Creditable Coverage

Creditable coverage is health insurance, prescription drug, or other health benefit plan that meets a minimum set of qualifications. Types of creditable coverage plans include group health plans, individual health plans, student health plans, as well as a variety of government-sponsored or government-provided plans. Creditable coverage is used to determine coverage and costs associated with pre-existing conditions, and whether policyholders have to pay late enrollment penalties.

Creditable coverage is most closely associated with prescription drug coverage. Insurers whose policies include prescription drug coverage are required to notify policyholders who are eligible for Medicare that their policy meets or exceeds the coverage offered by a Medicare Part D prescription drug plan. If the policyholder’s coverage is considered creditable, he or she may be eligible for subsidies.

In order to be considered creditable, a prescription drug plan must meet four requirements. It must provide coverage for both brand and generic prescription medication. It must provide the policyholder with a reasonably broad option of medication providers, or a mail order option. It must pay at least 60 percent of the cost of prescription expenses. The plan must also either not have an annual benefit maximum, or have a low deductible. The creditable coverage notice allows prescription drug policyholders who are not using Medicare to avoid paying a late enrollment penalty. Policyholders should hold on to the notice because they may want to join a Medicare drug plan in the future.

Individuals with pre-existing conditions may find that some of those conditions are excluded from their plan coverage. Insurers apply an exclusion period to these conditions, which can alter the costs that an individual is responsible for. Providing creditable coverage can reduce the exclusion period, since creditable coverage means that the individual had insurance over a period of time. However, there is a limited window in which creditable coverage applies. If an individual quits a job and loses company coverage and does not obtain new coverage within a fixed number of days, that individual may be responsible for some costs stemming from pre-existing conditions.

Most entities that provide prescription drug coverage to Medicare-eligible beneficiaries must disclose its status as creditable or non-creditable coverage. A disclosure is mandatory whether the insurer is primary or secondary to Medicare. This disclosure provides Medicare-eligible beneficiaries with important information relating to their Medicare Part D enrollment. Beneficiaries not covered under creditable prescription drug coverage, and who choose not to enroll before the end of their initial enrollment period for Medicare Part D, will usually have to pay a higher premium on a permanent basis if subsequently enrolled in Medicare Part D.