BAN Blog

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 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.

Background on Medicare Part D Requirements for Employers

Medicare Part D requirements for employers are limited to reporting obligations.  Specifically, the Medicare Modernization Act (MMA) requires plan sponsors (e.g., employers) to notify Medicare eligible participants whether their prescription drug coverage is creditable coverage, which means that the coverage is expected to pay on average as much as the standard Medicare prescription drug coverage. There are generally two disclosure requirements:

(1) Report to CMS:  Group health plan sponsors must provide an annual report/disclosure of prescription drug coverage that contains certain, specified information that the group health plan submits to CMS annually (as well as at any time the plan’s prescription drug coverage terminates and/or ceases to be creditable).  The annual disclosure is required to be filed electronically with CMS within 60 days after the start of each plan year; and

(2) Report to Individuals:   Group health plan sponsors must also provide an annual notice to participants containing certain, specified information that indicates whether their coverage is creditable or non-creditable, which must be provided (a) before October 15 each year, (b) before the effective date of coverage for Part D eligible employees enrolling in the employer’s group health plan, (c) when/if the employer terminates prescription drug coverage, (d) if the employer’s coverage later becomes non-creditable or vice versa, and/or (e) at the request of an individual. Many employers provide the creditable coverage notice with the plan’s open enrollment materials each year to satisfy the requirements to provide the notice before the Medicare Part D annual coordinated election period and within the 12 months before any individual’s Medicare Part D Initial Enrollment Period.

As defined in the Medicare Part D regulations, coverage is considered creditable if the actuarial value of the coverage equals or exceeds the actuarial value of standard Medicare prescription drug coverage. In general, only drugs covered by Part D are taken into account in determining actuarial value

The purpose of the individual disclosure notice is to inform Medicare beneficiaries of whether or not the employer’s drug coverage is “as good as” the Medicare Part D prescription drug coverage. This serves an important function because employees who do not enroll in Medicare during their first open enrollment period must pay a late enrollment penalty of 1% per month if they go 63 days without “creditable coverage” and then subsequently enroll in Medicare Part D. However, individuals who have creditable coverage through their employer’s health plan may opt to stay in that plan in lieu of participating in Medicare Part D. Those individuals would not be subject to late enrollment penalties.

Only employers that contract with a prescription drug plan (“PDP”) through Medicare, or that contract with Medicare to become a PDP, are exempt from this notice requirement. This means an individual disclosure notice is required regardless of whether the employer’s coverage is primary or secondary to Medicare and regardless of whether the employer’s coverage is fully insured or self-funded.

CMS provides model notices plans can use for disclosure to individuals.

What is Creditable Coverage?

Under the MMA, coverage is considered creditable when the actuarial value (i.e., the expected amount of paid claims) of the employer’s prescription drug coverage equals or exceeds the actuarial value of standard prescription drug coverage under Medicare Part D.

This is true regardless of whether it is the employee or the employer who pays for the coverage. If a plan has multiple benefit options, the actuarial test must be performed separately for each option.

How is creditable coverage determined?

Per CMS guidance, there are two methods: the “simplified method” and the actuarial equivalence determination or “gross value” test.  A plan can be creditable based on plan design using the “simplified determination”, which is a safe harbor that may be used, but the requirements for the safe harbor vary depending on whether the plan is “integrated” (i.e., whether prescription drug benefits are integrated with other types of benefits, such as medical, dental, or vision) or whether drug coverage is offered on a stand-alone basis.

A plan is “integrated” when the prescription drug benefits are combined with other coverage offered by the employer (e.g., medical, dental, vision), and the plan contains all of the following provisions:

• a combined plan-year deductible for all benefits under the plan;
• a combined annual benefit maximum for all benefits under the plan; and/or
• a combined lifetime benefit maximum for all benefits under the plan.

 

To be creditable, an integrated plan must meet the following:

• the coverage is designed to pay, on average, at least 60% of participants’ prescription drug expenses;
• the coverage covers both brand and generic prescriptions;
• it provides reasonable access to retail providers and, optionally, to mail order coverage; and
• the plan satisfies three additional standards:
  • it has no more than a $250 deductible per year (as indexed);
  • it has no annual benefit maximum or an annual maximum of at least $25,000; and
  • it has a lifetime combined benefit maximum of at least $1 million.

 

A non-integrated plan must meet the following to be creditable:

• provide coverage for brand-name and generic prescriptions;
• provide reasonable access to retail providers;
• be designed to pay on average at least 60% of participants’ prescription drug expenses; and
• satisfy one of the following standards:
  • the prescription drug coverage either has no annual benefit maximum or has a maximum annual benefit of at least $25,000; or
  • the prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare eligible individual.

