Creditable coverage is a health benefit, prescription drug plan, or health insurance plan that meets a minimum set of qualifications. Plans can include both individual and group health plans.
Creditable coverage is used as a measurement by Medicare to figure out if eligible enrollees must pay late enrollment penalties.
While creditable coverage is most often associated with prescription drug coverage, it does apply to health insurance plans also as most of us, when working, have a health plan that also provides our prescription drug coverage.
What counts at creditable coverage?
For a plan to be considered as creditable, it must provide coverage that is at least as good as Medicare. The plan must
- Cover both generic and prescription medications
- Not have a plan maximum or offer a low deductible
- Cover at least 60% of the prescription drug’s cost
- Offer sufficient pharmacy choices or provide a mail-order option
- Provide at least the same level of benefits as offered by Medicare
There are other stipulations as well. For those that choose to continue working past 65 (Medicare eligibility age) and still have group benefits through work, there are two main numbers to remember.
The first is that for health insurance to be creditable, there need to be at least 20 employees. If there are less than 20 employees, Medicare will not consider it creditable and you may face late enrollment penalties if you chose to not enroll in Medicare when you are first eligible.
September of every year your employer will send you a letter letting you know if your prescription drug coverage is considered creditable (SAVE THESE LETTERS!). If it is not considered creditable, ensure that you have a plan to switch before you incur a late enrollment penalty.
Other types of creditable coverage include VA benefits, TRICARE, CHAMPVA, Indian Health Services, and the FEHB program. You may also have creditable coverage through a COBRA plan (to learn how COBRA and Medicare interact, read more here).
