If you have prescription drug coverage through your employer health plan, you may have received notice from your employer regarding “creditable” or “non-creditable” Medicare Part D prescription drug coverage. This notice is particularly important if you are Medicare-eligible during your employer’s open-enrollment period this year.
The term “creditable” prescription drug coverage generally describes whether your employer plan’s coverage provides, on average, as much as or more than Medicare’s standard Part D plan.1 “Non-creditable” means the employer plan doesn’t provide, on average, as much coverage as Part D.
Why does creditable (or non-creditable) coverage matter?
First of all, failing to maintain creditable coverage for 63 days or more — when you’re Medicare-eligible — could incur a late enrollment penalty when you eventually go on Medicare and enroll in Part D prescription drug coverage.2
Secondly, a provision of the 2022 Inflation Reduction Act goes into effect in 2025 for employer-sponsored group health plans that caps the annual out-of-pocket prescription costs to $2,000 for individuals participating in Medicare Part D. If an employer plan is considered creditable, it typically is expected to limit drug costs to $2,000 annually for a Medicare-eligible individual. However, the 2025 provision may cause some employer plans to become non-creditable if they don’t limit out of pocket prescription costs to $2,000 each year per covered individual.
How might 2025 Medicare changes affect me?
If you are Medicare-eligible and enroll in your employer’s plan — which has non-creditable prescription drug coverage — during this year’s open enrollment period, your enrollment in Medicare Part D in 2025 could incur late-enrollment penalties.
| $36.78 national base average x 0.01 = $0.368
$0.3678 x 9 months without creditable prescription drug coverage or Medicare Part D = $3.3102 $3.3102 rounded to the nearest $0.10 = $3.30 $3.30 penalty is added to your monthly Medicare premium amount for as long as you have Medicare |
The late enrollment penalty amount is typically applied each month to your premium for as long as you have Medicare. It will apply if there’s a period of 63 days in a row after the initial enrollment period when you don’t have creditable prescription drug coverage or Medicare Part D. The penalty is calculated by Medicare at 1% of the “national base beneficiary premium” ($36.78 in 2025) times the number of full, uncovered months you didn’t have coverage.3 The penalty is rounded to the nearest $0.10 and gets added to your monthly Part D premium.
What do I do next?
Review your employer plan prescription coverage before the end of your open-enrollment period to determine whether it is considered creditable in 2025 and can help you avoid penalty if you will be enrolling in Medicare Part D next year. While the amount shown in the example Medicare penalty amount may not seem like much, over several years it can add up to a large cost that could be avoided by acting now. For instance, per the example, $3.30 per month for 20 years equals $792.00 total.
If you’re a Mercer Advisor’s client, contact your wealth advisor to discuss your prescription drug coverage options for 2025 and help avoid potential lifetime Medicare penalties. Not a Mercer Advisors client? Let’s talk.
- “Medicare Part D Creditable Coverage – Changes & Challenges for 2025,” Risk Strategies, July 24, 2024.
- “Part D late enrollment penalty,” Medicare, 2024.
- “CMS Releases 2025 Medicare Part D Bid Information and Announces Premium Stabilization Demonstration,” Centers for Medicare & Medicaid Services, July 29, 2024.