 

If the employer is not applying for the MMA’s retiree drug subsidy, and its plan meets the applicable requirements set forth above, an actuarial certification of equivalence is not necessary. If the employer does not meet the applicable requirements set forth above, however, an actuarial certification may be required to prove creditable coverage.  An actuarial determination measures whether the plan’s expected prescription drug claims are, on average, at least as much as the expected claims under the standard Medicare prescription drug benefit.  Thus, any changes in the plan from year-to-year, such as increases in the plan’s deductible or other cost sharing requirements could impact whether the plan remains creditable or non-creditable.

The Impact of the Redesign of the Program on Group Health Plans

In 2024, the following are the parameters for prescription drug benefit coverage under Medicare Part D:

• Deductible: $545;
• Initial coverage limit: $5,030;
• Out-of-pocket threshold: $8,000;
• Total covered Part D spending at the OOP expense threshold for beneficiaries who are not eligible for the coverage gap discount program: $11,477.39; and
• Estimated total covered Part D spending at the OOP expense threshold for beneficiaries who are eligible for the coverage gap discount program: $12,447.11.

 

The Final Program Instructions lower the annual out-of-pocket threshold from $8,000 in 2024 to $2,000 in 2025.  This significant reduction is likely to impact a number of employer sponsored health plans starting with their 2025 plan year, particularly high deductible health plans which typically have much higher deductibles.

Moreover, while CMS initially considered eliminating the simplified determination safe harbor, for 2025, the Final Program Instructions allow group health plans to continue using the simplified determination safe harbor to determine whether coverage is creditable; however, CMS intends to re-evaluate its continued use beyond 2025 or will establish a revised simplified method to be used in 2026 and beyond.

Penalties for Noncompliance

Neither the law nor the regulations provide mechanisms for CMS to enforce penalties against employers that fail to comply with the Part D notice requirements; however, failure to comply could result in employee relations issues.

Moreover, the U.S. Department of Labor takes the view that ERISA plan fiduciaries must administer their plans to comply with both ERISA and other federal laws.  An employer risks violating ERISA’s fiduciary duties if it misrepresents its plan’s creditable status to participants or fails to make a good faith effort to determine whether coverage is creditable.

Conclusion

While employers are not required to offer creditable coverage to individuals, employers are required to communicate to Medicare eligible individuals and CMS whether the coverage offered is creditable.  Because of the significant changes beginning in 2025, communication to impacted individuals will be crucial so they understand whether or not their coverage will be creditable for their 2025 plan year and can decide whether to enroll in Part D if or when they are eligible.

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About the Author. This alert was prepared by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers, or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency and Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2024 Barrow Weatherhead Lent LLP. All Rights Reserved.

On April 26, 2024, the Office of Civil Rights (OCR) at the U.S. Department of Health & Human Services (“HHS”) issued a Final Rule amending the HIPAA Privacy Rule to protect the ability of individuals to receive reproductive health care when the care is provided lawfully under the circumstances without risk of an individual’s identity or health information being disclosed for purposes of state criminal, civil or administrative investigations (or for imposing liability related to lawfully providing or obtaining reproductive healthcare). Among other things, the Final Rule is intended to protect this information to combat state officials/regulators who, after the U.S. Supreme Court’s decision in Dobbs, pledged to pursue individuals who travel to another state to receive reproductive health care, such as an abortion or other contraceptive care, when that care is legal in the state where it is provided.

Summary of the Final Rule
The Final Rule prohibits the use or disclosure of protected health information (PHI) by group health plans, health care providers, or health care clearinghouses (collectively, “Covered Entities”) or their business associate to, (1) conduct a criminal, civil, or administrative investigation into or impose criminal, civil, or administrative liability on any person for the mere act of seeking, obtaining, providing, or facilitating reproductive health care, where such health care is lawful under the circumstances in which it is provided, or (2) identify any person for the purpose of conducting such investigation or imposing such liability, when the Covered Entity or business associate reasonable determines that one or more of the following exists:

• The reproductive health care is lawful under the law of the state in which such health care is provided under the circumstances in which it is provided (e.g., if a resident of one state travels to another state to receive reproductive health care, such as an abortion, that is lawful in the state where such health care is provided);

• The reproductive health care is protected, required, or authorized by Federal law, including the U.S. Constitution, regardless of the state in which such health care is provided (e.g., if use of the reproductive health care, such as contraception, is protected by the Constitution); or

• The reproductive health care is provided by a person other than the Covered Entity that receives the request for PHI and it is presumed to have been legally provided care. The care is presumed to be lawfully provided unless the Covered Entity:

o Has actual knowledge that reproductive health care was not lawfully provided under the circumstances in which it was provided (such as receiving care from an unlicensed provider); or

o Receives factual information from the person making the request for the use or disclosure of PHI that evidences substantial factual bases that the reproductive health care provided was not lawfully provided under the circumstances in which it was provided (such as law enforcement providing evidence that care was provided by an unlicensed health care provider).

The Final Rule does not prohibit Covered Entities from using or disclosing PHI for purposes otherwise permitted under the Privacy Rule where the request for PHI is not made for purposes of investigating or imposing liability on any person for seeking, obtaining, providing, or facilitating reproductive health care. For example, a Covered Entity or business associate could still use or disclose the PHI if it is being used to defend a provider in a professional negligence or misconduct claim or in a health oversight audit.

