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Medicare Part D Notice of Creditable Coverage

If you (or your spouse) receive a letter with the heading "Notice of Creditable Coverage," put it in a safe place with your other important financial records. It is a very important document. Persons eligible for Medicare Part D will receive this letter from their former employer or former employer's benefits administrator or union if their retiree prescription drug benefits are equal to, or better than, benefits provided by standard Medicare Part D plans. For example, retired New Jersey state government workers receive their Notice of Creditable Coverage letter from the Division of Pensions and Benefits, Department of the Treasury, in Trenton. Some health coverage purchased privately may also be "creditable," but not previously-issued Medigap policies with drug coverage (Plans H, I, and J), which are not considered creditable coverage and are no longer sold.

Generally, retirees who are receiving prescription drug benefits equal to, or better than, Medicare Part D need not enroll in a Part D plan. There are some exceptions, though, such as limited income retirees who are eligible to receive government subsidies or those who must pay more in premiums for retiree drug coverage premiums than the premiums charged for a Medicare Part D plan. Retirees and their dependents with creditable coverage are not required to enroll in Medicare Part D but are still required to enroll in Medicare Parts A (hospital insurance) and Part B (supplemental medical insurance) when they become eligible at age 65.

During the past decade, an increasing number of employers, particularly those in the private sector, have been eliminating retiree health benefits. According to a USA Today article (6/26/06, p. 3B), "Only 13% of private-sector workers are offered such [retiree health] coverage now. Even state and local government jobs are expected to phase out retiree coverage, especially for recent hires." Unfortunately, some retirees who start their retirement with employer-provided health and prescription drug coverage may later find their benefits terminated or sharply reduced or that the increased cost of required premiums makes their coverage unaffordable. At this time, affected retirees may want to consider enrolling in a Medicare Part D prescription drug plan.

The Notice of Creditable Coverage states that you already have prescription drug coverage provided elsewhere (e.g., from an employer or TriCare for military retirees) that is at least as good as Medicare's. It also protects you from having to pay a penalty if you subsequently lose or drop that coverage, as long as you do not have a break of 63 days or more between the time creditable coverage ends and your Medicare Part D plan's coverage begins. Without proof of creditable coverage, those eligible for Medicare Part D, who do not enroll when they first become eligible, will owe a "late penalty" that is added to all future premiums above and beyond the base payment...for life. The penalty is equal to 1% of the national average monthly premium (NAP) multiplied by the number of months someone is without coverage and it will increase steadily over time. There is only one open enrollment period (11/15-12/31) each year for Medicare Part D so failing to enroll during this time adds another year to the penalty calculation. Not only can the NAP rise from one year to the next but they'll also be 12 more months without coverage in the formula. Someone who delays enrolling for eight years will pay almost double for the same coverage provided to on-time enrollees.

Save your Notice of Creditable Coverage. It is a very important piece of paper! Delayed Medicare Part D enrollment without proof of prior creditable coverage is very expensive. If you lose your creditable coverage, you have 63 days to make an informed decision about a Medicare Part D plan. Retiree health benefits are becoming increasingly rare. If your former employer decides to discontinue your benefits, having this letter will help you transition smoothly to Medicare Part D. Employers/unions do not have to use the CMS-developed creditable coverage Disclosure Notice. Entities have flexibility in the form and manner of providing Disclosure Notices to beneficiaries. The notice does not have to be sent as a separate mailing. It may be provided with other health plan participant information materials (including enrollment and/or renewal materials). If entities incorporate disclosures with other health plan information, the Part D disclosure must be prominent and conspicuous (at least 14-point font in a separate box, bolded, or offset on the first page). An entity can provide a Disclosure Notice through electronic means if the Medicare beneficiary has indicated to the entity that s/he has adequate access to electronic information.

Creditable Coverage Disclosure Notices must be made at the following times:

  1. Prior to the Medicare Part D Annual Coordinated Election Period (Nov.15 to Dec. 31 of each year);
  2. Prior to an individual's Initial Enrollment Period for Part D (3 months before 65th birthday month, the birthday month, 3 months after birthday month);
  3. Prior to the effective date of coverage for any Medicare eligible person who joins the entity's health plan;
  4. Whenever the entity no longer offers prescription coverage or changes the coverage so that it is no longer creditable or becomes creditable; and
  5. Upon a beneficiary's request. This is definitely important if a person did not receive anything by Nov. 15 last year.

Special thanks to Charles Clarkson, Coordinator, New Jersey Health Advocate Volunteer Effort (NJ HAVE), and Deborah Breslin, Director, State Health Insurance Assistance Program (S.H.I.P), New Jersey Department of Health and Senior Services, for their review and editing of this information.