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What is Creditable Coverage for Medicare?

6 mins read
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Creditable coverage refers to a type of medical insurance, prescription drug coverage, or any other health-related benefit program that meets the specific minimum standards established by Medicare. To qualify as creditable coverage for Medicare, a health plan must offer benefits at least as comprehensive as, or better than, those provided by the specific Medicare plan you intend to postpone enrollment in. 

Creditable coverage plans encompass various options, including group and individual health plans, student health insurance plans, and government-sponsored or government-provided plans.

Creditable coverage allows you to delay signing up for Medicare without incurring penalties related to late enrollment. It also enables you to maintain continuous access to healthcare benefits when transitioning between different health plans. With creditable coverage, you can avoid or delay enrolling in Medicare Part B (Medical Insurance) and Medicare Part D (Prescription Drug coverage). 

Types of Creditable Coverage

You must have creditable health coverage if you wish to delay enrollment under Medicare. Here are the most common types of creditable coverages:

Large Employer Group Plans and Union-sponsored Health Plans 

Medicare doesn’t classify all types of employer or union insurance coverage as creditable, and the distinction typically hinges on the size of an organization. If a beneficiary’s employer or union has fewer than 20 employees, they should enroll in Medicare Part A and Part B when they initially qualify. If the employer or union has over 20 employees, Medicare will serve as secondary coverage to the beneficiary’s group plan. 

If you’re considering delaying Medicare enrollment, make sure to verify if your job-based or union-sponsored insurance serves as the primary or secondary coverage.

Federal Employees Health Benefits (FEHB)

The Federal Employees Health Benefits (FEHB) program is an extensive healthcare benefits initiative available to current and retired federal employees and their eligible family members. Because all plans within the FEHB Program offer coverage as good as or superior to Medicare, it counts as creditable coverage. 

Spouse’s Union or Large Group Health Plans

These are similar to large employer group plans. The coordination of benefits under Medicare remains the same when you have your spouse’s union or large group health plan while they are actively employed. That means you will have creditable coverage for Medicare under this circumstance.

Creditable Coverage for Medicare Part B

Delaying Medicare Part B due to creditable coverage is a common practice. Still, it’s essential to understand that forgoing Medicare Part B without creditable coverage can result in significant financial and healthcare consequences in the future. When you become eligible for Original Medicare (Part A and Part B), failing to enroll in Medicare Part B leads to an increasing rate of penalty for each year you lack creditable coverage.

Once you eventually make the decision to enroll in Medicare Part B, you will be responsible for paying both the penalty and your monthly Medicare Part B premium. To determine whether your coverage is creditable, you must refer to an annual letter from your insurance provider which notifies the Medicare-eligible members of your household. Failure to have creditable coverage can have serious financial consequences. 

Creditable Coverage for Medicare Part D

Creditable prescription drug coverage typically matches or surpasses the quality of Medicare Part D. The different types of prescription drug coverage include:

  • Veterans Affairs (VA) benefits
  • TRICARE for Life (TFL)
  • Federal Employee Health Benefits (FEHB)
  • Occupation based and plans for retired personnel

You should receive a notification from your employer or plan indicating whether your drug coverage qualifies as creditable around September of each year. Contact your HR team or benefits manager if you haven’t received this notice. Since this information may come in other documents like a plan newsletter and not necessarily in a separate mail, you need to be vigilant of its arrival. 

If you intend to delay Medicare enrollment because you have continued to work past 65 years, it’s recommended to consult with your employee benefits administrator for clarity on whether your employer insurance offers creditable prescription drug coverage.

Maintaining creditable drug coverage ensures you won’t face a late enrollment penalty for postponing your Part D enrollment. Having creditable coverage also means you’ll have a two-month Special Enrollment Period (SEP) if you anticipate losing this coverage.

You are likely to incur a late penalty if you lack creditable coverage and choose to delay enrolling in Plan D. This penalty amounts to an additional 1% of the premium for each month you delay. You’ll keep paying it while you have Part D coverage.

Enrolling in a Part D plan within 63 days of losing or leaving creditable drug coverage is crucial.

