What is Creditable Drug Coverage?

By Medicare Benefits - September 16, 2020

The term “creditable coverage” is health insurance or prescription drug coverage that meets certain minimum specifications. Creditable drug coverage refers to the term Medicare uses to describe prescription drug benefits that are at least as good as the current basic Medicare Part D plan that is available.

How creditable drug coverage works

Medicare Part D helps lower out-of-pocket costs associated with prescription medications. In order for coverage to be considered creditable, it must meet the same requirements and provide equal or better coverage as Medicare’s most basic prescription plan.

There are a few different requirements that prescription drug plans must fulfill to be creditable. First, the plan must offer coverage for both generic and prescription medications. In addition, the plan must provide the individual with a range of providers to choose from or include the option for mail-order prescriptions. Creditable coverage options must also provide coverage for at least 60 percent of the costs of medications and must have no annual benefit maximum or a low deductible.

How creditable drug coverage may affect your Medicare benefits

When you sign up for Medicare, you will have the opportunity to enroll in prescription drug coverage. If you choose not to enroll in Part D coverage during this initial period and decide later to enroll, you may incur late enrollment fees.

However, if you are have other health insurance at the time you enroll in Medicare through a union or an employer, you may be able to delay enrolling in a Medicare drug plan as long as your current drug coverage is creditable. 

If you are currently using alternative drug coverage when it is time to sign up for Medicare, your current insurer is required to provide notice of whether or not your current coverage qualifies as creditable. This notice is mandatory regardless of whether the insurer is functioning as primary insurance or secondary to Medicare.

This notice provides individuals who are eligible for Medicare benefits important information regarding their prescription coverage. The notice of creditable coverage is arguably more important for individuals who do not currently have a creditable plan. If you get notified that your current coverage is not creditable, you will not qualify for delayed enrollment for Medicare prescription drug coverage. 

If your current drug coverage is creditable, you have the option to continue using that coverage. This may be beneficial for some people as they may be able to receive greater benefits at a lower cost than they would be receiving with a Medicare plan. Pre-existing creditable coverage also allows these recipients to delay their enrollment in a Medicare Part D plan and avoid having to pay any late fees associated with the delay.

If you do elect to continue using your creditable coverage, you will qualify for a Special Enrollment Period when you lose it due to employment ending. If you learn that you are going to be losing your current coverage, you will have a two-month window in which you can elect to enroll in a Medicare prescription drug plan with no additional charges.

It is important to hold onto any notices you receive from your current health insurance provider and to keep records of all your insurance coverage documents. This documentation may be needed when you sign up for Medicare at a later date to avoid late enrollment penalties.

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