As a result of the changes to Medicare Part D under §11201 of the Inflation Reduction Act of 2022, on April 1, 2024, CMS released Final CY 2025 Part D Redesign Program Instructions (“Final Program Instructions”) for the Medicare Part D prescription drug program, which are effective starting in 2025.

The Final Program Instructions reflect a newly defined standard Part D benefit design through several changes or enhancements to the Part D program beginning in 2025. Of those changes or enhancements, the modification most likely to significantly impact the “creditability” of many group health plans next year is the annual out-of-pocket maximum threshold, which is reduced from $8,000 in 2024 to $2,000 in 2025. Many group health plans, particularly high deductible health plans, will not be able to meet this threshold, which may result in the coverage offered by impacted employers to be non-creditable.

As explained more fully below, employers are not required to offer creditable prescription drug benefits, and there is no penalty for employers who do not. The impact is only to Medicare-eligible employees or their eligible dependents who are not offered creditable coverage and who do not enroll in Medicare Part D when they are initially eligible for benefits.

With significant changes coming in 2025 to creditable coverage determinations, employers and employees may have questions on what that means for them, whether they make the decision to enroll in Medicare Part D or continue to have coverage under their group health plan.  In terms of what will constitute creditable coverage for 2025, employers should check with their carriers and TPAs to make sure the carrier will provide the creditability determination at or before open enrollment for calendar year plans.

When a person enrolls in Medicare, enrollment may be retroactive up to six months. IRS guidance is clear that an individual enrolled in Medicare cannot contribute to an HSA, even during a period of retroactive Medicare coverage. If an employee is anticipating enrolling in Medicare, the employee should stop HSA contributions and should tell the employer to stop any employer-sponsored HSA contributions. If an employee enrolls in Medicare due to a loss of creditable coverage, and the enrollment is retroactive, the employer can claw back HSA contributions made by both the employer and employee over the last six months. If the plan year has ended, the employer will need to correct any incorrect W-2s, and the employee will need to make sure the correct W-2 is received for the applicable year’s tax return.

If an employee is Medicare-eligible and changes from creditable coverage to non-creditable coverage, the loss will create a Medicare special enrollment right for the employee to enroll in Medicare. Once a person is Medicare eligible and changes from creditable to non-creditable coverage without enrolling in Medicare Part D, the employee starts accumulating potential penalties of 1% for each month of non-creditable coverage. If an employee has been Medicare eligible and has had non-creditable coverage and continues to delay Medicare enrollment, the employee has been and will continue to accumulate potential penalties for delaying enrollment in Medicare.

Click the link for more information and/or reach out to your NEEBCo representative.

CMS-Redesigns-Medicare-Part-D-Prescription-Drug-Program-in-2025