Summary: On November 28, 2025, the Centers for Medicare and Medicaid Services (CMS), the federal agency governing Medicare, released a proposed rule for 2027 impacting the Medicare Part D prescription drug benefit program ("proposed rule").
Employers sponsoring group health plans are advised to pay attention to two specific provisions within the proposed rule, outlined below:
- Proposal to exclude account-based plans from the Notice of Creditable Coverage disclosure requirement for the following account-based plans:
- Health reimbursement arrangements (HRAs), including individual coverage HRAs (ICHRAs),
- Flexible spending accounts (FSAs), and
- Health savings accounts (HSAs)
- Proposal to sunset the use of the current simplified determination method and codify the revised simplified determination method, starting in 2027, for creditable coverage determination purposes.
Read on for more information and employer plan sponsor considerations.
Creditable Coverage Background
Prescription drug coverage is considered "creditable" when its actuarial value equals or exceeds the actuarial value of standard Medicare Part D prescription drug coverage. Generally, this actuarial determination measures whether the expected amount of paid claims under the group health plan’s prescription drug coverage is at least as much as the expected amount of paid claims under the Medicare Part D prescription drug benefit. It is considered "non-creditable" when it does not provide, on average, as much coverage as Medicare's standard Part D plan.
Employer group health plan sponsors are not required to offer prescription drug coverage to their employees. However, they are required to annually notify Medicare Part D-eligible plan participants of their prescription drug plans' creditable coverage status (typically referred to as the "Notice of Creditable Coverage").
Individuals eligible for Medicare Part D who fail to maintain creditable coverage for a period of 63 continuous days or more will face a late enrollment penalty when they eventually enroll in Part D. Consequently, this Notice of Creditable Coverage serves an important purpose for these individuals to prove they maintained creditable coverage and avoid late enrollment penalties when they ultimately enroll in Part D. Click here for a Risk Strategies article with more details.
CMS provides model notices (accessed here), available in both English and Spanish, which employer group health plan sponsors can leverage to satisfy their notice distribution requirements.
Due to several changes to Medicare Part D plans that began in 2025, some employer-sponsored prescription drug plans might find it challenging to meet creditable coverage requirements and could be considered "non-creditable" in 2026. Click here for a Risk Strategies article for more information.
Determination of Creditable Coverage for 2026
As we previously reported here, there are three approved methods from CMS to determine whether coverage is creditable for Medicare Part D purposes for the 2026 calendar year:
- The current simplified determination method,
- The revised simplified determination method, and
- The actuarial determination method.
For the 2026 calendar year, employer plan sponsors can generally use one of the two available "safe harbor" simplified determination methods (detailed below). These two "safe harbor" methods provide creditable coverage simply as a result of the way they are designed.
Current Simplified Determination Method:
The elements under the current simplified determination method (released in 2009) to deem a prescription drug coverage benefit creditable are outlined below:
- The plan provides coverage for brand and generic prescriptions;
- The plan provides reasonable access to retail providers;
- The plan is designed to pay on average at least 60% of participants’ prescription drug expenses; and
- The plan satisfies at least one of the following[1]:
- The coverage has no annual benefit maximum or maximum annual benefit payable by the plan of at least $25,000;
- The coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare-eligible individual; or
- For employers that have integrated prescription drug and health coverage, the integrated plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit of at least $25,000, and has no less than a $1,000,000 lifetime combined benefit maximum.
An integrated plan is a plan where the prescription drug benefit is combined with other coverage offered by the employer, such as medical, and the plan contains all of the following plan provisions:
- A combined plan year deductible for all benefits under the plan;
- A combined annual benefit maximum for all benefits under the plan; and
- A combined lifetime benefit maximum for all benefits under the plan.
Revised Simplified Determination Method:
The elements under the revised simplified determination method to deem a prescription drug coverage benefit creditable, in accordance with the Final CY 2026 Part D Redesign Program Instructions (Final Instructions), are outlined below:
- The plan provides reasonable coverage for brand name and generic prescription drugs and biological products;
- The plan provides reasonable access to retail pharmacies; and
- The plan is designed to pay on average at least 72% of participants’ prescription drug expenses.
Notably, the Final Instructions clarify that for calendar year 2026 only, employer plan sponsors have the choice to use either the current simplified determination method or the revised simplified determination method to determine whether their prescription drug coverage is creditable.
Click here for additional insight into the revised simplified determination method.
Actuarial Determination Method:
If a plan’s prescription drug coverage does not satisfy the requirements for being considered creditable under either of the design-based "safe harbor" simplified determination methods detailed above, an actuarial determination will need to be made. Prescription drug coverage is considered to be creditable under this determination method if the actuarial value of that coverage equals or exceeds the actuarial value of "defined standard prescription drug coverage" using generally accepted actuarial principles in accordance with CMS actuarial guidelines. Generally, actuarial equivalence refers to a determination that, in the aggregate, the dollar value of drug coverage for a set of beneficiaries under one plan can be shown to be equal to the dollar value for those same beneficiaries under another plan.[2]
Risk Strategies’ team of qualified actuaries can support employer plan sponsors with the actuarial determination method to determine creditable coverage status.
