On April 7, 2025, the Centers for Medicare & Medicaid Services (CMS) issued final Calendar Year 2026 Instructions which introduce a new method for determining whether employer-sponsored prescription drug coverage is considered “creditable” under Medicare Part D.  The instructions had previously been released in proposed draft form in January 2025.   

Background: 

Employers that offer prescription drug coverage to Medicare-eligible employees and retirees are required to notify both the individuals and CMS annually about whether their coverage is creditable (i.e., as good as or better than Medicare Part D) or non-creditable. 

Under current guidance, employers can use either of the following methods to determine whether coverage is creditable: 

• Actuarial Value: the plan’s actuarial value must be equal to or better than the actuarial value of the Part D plan 

• Simplified Determination: the plan design must meet four standards (not available for plans that apply for the retiree drug subsidy or participate in an Employer Group Waiver Plan) 

The Inflation Reduction Act of 2022 (IRA) introduced substantial changes to Part D benefits, including a $2,000 cap on out-of-pocket spending for 2025 (increasing to $2,100 in 2026).  These changes will increase the actuarial value of the Part D benefit to 72% for 2026 (up from 60% in 2025) and could make it more difficult for employer sponsored plans to pass creditable coverage testing.   

Whether a plan’s prescription drug coverage is considered creditable or not could impact Medicare-eligible employees and retirees enrolled in the plan.  While employers are not required to offer creditable coverage, individuals who go without creditable coverage for 63 days or more after becoming eligible for Medicare Part D may face late enrollment penalties when they eventually enroll in Part D.  

New Method for 2026:  Revised Simplified Determination Method  

Beginning in calendar year 2026, employers may use one of the following three methods to determine whether their prescription drug coverage is creditable: 

• Actuarial Value  

• Simplified Determination 

• Revised Simplified Determination (new) 

Note: The Simplified and Revised Simplified Determination methods are not available for plans that apply for the retiree drug subsidy or participate in an Employer Group Waiver Plan. 

Under the Revised Simplified Determination method, coverage is considered creditable if it: 

• Provides reasonable coverage for both brand-name and generic prescription drugs and biological products; 

• Offers reasonable access to retail pharmacies; and  

• Is designed to pay on average at least 72% of participants’ prescription drug expenses  

Note: The final instructions do not explain the criteria CMS will use to determine whether a plan provides “reasonable coverage” or “reasonable access.”   

Looking Ahead to 2027: 

Starting in 2027, employers must use the actuarial value method or the Revised Simplified Determination method to determine whether their plan offers creditable coverage. 

Client Actions: 

• Review your plan’s coverage to evaluate whether it meets the new creditable coverage standards for 2026 and ongoing.   

• If you offer a fully insured plan, check with your insurance carrier to confirm creditable status. If your plan is self-funded, contact your pharmacy benefit manager (PBM) or third-party administrator (TPA) for assistance. 

• If your plan will no longer be creditable, consider whether additional communications for Medicare-eligible employees and retirees may be necessary. 

Additional Resources: 

CMS Creditable Coverage Disclosure Requirements 

Inflation Reduction Act and Medicare 

CMS Fact Sheet – 2026 Part D Redesign Program Instructions