Credible Coverage & Medical Loss Ratio Rebate Updates

Group health plan sponsors must disclose to individuals who are eligible for Medicare Part D and to the Centers for Medicare and Medicaid Services (CMS) whether their prescription drug coverage is at least as good as the Medicare Part D coverage (in other words, whether their prescription drug coverage is “creditable”).

Disclosure to Medicare-eligible individuals is due by Oct. 15, 2024, the start date of the annual enrollment period for Medicare Part D while the disclosure to the CMS is due within 60 days after the start of each plan year.
The Inflation Reduction Act of 2022 (“IRA”) made several changes that could affect the structure of the Medicare Part D prescription drug benefit program beginning in 2025 including changes amending which categories of benefit count toward true out-of-pocket costs and lowering the out-of-pocket max to $2,000. Because the IRA enhances the Medicare Part D benefit, it could result in some group health plans that historically met a creditable coverage standard to lose that status.

Insurance carriers can confirm whether your plan’s coverage is creditable or non-creditable. Most plans should remain credible as far more goes into the actuarial testing than just the out-of-pocket maximums. In general, the actuarial equivalence test measures whether the expected amount of paid claims under the entity’s prescription drug coverage is at least as much as the expected amount of paid claims under the standard Part D benefit.

Model notices from the CMS can be used to satisfy creditable/non-creditable coverage disclosure requirements.

• A Medicare Part D Notice of Creditable Coverage.
• A Medicare Part D Notice of Non-Creditable Coverage.
• Spanish versions are also available.

Medical Loss Ratio Rebates

Medical Loss Ratio (MLR) rebate checks are currently arriving for many companies. MLR rebates are required under the Affordable Care Act (ACA) and are furnished when a health insurer does not utilize enough of the premiums they have received directly towards the cost of medical claims and activities that improve the quality of care.

There is an 80/20 rule that generally applies and requires insurance companies to spend at least 80% of the money they take in from premiums on healthcare costs and quality improvement activities. The other 20% can go to administrative, overhead, and marketing costs. Insurance companies in the large group market (more than 50 employees) must spend at least 85% of premiums on care and quality improvement.

When an insurance company does not meet these MLR requirements, they are required to furnish employers with a rebate on a part of the premiums that they have received. Please take note that the MLR percentages are not specific to an employer group or an individual but are instead based on the insurer’s aggregate market data in each State.

If a company receives an MLR rebate check, they are required to utilize it in one of three ways:

• Provide a cash rebate to plan participants;
• Reduce plan participants’ future premium contributions; or
• Provide benefit enhancements.

Companies who are eligible to receive a rebate are not required to take any action. Insurance companies will, in most cases, send the rebate check directly to your firm.