Entities Providing Proof of Creditable Coverage

If you choose to maintain your existing health coverage once you become eligible for Medicare, it is mandatory to furnish evidence of creditable coverage. The obligation to provide this proof rests with the following entities:

  • Group health plans
  • Department of Veterans Affairs (VA)
  • Unions
  • Federal, state, and local governments

Once you decide to enroll in Original Medicare, it requires you to to present proof of creditable coverage to prevent late enrollment penalties. In the case of a large employer group health plan, you will need your employer to complete the CMS-L564 form. This form is a formal request for employment information and serves as evidence of creditable coverage for Medicare. Once your employer fills out Section B of the form, you should submit the document along with your Medicare enrollment application. 

Notice of Creditable Coverage

The Notice of Creditable Coverage is your official proof of coverage when you first qualify for Medicare. Those with creditable coverage through an employer or union receive this notice through annual mailings.

This notice explicitly states that your current coverage is creditable. Make sure to keep this notice filed securely for easy access. You can expect to receive it by mail each September before the Medicare Annual Enrollment Period.

Keeping track of this notice is highly critical, as it becomes a requirement when enrolling in Medicare Part B after the Initial Enrollment Period (IEP). You can request a replacement copy through your benefits administrator if you happen to misplace the notice.

Penalties for Lack of Creditable Coverage

If there is a delay of 63 days or more after your IEP – when you could have signed up for a Medicare plan but didn’t and also didn’t have creditable coverage – you might face a late enrollment penalty. The penalty is added to your monthly premium.

As mentioned, the penalty for Medicare Part D amounts to 1% of the national base premium multiplied by the number of months you went without creditable coverage. There’s also a Medicare Part B penalty of 10% for each 12-month interval during which you lacked coverage. These penalties are not temporary but continue indefinitely. 

If you have any further questions or concerns about creditable coverage for Medicare, don’t hesitate to reach out to CoverRight. We’re here to help you navigate the complexities of healthcare insurance, ensuring you have the necessary knowledge to make well-informed decisions.

Frequently Asked Questions

Can you delay Medicare enrollment with creditable coverage?

Yes, delaying your Medicare enrollment is possible when you have creditable coverage. Creditable coverage is essentially health insurance that matches or exceeds Medicare’s standards. 

How can you determine if your coverage is creditable?

To ascertain if your coverage is creditable, you must receive an annual notice from your insurance provider that specifies its credibility. This notice is typically sent out each September. Contact your insurance carrier, union, human resources department, or benefits manager if you have any doubts. 

How do insurance carrier letters play a role in creditable coverage?

Insurance carrier letters are instrumental in establishing the creditability of your coverage. They prove that your current plan meets or exceeds Medicare standards. These letters are usually sent annually, and it’s vital to retain them in case you need to show proof when enrolling in Medicare Part B after your IEP.

Which coverage types are not creditable for Medicare Part B and Part D?

Coverage types typically not considered creditable for Medicare Part B and Part D include most short-term health plans, health discount plans, and prescription coupon programs. Verifying your specific plan’s creditability with your insurance provider or benefits administrator is highly recommended. 

Is COBRA coverage creditable for Medicare?

Your COBRA prescription drug coverage can be deemed creditable if it is as good as Medicare Part D. In this case, you can delay enrolling in a Medicare Part D drug plan without incurring late enrollment penalties. When your COBRA coverage concludes, you’ll have a Special Enrollment Period of two months after the month COBRA coverage ends to enroll in any suitable drug coverage plan- either part D or Medicare Advantage Plan that includes drug coverage. 

COBRA is not considered creditable for Medicare Part A and Part B coverage. If you lose your employer-sponsored health plan, sign up for COBRA, and are eligible for Medicare but don’t enroll, you could face Medicare late enrollment penalties in the future. These penalties will be calculated from the date your employer coverage ends.

Richard Chan

Richard is the Founder of CoverRight and based in New York. He is passionate about empowering consumers to take control of their health and finances. Prior to starting CoverRight, Richard had extensive experience working in financial services with over 8 years' experience in consumer lending and investment banking.

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