Starting in 2027, plan sponsors will no longer be permitted to use the original simplified determination method to determine whether their coverage is creditable. Only the revised simplified determination method or an actuarial determination will remain available. For 2026 only, plan sponsors may still choose between the original and revised simplified methods (or an actuarial determination), but should begin preparing now for the 2027 transition. Employers applying for the retiree drug subsidy are not eligible to use either simplified method and must instead use an actuarial determination. The chart below compares the original and revised simplified determination methods, including the criteria that plans must meet under each.
| Criteria | Original Simplified Method | Revised Simplified Method |
|---|---|---|
|
Minimum drug expense |
Plans must be designed to pay, on average, at least 60% of participants’ drug expenses |
Plans must be designed to pay, on average, at least 72% of participants’ drug expenses for 2026 and at least 73% of participants’ drug expenses for 2027 |
|
Brand-name drug coverage |
Reasonable coverage required |
Reasonable coverage required (retained) |
|
Generic drug coverage |
Reasonable coverage required |
Reasonable coverage required (retained) |
|
Biological products |
Not addressed |
Explicitly included in the criteria |
|
Retail pharmacies |
Reasonable coverage required |
Reasonable coverage required (retained) |
|
Annual/lifetime limits |
Minimum limit standards required, though largely prohibited under the Affordable Care Act |
Eliminated as an outdated criterion |
|
Annual deductible |
Specific deductible-related standards applied |
Removed (reflects that most employer plans integrate medical and drug coverage) |
|
Effect on high deductible health plans (HDHPs) |
Deductible rules could make qualification harder |
While higher-deductible plans (including HDHPs) may seem less likely to meet the higher drug expense threshold, the risk can be mitigated by other plan design features (e.g., not applying a deductible to preventive medications, a reasonable and supportable allocation of the deductible attributable to prescription drug expenses, or offering lower cost sharing than standard Part D coverage once the deductible is met) |
Key Compliance Reminders
- Separate testing: For plans with multiple benefit options (e.g., PPO, HMO, and HDHP), the creditable coverage test must be applied separately for each option.
- Notice deadlines: Employers must provide notices to Medicare-eligible individuals before Oct. 15 each year.
- CMS reporting: The online disclosure form must be submitted to the Centers for Medicare and Medicaid Services (CMS) within 60 days of the start of the plan year (e.g., March 1 for calendar year plans).
- Account-based plans: HRAs, HSAs, and FSAs are exempt from the creditable coverage disclosure requirements for coverage beginning on or after Jan. 1, 2027.
Medicare Part D Changes Affecting Employer Plans
The Inflation Reduction Act of 2022 (IRA) continues to reshape the Medicare Part D program through calendar year 2027. While many provisions are designed to reduce costs for beneficiaries, they may also impact employer-sponsored prescription drug coverage. Key changes include the following:
- Indexed annual out-of-pocket limit (OOP): The annual OOP threshold is capped at $2,100 for 2026, reflecting an inflation adjustment to the $2,000 cap introduced in 2025.
- Revised liability framework: Part D includes revised liability to reflect negotiated prices taking effect for selected drugs in 2026.
- Revised creditable coverage method: For 2026 only, non-retiree drug subsidy (RDS) plans may use either the prior simplified method or a revised simplified method to determine whether their coverage is creditable.
- Coverage gap formally eliminated: The Part D coverage gap or “donut hole” was eliminated in 2025 and is codified under the redesigned benefit.
- Annual OOP limit: The annual OOP cap remains in effect and continues to be indexed annually; once the limit is reached, enrollees have no additional cost-sharing for covered drugs.
- Prior creditable coverage method expires: For 2027 and beyond, non-RDS plans can no longer use the prior simplified determination method; only the revised simplified method may be used.
2027 Creditable Coverage
Employer Considerations
Employers that sponsor prescription drug coverage for Medicare‑eligible individuals should:
- Consult with their benefit advisers on use of the revised method for calendar years 2026 and 2027 to ensure the appropriate Medicare Part D disclosure notices are sent.
- Consider monitoring prescription drug cost trends and reviewing existing cost‑management strategies, as appropriate.
- Become familiar with the revised simplified determination method (use chart included above).
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2026 Zywave, Inc. All rights reserved.
