2025 Changes to Medicare Part D: What Employers Need to Know

Starting January 1, 2025, the most impactful change to Medicare Part D will be the reduction of the annual out-of-pocket (OOP) maximum from $8,000 in 2024 to just $2,000. This adjustment is most relevant for groups with HSAs and high deductible health plans (HDHPs), which traditionally feature higher out-of-pocket costs. As a result, many of these plans may no longer be considered "creditable" under Medicare Part D standards.

What does this mean for employers? If a plan is deemed non-creditable, Medicare-eligible employees and their dependents could face penalties if they do not enroll in a Medicare Part D plan during their initial Medicare eligibility period. While employers are not required to offer creditable coverage to employees, they are required to communicate the plan's creditable coverage status to their employees.

What is Creditable Coverage?

Under Medicare Part D, "creditable coverage" is defined as prescription drug coverage that has an actuarial value that equals or exceeds that of the standard Medicare Part D plan. If an employer’s plan falls short of this benchmark, it is classified as non-creditable.

Employers are required to notify Medicare-eligible participants annually about whether their coverage is creditable. This disclosure is crucial, as it informs employees whether they can delay enrolling in Medicare Part D without facing penalties.

How to Determine Creditability?

There are two primary methods for determining whether a plan is creditable:

1. Simplified Determination (Safe Harbor): This method allows employers to qualify for creditable coverage status if the plan meets specific criteria, such as providing coverage for both brand-name and generic prescriptions, offering reasonable access to retail providers, and paying at least 60% of participants’ prescription drug expenses.
2. Actuarial Equivalence: If a plan does not qualify under the simplified determination method, an actuarial analysis is required. This analysis compares the expected prescription drug claims under the employer's plan to the standard Medicare Part D plan.

What Should Employers Do Next?

Employers should take several steps to prepare for these upcoming changes:

• Review Current Plans: Assess whether your current prescription drug plans will remain creditable under the new 2025 standards. If not, consider plan modifications or additional coverage options.
• Communicate with Employees: Ensure that Medicare-eligible employees are informed about the creditability of their coverage. This is particularly important for those who may need to enroll in a Medicare Part D plan to avoid penalties.
• Stay Compliant: Adhere to the reporting requirements, including annual disclosures to Centers for Medicare and Medicaid Services and notifications to Medicare-eligible participants. Non-compliance could result in employee relations issues or legal complications.

Is your business in compliance with employee benefits regulations? Get a complimentary compliance audit from Cascade’s benefits partner, CSNW Benefits. Contact Patrick Sullivan: Patrick@csnwinc.com.