Effective Date of the Final Rule
The Final Rule, which is effective on June 25, 2024, requires Covered Entities and their business associates to comply with these requirements by December 23, 2024. Moreover, an updated Notice of Privacy Practices will need to be provided to participants by February 16, 2026.

This means, Covered Entities, including employers and sponsors of self-funded group health plans, will need to update their Notice of Privacy Practices by February 16, 2026 to address these new protections. Carriers of fully insured plans should be updating their Notices of Privacy Practices accordingly, though plan sponsors may wish to consult with their carriers to ensure they will be making these updates. HHS intends to publish updated model Notices of Privacy Practices in advance of the February 16, 2026 compliance date.

In addition, covered entities, including sponsors of self-funded group health plans, will need to update their HIPAA Privacy Policies and Procedures to reflect these changes no later than December 23, 2024, which includes updating the Privacy Policies and Procedures to ensure that the Covered Entity obtains a signed, written attestation from the requester related to any request for use or disclosure of PHI potentially related to reproductive health care requested for health oversight, judicial or administrative proceedings, law enforcement purposes, or disclosures to coroners or medical examiners. HHS intends to publish model attestation language in advance of the December 23, 2024 compliance date. Further, HIPAA staff should be made aware of these changes by December 23, 2024 and understand how to identify and respond to any requests that may potentially relate to reproductive health care.

Finally, Covered Entities should review their Business Associate Agreements (“BAAs”) to ensure their BAAs compel business associates to comply with all aspects of the Privacy Rule, including these new requirements.

 

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About the Author. This alert was prepared for [Agency Name] by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers, or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency and Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2024 Barrow Weatherhead Lent LLP. All Rights Reserved.

 

In Rev. Proc. 2024-25, the IRS released the inflation-adjusted amounts for 2025 relevant to Health Savings Accounts (HSAs) and high deductible health plans (HDHPs). The table below summarizes those adjustments and other applicable limits.

	2025	2024	Change
Annual HSA Contribution Limit (employer and employee)	Self-only: $4,300 Family: $8,550	Self-only: $4,150 Family: $8,300	Self-only: +$150 Family: +$250
HSA catch-up contributions (age 55 or older)	$1,000	$1,000	No change
Minimum Annual HDHP Deductible	Self-only: $1,650 Family: $3,300	Self-only: $1,600 Family: $3,200	Self-only: +$50 Family: +$100
Maximum Out-of-Pocket for HDHP (deductibles, co-payment & other amounts except premiums)	Self-only: $8,300 Family: $16,600	Self-only: $8,050 Family: $16,100	Self-only: +$250 Family: +$500

 

Out-of-Pocket Limits Applicable to Non-Grandfathered Plans

The ACA’s out-of-pocket limits for in-network essential health benefits have also been announced and have decreased for 2025.

	2025	2024	Change
ACA Maximum Out-of-Pocket	Self-only: $9,200 Family: $18,400	Self-only: $9,450 Family: $18,900	Self-only: -$250 Family: -$500

Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit within family coverage if the family out-of-pocket limit is above $9,200 (2025 plan years) or $9,450 (2024 plan years). Exceptions to the ACA’s out-of-pocket limit rule have been available for certain non-grandfathered small group plans eligible for transition relief (referred to as “Grandmothered” plans) since policy years renewed on or after January 1, 2014.  Each year, CMS has extended this transition relief for any Grandmothered plans that have been continually renewed since on or after January 1, 2014.  However, in its March 23, 2022 Insurance Standards Bulletin, CMS announced that the limited nonenforcement policy will remain in effect until CMS announces that such coverage must come into compliance with relevant requirements.   Thus, we will no longer see annual transition relief announced.

 

Next Steps for Employers

As employers prepare for the 2025 plan year, they should keep in mind the following rules and ensure that any plan materials and participant communications reflect the new limits:

• HSA-qualified family HDHPs cannot have an embedded individual deductible that is lower than the minimum family deductible of $3,300.
• The out-of-pocket maximum for family coverage for an HSA-qualified HDHP cannot be higher than $16,600.

All non-grandfathered plans (whether HDHP or non-HDHP) must cap out-of-pocket spending at $9,200 for any covered person. A family plan with an out-of-pocket maximum in excess of $9,200 can satisfy this rule by embedding an individual out-of-pocket maximum in the plan that is no higher than $9,200. This means that for the 2025 plan year, an HDHP subject to the ACA out-of-pocket limit rules may have a $8,300 (self-only) / $16,600 (family) out-of-pocket limit (and be HSA-compliant) so long as there is an embedded individual out-of-pocket limit in the family tier no greater than $9,200 (so that it is also ACA-compliant).

 

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About the Author. This alert was prepared by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers, or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency and Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2024 Barrow Weatherhead Lent LLP. All Rights Reserved.