Employer Obligations to Disclose Creditable Status of Prescription Drug Coverage to Certain Enrollees and to CMS under Medicare Part D Rules

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1 Legislative Alert November 7, 2014 Employer Obligations to Disclose Creditable Status of Prescription Drug Coverage to Certain Enrollees and to CMS under Medicare Part D Rules Most sponsors of plans with drug coverage must meet two annual reporting obligations under Medicare Part D: (1) a Notice disclosure to Medicare Part D eligible enrollees, and (2) an online disclosure to CMS. This article discusses the basics of these obligations as well as certain nuances that may simplify the process for sponsors. Essentially all employers sponsoring group health plans providing prescription drug coverage, whether insured or self-insured ( Rx Plan Sponsors ), must meet two Medicare Part D disclosure requirements. The first is the requirement to disclose the creditable status of the prescription drug coverage to all plan enrollees (and those seeking to enroll) who are eligible for Medicare Part D. The second is the requirement to disclose such status, along with some additional information, to the Centers for Medicare & Medicaid Services (CMS). Two of the most important things to keep in mind are: Often few enrollees are Medicare Part D- eligible. In many cases, Rx Plan Sponsors may find they have few, if any, enrollees in their active employee plans who are Medicare Part D- eligible. To be Part D-eligible, an individual must actually be enrolled in Medicare Part A or Part B. However, it can be difficult for Rx Plan Sponsors to identify such enrollees, particularly enrolled spouses and dependents of employees as well as COBRA qualified beneficiaries. Thus, many Rx Plan Sponsors err on the side of caution and provide the disclosure to all enrollees. Separate disclosure to CMS required within 60 days of start of a plan year. While many Rx Plan Sponsors may be aware of the enrollee disclosures, they are unaware of the CMS reporting requirement, which generally must be done once per year, within the first 60 days of the start of a new plan year. The CMS disclosure is done online and is fairly straight-forward. The purpose of this article is to provide some basics on these disclosures along with some Frequently Asked (FAQs) with respect to nuances of these disclosure rules. 1. Medicare Part D Disclosure Notice to Eligible Individuals Rx Plan Sponsors must provide a notice to any Medicare Part D-eligible individuals enrolled in or seeking to enroll in prescription drug coverage as to whether such coverage is creditable or non-creditable (See the second question in the FAQs of this Alert on how this is determined). The disclosures from the Rx Plan Sponsor

2 Legislative Alert Page 2 are intended to help such individuals make informed and timely decisions about whether to enroll in a Part D plan and whether a delay in enrolling might result in penalties. Model Notices CMS provides model notices, including Spanish versions. In most cases it is advisable to use the models, which do require some limited customization by Rx Plan Sponsors prior to distribution. Note that these model notices are regularly updated, so Rx Plan Sponsors should download and use the most current versions each year from the CMS website. Date Due The notice to Part D-eligible individuals must be provided on the occurrence of five different events: 1. Once per year. Guidance requires providing the notice on an annual basis prior to October 15, which is the first day of the Medicare Part D open enrollment period. Guidance does not specify how far in advance of October 15 the notice must be provided. However, it is often helpful to enrollees to provide the notice close to October 15 to inform them of the Medicare Part D open enrollment period. Many Rx Plan Sponsors choose to meet this requirement through distribution to all plan participants with enrollment materials, including at annual open enrollment or mid-year new hire enrollment, regardless of when that occurs during the year. This will typically be viewed as meeting the notice requirement under occurrences 2 and 3 below. 2. Prior to an individual's initial enrollment period for Part D. For most individuals, the initial enrollment period for Part D is generally the seven-month period that begins three months before the month an individual first becomes covered under either Part A or Part B of Medicare, and ends three months after. 3. When the individual originally becomes eligible under the group plan. 4. Upon a change in the plan's creditable status, including termination of the prescription drug plan. Timely delivery of the notice allows the individual the opportunity to enroll in Part D if creditable coverage is lost and avoid late enrollment penalties. 5. Upon an individual's request. 2. Medicare Part D Disclosure to CMS Rx Plan Sponsors must disclose to CMS whether coverage is creditable or non-creditable. The CMS disclosure is done online link. An Rx Plan Sponsor can make a single disclosure covering multiple plan options, even if some options are creditable and others are not. Other items needed in the disclosure include: Plan year beginning and end date (this cannot exceed 365/366 days) Expected number of Part D-eligible individuals expected to be covered (presumably this is just a best guess number due to the difficulty in identifying Part D-eligible individuals) Date the creditable coverage notice was provided to Part D-eligible individuals Date Due The Medicare Part D disclosure to CMS is due: 1. Within 60 days of the beginning of the plan year; 2. Within 30 days of termination of coverage; and 3. Within 30 days of change in creditable coverage status. Please see some frequently asked questions on the following pages. Frequently Asked

