how to support this requirement; the expectation is that carrier practices will improve as the industry catches up. If your carrier continues to refuse, your benefits broker or a benefits actuary can either press the carrier or run the analysis using the carrier's data.

Does this apply to account-based plans like HRAs, HSAs, or FSAs?

Starting with plan year 2027, account-based plans are exempt from the Part D creditable coverage disclosure requirements under the CY 2027 Medicare Advantage and Part D Final Rule (effective June 1, 2026, applicable to coverage beginning January 1, 2027). For plan years 2025 and 2026, the exemption does not yet apply; consult your benefits advisor if you have questions about a specific account-based arrangement. See the HRA, HSA, and FSA pages.

What happens if a plan is non-creditable?

You still must issue both the employee notice and the CMS disclosure, but both must state that the coverage is non-creditable and advise Medicare-eligible employees of their options. Employees who were enrolled in non-creditable coverage and later enroll in Part D will generally face a late enrollment penalty based on how long they were without creditable coverage. See the Medicare Part D Creditable Coverage Notice page for notice requirements.

We offer an HDHP. How do we know if it passes the revised creditability test?

HDHPs often fall below the revised threshold (72% for 2026, 73% for 2027 and later) because the deductible applies to drugs before the plan pays anything. Whether your HDHP clears the threshold depends on the deductible amount, the drug cost-sharing structure post-deductible, and the actual prescription drug usage in your population. That last factor is exactly why the carrier must run the actuarial analysis. If your HDHP falls short, a benefits consultant can help you evaluate plan design options, such as a preventive drug carve-out from the deductible, that might bring it above the threshold without compromising HSA eligibility.

Do we need to do this if we're a small employer?

Yes. There is no small-employer exemption from the creditable coverage determination or the downstream notice requirements. Any employer offering prescription drug coverage to Medicare-eligible individuals must comply.

• CMS: Creditable Coverage for Employers and Plan Sponsors (main page)
• CMS: CY 2026 Chapter 4 Creditable Coverage and Part D LEP Guidance (PDF)
• CMS: Final CY 2026 Part D Redesign Program Instructions (PDF, revised simplified method)
• CMS: CY 2027 Medicare Advantage and Part D Final Rule Fact Sheet (account-based plan exemption)
• 42 CFR 423.56: Creditable Coverage Determination Procedures (eCFR)

• Retiree Drug Subsidy (RDS) plans: Employers receiving the CMS Retiree Drug Subsidy use a separate actuarial equivalence standard and different CMS disclosure rules. For CY 2026, RDS plans are not required to switch to the revised simplified method; confirm with the CMS RDS Center and your actuary.
• Account-based plans (HRAs, HSAs, FSAs): Under the CY 2027 Final Rule, account-based plans are exempt from the Part D creditable coverage disclosure requirements beginning with plan year 2027. The exemption does not apply for 2025 or 2026.
• Self-funded plans: The same simplified methods apply to self-funded plans. The key difference is that your TPA, rather than an insurance carrier, may need to provide or facilitate the actuarial claims data needed for the revised simplified method test. Confirm with your TPA that they can support this analysis, starting with plan year 2026 if you elect to use the revised method early.
• Multiple plans offered: If you offer more than one health plan, for example both a PPO and an HDHP, you must run the determination separately for each. It is entirely possible that one plan is creditable and another is not. Downstream employee notices must reflect the correct result for the specific plan each employee is enrolled in.
• Mid-year plan termination: If you terminate a prescription drug plan mid-year, a new disclosure to CMS is required within 30 days of termination. See the Medicare Part D CMS Disclosure page.

★Use this letter to formally request the creditability determination from your carrier. Getting it in writing is essential; a verbal answer from a carrier rep won't hold up in an audit, and it doesn't give you what you need to issue accurate employee notices.