What's creditable coverage?

The Medicare Modernization Act (MMA) requires employers to notify Medicare-eligible policyholders if the company-sponsored prescription drug coverage pays, on average, as much as standard Medicare prescription drug coverage.

Creditable coverage works like this:

  • When people become eligible for Medicare, they may also receive subsidized prescription drug coverage through the Medicare Part D program. If they don't sign up for this coverage when they are first eligible, they may have to pay higher premium.
  • If they receive prescription drug coverage from another source, such as a current or former employer/union, they can stay in that plan and choose not to enroll in the Medicare drug plan.
  • If the other coverage they receive is at least as good as the Medicare drug benefit (which makes it "creditable coverage"), then that person can continue with the high quality coverage they currently receive and avoid paying higher payments if they sign up for the Medicare drug benefit later.
  • The employer providing the other coverage must prove their coverage is "creditable" by testing it in accordance with Centers for Medicare and Medicaid Services (CMS) guidelines.

Visit CMS.gov for more details about creditable coverage rules and regulations.