3 Legislative Alert Page 3 What plans do these rules apply to? What makes prescription drug coverage creditable or non-creditable? What is the definition of a Part D-eligible individual for purposes of the Part D disclosure requirements? These disclosure requirements apply to most group health plans providing prescription drug coverage, including plans sponsored by private employers, churches, certain governmental entities, nonprofit organizations, and Indian tribal organizations. This includes plans of any size, and the requirements apply to all plan sponsors regardless of whether the plans are insured or self-insured. Whether prescription drug coverage of any type is creditable for Medicare Part D purposes depends on whether the plan covers prescription drugs in a manner similar to Medicare Part D. CMS guidance states that creditable coverage is prescription drug coverage that is the actuarial equivalent of Medicare Part D. For fully insured plans, carriers typically can provide information on whether a plan is creditable or not. Self-insured plans may need to consult with an actuary for a determination. Note the situation that often requires the most scrutiny is a high-deductible health plan intended to meet health savings account eligibility requirements. There is also a simplified method for determining creditable status that is available to most Rx Plan Sponsors. To qualify as creditable, the plan must: 1. Provide coverage for both brand-name and generic prescriptions; 2. Provide reasonable access to retail providers; 3. Be designed to pay an average of at least 60 percent of participants prescription drug expenses; and 4. Satisfy at least one of the following standards: a. The prescription drug coverage either has no annual benefit maximum or has a maximum annual benefit of at least $25,000; b. The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare eligible individual; or c. For integrated plans (generally where the prescription drug benefits are combined with medical, dental, or vision benefits), the integrated health plan has no more than a $250 deductible per year, has no annual benefit maximum or has a maximum annual benefit payable by the plan of at least $25,000, and has a lifetime combined benefit maximum limit of at least $1 million. A Part D-eligible individual is an individual who: (1) is entitled to benefits under Medicare Part A or is enrolled in Medicare Part B; (2) lives in the service area of a Part D plan; and (3) is enrolled in or seeking to enroll in the employer s prescription drug coverage. Note that in Medicare terminology, entitled to benefits under Medicare Part A means, in fact, being enrolled in Part A. Merely attaining age 65 does not necessarily mean that an individual is enrolled in Part A. Unless the individual has already commenced Social Security retirement benefits, the individual would have to affirmatively enroll in Part A. Individuals who may be eligible for Part D include active employees, disabled employees, COBRA qualified beneficiaries and retirees (and their covered spouses and dependents). If the group health plan offers prescription drug benefits to any Part D-eligible individuals at the beginning of the plan year, then that group does have to provide a disclosure to CMS for that plan year.

