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August 10, 2007

GEARING UP FOR THE NEXT ROUND OF MEDICARE PART D NOTICES OF CREDITABLE COVERAGE

Plan sponsors that provide prescription drug coverage to Medicare-eligible individuals (whether active, retired or on COBRA) are required to provide those individuals with a Notice of Creditable (or Non-Creditable) Coverage stating whether their prescription drug coverage is "creditable" or not. Coverage is considered creditable if, on average for all plan participants, the coverage is expected to pay out at least as much as the standard Medicare Part D benefit.

The Centers for Medicare & Medicaid Services (CMS) has periodically updated its guidance on this notice requirement and revised its model notices. The last guidance and models - for use on or after February 15, 2007 - contain a few changes from the guidance CMS has published previously.¹ These latest revisions:

• Allow electronic distribution of these notices, and
• Change slightly the data elements for the Model Personalized Disclosure Notice (as discussed below, use of this personalized notice is recommended by CMS but is not required).

This Capital Checkup also provides reminders about:

• When these notices must be sent, and
• The importance of downloading the latest model notice if a plan sponsor chooses to adapt the CMS model notice.

As the primary reason for providing these notices is to avoid the imposition of a late enrollment penalty under Part D, this Capital Checkup closes with information about the latest CMS guidance on the late enrollment penalty.

Plan sponsors getting ready to mail information to participants for enrollment choices this fall should pay close attention to the new guidance, as it changes both the text and the distribution methods that may be used.

Electronic Distribution Now Allowed

Plan sponsors gearing up for their annual fall distribution of Medicare Part D Notices of Creditable (or Non-Creditable) Coverage will be pleased to learn that CMS has expanded the circumstances under which plan sponsors may provide these notices electronically. Previously, CMS required that individuals agree, in advance, to receive these notices electronically. The latest CMS guidance states that plan sponsors may also rely on the electronic disclosure requirements set out in regulations issued by the Department of Labor (DOL) in 2002.² Those regulations permit electronic distribution to participants who have the ability to access electronic documents at any location where the participant is reasonably expected to perform his or her duties as an employee, as long as access to the electronic information system used is an integral part of the participant's work duties.

Model Personalized Disclosure Notice

CMS recommends, but does not require, that plan sponsors provide a personalized notice either upon request or in lieu of the more generic model notice. The personalized notice contains the same general information as the generic notice, but it also includes certain identifying data about the recipient. In addition to first and last name and dates of creditable coverage, CMS originally required that each person's Social Security Number (SSN) or Health Insurance Claim Number (HICN) be included. Now, CMS is substituting the individual's date of birth or unique member identification number for SSN/HICN. This CMS model notice will require careful adaptation before it is used as it was designed for use by both creditable and non-creditable plans.

Timing

Plans must send the notice at the following times: (1) prior to the Medicare annual enrollment period, which begins on November 15; (2) prior to an individual's initial opportunity to enroll in Part D; (3) prior to the effective date of coverage for any Medicare-eligible individual that joins the plan; (4) when the plan's prescription drug coverage ends or is no longer creditable; and (5) upon request by a participant or beneficiary. If the notice is provided to all plan participants annually, CMS will consider items 1 and 2 to be satisfied.

In light of these distribution requirements, many plan sponsors have opted to send annual notices before each November 15 to all plan participants (not just to those who are already or are about to become Medicare-eligible). Plan sponsors following this approach will need to issue the next round of notices by November 15, 2007. In addition, all plan sponsors need to send a notice to each new participant who is Medicare-eligible.

Model Notices

While model notices are available, plan sponsors should review the models carefully and assure that they accurately reflect both the nature of the coverage and the rights that individuals have if they lose coverage.⁴ Plan sponsors that choose to use the model notices drafted by CMS should take care to download the most recent version of the model notices. These model notices will require a fair amount of customization to provide useful information to a plan's participants.

Late Enrollment Penalty Guidance

As noted above, individuals who have creditable coverage do not have to enroll in a Part D plan. However, individuals who lose that coverage, and do not enroll in a Part D plan within 63 days will face a late enrollment penalty when they do enroll. Notices of creditable coverage provide verification to Part D plans that the individual previously had creditable coverage and is therefore not subject to the penalty.

CMS recently released guidance on the process for Part D Prescription Drug Plans to follow in helping CMS calculate the late enrollment penalty owed by enrollees in Prescription Drug Plans.⁵ Plan sponsors may see an increase in the number of individuals seeking creditable coverage notices as Prescription Drug Plans implement the new CMS rules. In addition, plan sponsors that have contracted with a Prescription Drug Plan to provide Part D drug coverage will need to determine whether to pay the late enrollment penalties (if any) for their retirees, in addition to the premium that is already due.⁶

As with all issues involving the interpretation or application of laws, health plan sponsors should rely on their legal counsel for authoritative advice on the integration of Medicare with their employee benefit plans. The Segal Company can be retained to work with plan sponsors and their attorneys on issues related to Medicare Part D.

1	To see the guidance, click here. To download the new model notices, click here. For more information on Notices of Creditable Coverage, see The Segal Company's October 6, 2006 Capital Checkup, "Medicare Part D Notices of Creditable Coverage Must Be Revised and Sent by November 15", May 2006 Bulletin, "CMS Revises Creditable Coverage Guidance and Issues New Model Notices", January 2006 Bulletin, "Guidance on Disclosing Medicare Part D Creditable Coverage Status to CMS" and June 2005 Bulletin, "CMS Issues Guidance on Notices of Creditable Coverage." (To return to the Capital Checkup, click here.)
2	The applicable DOL rules on electronic notices are codified at 29 CFR ¤ 2520.104b-1(c). To see them, click here (To return to the Capital Checkup, click here.)
3	The notice (or a reference to it) must be prominently referenced in at least 14-point font in a separate box, bolded, or offset on the first page of the provided plan participant information. (To return to the Capital Checkup, click here.)
4	Note also that one statement in the non-creditable model (relating to the late enrollment penalty for those who lose or drop group health plan coverage) is only a correct statement when the coverage is creditable. (To return to the Capital Checkup, click here.)
5	To see that guidance, click here. (To return to the Capital Checkup, click here.)
6	The late enrollment penalty is currently 1 percent per month (of the base beneficiary premium) for each month (after 63 days) that a person without creditable coverage was eligible to enroll in Part D and failed to enroll in Part D. (To return to the Capital Checkup, click here.)

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