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What Does Creditable Coverage Mean for Medicare?

Medicare beneficiaries may run into a number of phrases or important terms that aren’t exactly plain English. Creditable coverage is one that can influence your Medicare options but may not immediately make sense. That’s why we’re here — to help you make sense of your Medicare.

What is Creditable Coverage?

When you get down to it, creditable coverage is a fancy term for a simple concept. For Medicare, creditable coverage is an insurance plan comparable to your Medicare coverage. This means it can be as good or better than Medicare’s coverage to qualify. You can have creditable coverage for health insurance (compared to Original Medicare) or prescription drug coverage (compared to Medicare Part D).

Whether or not something is creditable depends on the value of the coverage. Medicare determines this with an actuarial equivalence test, which looks at the claims paid out by the plan and compares the value to the those that would have been paid by Medicare. For a prescription drug plan to be considered creditable, it must:

  • Provide coverage for brand-name and generic drugs
  • Provide reasonable access to providers
  • Be designed to pay at least 60 percent of prescription drug costs
  • And at least one of the following:
    • Have either no annual benefit maximum or one at least $25,000
    • Have an actuarial expectation that the amount payable will be at least $2,000 annually
    • If the beneficiary has an integrated health plan (a health plan that includes drug coverage, for example), the plan’s deductible must not be higher than $250 annually, have either no annual benefit maximum or one of at least $25,000, and have no less than a $1,000,000 lifetime combined benefit maximum

How Do I Know if I Have Creditable Coverage?

As you can see, deciding if your plan qualifies as creditable coverage can be difficult. Luckily, you don’t have to navigate everything yourself. As part of the Medicare Modernization Act (MMA) insurance carriers must notify any Medicare-eligible beneficiaries that their plans qualify as creditable coverage for prescription drug plans. You’ll also receive an annual Notice of Creditable Coverage from your group health plan.

For a group health plan to count as creditable, it must be non-retiree group coverage. The plan may be from your employer, your spouse’s employer, or a union, but there are still some requirements. To be considered creditable coverage, a group health plan must:

  • Be from an employer with over 20 employees
  • Be legally married to your partner if your coverage comes through them
  • Offer creditable prescription drug coverage

What Can I Do with Creditable Coverage?

You found out that you have creditable coverage and you’re eligible for Medicare. What can you do with that information? Creditable coverage largely comes into play with Medicare late enrollment penalties. You may receive a late penalty if you go without creditable coverage for a certain amount of time, and these penalties continue to grow.

If you have creditable coverage, this means that you can choose to delay your enrollment in Medicare until after it ends. You’d then enter a Special Enrollment Period  the month after your coverage ends that continues for eight months. During this time, you’ll be able to enroll in Medicare without risking a late enrollment penalty.

Why would you want to delay Medicare coverage? One common reason may be that you like your current health and drug coverage. It’s worth remembering that you could also have both, with Medicare acting as a supplementary coverage to your current insurance plan. When making this decision, it can help to speak with a licensed insurance agent.

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So, what is creditable coverage? It’s expanded choices if you’re looking at your Medicare options. It means you can choose to enroll in Medicare, double-up on your coverage, or even hold off on enrolling. When it comes to health insurance, having different solutions can really be helpful.