4 Legislative Alert Page 4 Must employers that do not provide prescription drug benefits to any Part D-eligible individuals provide disclosures to such individuals or to CMS? Is an Rx Plan Sponsor required to send the disclosure to all Part D- eligible employees or only those who are older than 65? What are the methods of distribution of the disclosure Notice to Part D-eligible individuals? No, but, once such coverage is offered, disclosures would need to be made to such individuals, and to CMS within 60 days of the start of the next most current plan year (renewal year, contract year, etc.). An individual may become covered under Medicare due to age, end-stage renal disease (ESRD), or disability. Individuals who may be covered under Medicare Part A or B, and thereby eligible for Part D, include not just active employees meeting those requirements, but also those employees or former employees who are disabled, on COBRA, retirees, and the covered spouses and/or dependents in these groups. For this reason, it might be difficult for an Rx Plan Sponsor to identify all individuals who are eligible for Medicare Part D. It is therefore recommended that the notice be distributed to all employees who are eligible to participate in the Rx Plan Sponsor s plan. This will help prevent any eligible individual from not receiving the required notice. Often, it is difficult to know to which enrollees to send the notices. It is best to provide the notice to all employees in the event there are dependents or COBRA qualified beneficiaries who are eligible for Medicare Part D. Many Rx Plan Sponsors use the stand-alone method to deliver the notices and provide them in a separate mailing. If the Notices are combined with other notices or communications, the disclosure notices must: 1. Be provided prominently with other plan participant information materials that the sponsor is required to provide; 2. Be conspicuous ; and 3. Include the content information prescribed by CMS (see the model notice). To satisfy the prominent and conspicuous requirements, the disclosures (or a reference to the section in the document being provided to the beneficiary containing them) must be prominently referenced in at least 14-point font in a separate box, bolded, or offset on the first page that begins with the plan participant information being provided. Notices may be sent electronically if certain conditions are met. Those conditions relate to the U.S. Department of Labor s (DOL) electronic disclosure requirements. Under these requirements, the plan sponsor must use appropriate and reasonable means to ensure that the electronic delivery results in actual receipt of the notice, that the electronic notice describes the significance of the document, and that a paper version of the document is available upon request. CMS has stated that electronic delivery may be used if Part D-eligible individuals have access to and provide electronic consent to electronic delivery of the notices.

5 Legislative Alert Page 5 Can the disclosure to Part D-eligible individuals be ed to employees or posted on an Rx Plan Sponsor's intranet? What are the potential penalties for failing to timely provide the Medicare Part D disclosures to Part D- eligible individuals and to CMS? An Rx Plan Sponsor could provide the Notice to plan participants via a work address if the participant has access at their regular place of work on a daily basis as part of their work duties. The should include a statement indicating the significance of the document; that a paper version of the notice is available and how to obtain one; and a statement that the participant is responsible for providing a copy of the notice to their dependents who are covered under the group health plan and eligible for Medicare Part D. Additionally, the Rx Plan Sponsor should post the notice on the Rx Plan Sponsor's website with a link to the notice on the website's main page. If an employee does not have access to work as a part of their regular work duties, the Rx Plan Sponsor may still the notice to them, but certain conditions must be met first: The individual must notify the Rx Plan Sponsor that they have adequate electronic access, provide the Rx Plan Sponsor with a valid address, and send an to the Rx Plan Sponsor consenting to the electronic notification. The Rx Plan Sponsor must notify the individual of their right to a paper version of the notice, how to cancel their consent, how to revise an address, and any hardware/software requirements. A hand-delivered copy is not recommended as a primary method of distribution. For those individuals who do not receive the notice electronically, first-class mail would be the preferred method of delivery. At this time, no specific civil penalties have been announced for plans that do not comply with the Medicare Part D creditable coverage disclosure requirements, either with respect to the disclosure to Part D-eligible individuals or the disclosure to CMS. The only specified penalty relates to a retiree plan attempting to receive the retiree drug subsidy. Such a plan would be denied the subsidy if it had not complied with the required Medicare Part D notifications. The key negative consequence that can result from a failure to distribute the Medicare Part D Notice to Part D-eligible individuals is where they delayed in enrolling in Part D coverage while unknowingly being enrolled in non-creditable prescription coverage. Such a delay in enrolling may result in individuals later having to pay higher premiums (also known as a late enrollment penalty) for Part D coverage. This material is provided for informational purposes only based on our understanding of applicable guidance in effect at the time of publication, and should not be construed as being legal advice or as establishing a privileged attorney-client relationship. Customers and other interested parties must consult and rely solely upon their own independent professional advisors regarding their particular situation and the concepts presented here. Although care has been taken in preparing and presenting this material accurately, Wells Fargo Insurance Services disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it, and any responsibility to update this material for subsequent developments. To comply with IRS regulations, we are required to notify you that any advice contained in this material that concerns federal tax issues was not intended or written to be used, and cannot be used to avoid tax-related penalties under the Internal Revenue Code, or to promote, market, or recommend to another party any matters addressed herein. Products and services are offered through Wells Fargo Insurance Services USA, Inc., a non-bank insurance agency affiliate of Wells Fargo & Company. Products and services are underwritten by unaffiliated insurance companies except crop and flood insurance, which may be underwritten by an affiliate, Rural Community Insurance Company. Some services require additional fees and may be offered directly through third-party providers. Banking and insurance decisions are made independently and do not influence each other Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use.