Creditable Coverage for Medicare – You might have seen the term “creditable” or “credible” coverage when you first started looking into your Medicare options. If you want to delay Medicare enrollment past the age of 65, it is very important that you have creditable coverage in place. If not, you may be faced with penalties, and you might not be able to enroll in Medicare when you decide you need the coverage.
Let’s talk about why creditable coverage is so important and how to find out if your current insurance meets the requirements.
Why do I need credible coverage for Medicare?
You do not need creditable coverage unless you are delaying enrollment past age 65. If you decide to continue working and you have a group plan through your employer, it’s not uncommon for people to want to postpone Medicare. This is especially true if your employer helps pay your monthly premiums. So, whether it’s you who decides to keep working or your spouse that is on your group plan, you can delay enrollment without penalty as long as your employer’s plan is creditable.
If your health insurance coverage is not creditable, two things will happen.
First, the penalties. Medicare Parts A, B, and D each have their own penalties for anyone who delays coverage. However, most people get to enjoy premium-free Part A. If that applies to you, you will not be penalized if you don’t have creditable insurance in place. (That being said, if you aren’t paying a premium for Part A, you might as well sign up as soon as you’re eligible!)
The Part B and Part D premiums are calculated differently.
For Part B, your penalty is calculated first by determining how many full 12-month periods you went without coverage. For example, if you went 36 months without Part B, that is three 12-month periods. For each 12-month period you went without creditable insurance, add 10%. In this case, the total is 30%. Then, you multiply that number by the current premium, which is $170.10 this year. (Some people pay more, but $170.10 is the standard.) That amount is $51.03, which makes your total Part B premium $221.13. You pay this penalty for the rest of your life or as long as you have Part B in place. Plus, remember that the Part B premium goes up each year, so your penalty will also increase.
The Part D penalty is calculated by taking 1% of the national base beneficiary premium ($33.37 this year) times the number of months you didn’t have coverage. Using our example above (36 months), the penalty is $12.01. Again, you pay this penalty as long as you are enrolled in Medicare Part D.
Even if you enroll in Medicare Advantage (Part C) that combines all your coverage into one plan, you’ll still pay these penalties.
The penalties are reason enough to make sure you have the right insurance in place. But, there is a second reason as well. If you do not have creditable coverage and choose to delay Medicare enrollment, you will not be eligible for a Special Enrollment Period.
What does that mean? Once you decide you’d like to enroll in Medicare, you will have to wait until the General Enrollment Period to apply. The GEP runs from January 1 to March 31. If you enroll during this time, your coverage will not go into effect until July 1.
So, let’s say you decided on April 15 that you want to enroll in Medicare Part B, and you don’t currently have creditable coverage. At that point, there is nothing you can do until January of the following year. And even then, your coverage will not start for another six months. You could potentially go well over a year without coverage. Yikes!
Now, if it was just Medicare Part D you postponed, you can get that a little quicker. However, you can’t enroll until the Annual Enrollment Period, which starts on October 15. Once enrolled, your coverage will start on January 1.
On the flip side, if you did have creditable coverage, you would have been eligible to enroll as soon as that coverage ended, and you would have no lapse in health insurance.
Next, let’s take a look at how Medicare Part B and Part D define creditable coverage.
Creditable Coverage for Medicare Part B
Creditable coverage for Part B (and Part A) means that the insurance has at least as much coverage as Original Medicare. To put it simply, as long as your employer has at least 20 employees, your coverage is creditable. The same is true for union-sponsored plans and Federal Employee Health Benefits (FEHB). There are some smaller organizations that have creditable coverage, but you will need to consult with your HR director or benefits manager to make very sure yours falls into that category.
Creditable Coverage for Medicare Part D
Part D is a little more tricky. Even if you have a large employer, we highly suggest making sure the prescription portion of your coverage is still creditable. We have seen instances where the medical portion passed, but the prescription drug coverage did not.
Prescription drug coverage is creditable if:
- Pays at least 60% of the cost;
- Covers name-brand and generics;
- Offers a variety of pharmacies; and
- Has no annual benefit limit or has a low deductible
If you decide to delay Medicare enrollment, we suggest downloading a copy of the CMS-L564 form. This is the document that the Social Security Administration will request to waive your penalties if you postpone your transition into Medicare. Keep copies of this form as you may need to send it to multiple carriers.
If you have questions about your current insurance or want help deciding if you should stay on your employer’s group plan or move to Medicare, call us today. Our Medicare advisors will help you decide which choice makes sense for you and your family.