RDS Program: Employers participating in the Retiree Drug Subsidy (RDS) program cannot use either of the design-based "safe harbor" simplified determination methods detailed above and must use the actuarial determination method.
CMS Proposed Rule for 2027 Calendar Year
CMS released the proposed rule[3] for calendar year 2027 on November 28, 2025.
The proposed rule contains two noteworthy provisions directly impacting employer-sponsored group health plans, outlined below:
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Proposal to exclude account-based plans from the Notice of Creditable Coverage disclosure requirement
CMS is proposing to exclude account-based plans from the definition of "group health plan" required to provide a Notice of Creditable Coverage to plan participants.[4] CMS specifically lists the following health plans as "account-based" plans in the proposed rule:
- Health Reimbursement Arrangements (HRAs), including individual coverage HRAs (ICHRAs),
- Flexible Spending Accounts (FSAs), and
- Health Savings Accounts (HSAs)
CMS Commentary: For this particular proposed change, CMS acknowledges that these account-based plans "do not actually offer prescription drug coverage; rather, they are arrangements created by employers and designed to provide individuals savings on healthcare costs through pre-tax contributions and reimbursements, that are often provided to supplement other coverage, such as another group health plan or individual market coverage. Therefore, the benefit design of account-based plans makes concepts, such as disclosure of creditable coverage, inapplicable to those arrangements."
CMS further states that comparing an account-based plan generally only providing a financial benefit to employees (such as an HRA) against a prescription drug plan is not an "apples to apples" comparison "because account-based plans are fundamentally different from prescription drug plans."
This proposed change is intended to reduce administrative burden as well as "provide clarity and ensure consistency for Medicare-eligible individuals." In a similar vein, it is also intended to reduce the risk of plan participants "receiving potentially contradictory and confusing information." CMS asserts that "this confusion disadvantages the Part D Medicare-eligible individual in their ability to make an informed choice about their prescription drug coverage."
Finally, CMS declares that this proposed change "aligns with the President’s January 31, 2025, Executive Order (E.O.), titled Unleashing Prosperity Through Deregulation, as, if finalized, it would eliminate the need to acquire and maintain resources and expertise to comply with federal regulations to provide creditable coverage disclosures."
On a practical level, the Notice of Creditable Coverage disclosure requirement generally affects ICHRAs more than FSAs, HSAs, and otherwise integrated HRAs. If finalized, this proposed change would be a welcome development for ICHRA plan sponsors in particular, easing their administrative burden here.
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Proposal to sunset the use of the current simplified determination method and codify the revised simplified determination method, starting in 2027
For purposes of creditable coverage determination, CMS is proposing to sunset the use of the current simplified determination method and codify the revised simplified determination method, starting in 2027.
If this proposal is finalized, non-RDS group health plans may not use the current simplified determination method for the 2027 calendar year to determine whether their prescription drug is considered creditable. Rather, non-RDS plans must choose either the revised simplified determination method or the actuarial determination method for 2027.
Additionally, CMS proposes to modify from 72% to 73% percent of prescription drug costs the non-RDS group health plan must cover compared with coverage under a Part D defined standard plan. This means that the revised simplified determination method for 2027 will contain a slight change to the third element of the criteria, where the plan is designed to pay on average at least 73%[5] of participants' prescription drug expenses, instead of the 2026 element valued at 72%. See below for the elements of the revised simplified determination method for 2027 (if finalized):
- The plan provides reasonable coverage for brand name and generic prescription drugs and biological products;
- The plan provides reasonable access to retail pharmacies; and
- The plan is designed to pay on average at least 73% of participants’ prescription drug expenses.
Employer Group Health Plan Sponsor Considerations
CMS is accepting comments on the proposed rule through January 26, 2026.
In the meantime, employer group health plan sponsors should review this proposed rule as an instructive preview to understand where the final rule might land as they begin to consider their 2027 prescription drug plan design for creditable coverage determination purposes.
For employers sponsoring account-based plans, particularly ICHRAs, continue to monitor this development for the release of the final rule by CMS (likely in early 2026) to confirm whether your account-based plan will no longer be required to provide the Notice of Creditable Coverage to plan participants for the 2027 calendar year.
Contact your Risk Strategies team members with any questions, or contact us directly here.
[1] The Affordable Care Act prohibits health plans from imposing lifetime and annual limits on the dollar value of essential health benefits.
[2] Preamble to Medicare Part D Regulations (Jan. 28, 2005).
[3] Proposed rule titled "Contract Year 2027 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, and Medicare Cost Plan Program."
[4] Section 1860D–13(b)(4)(C) of the Social Security Act.
[5] CMS states that "in subsequent years, this value is projected to increase, ultimately reaching 75 percent in 2030 and stabilize thereafter."
