What Is Creditable Coverage for Medicare?

You may have heard the term "creditable coverage” when you started looking into Medicare. If you want to postpone Medicare enrollment past age 65, it’s very important that you have creditable coverage instead. If not, you’ll be faced with penalties, and you may not be able to enroll in Medicare when you need the coverage.

Let's discuss why creditable coverage is so important and how to determine if your current insurance plan meets the requirements.

Why Do I Need Creditable Coverage?

You don’t need creditable coverage unless you don’t want to enroll in Medicare when you turn 65. If you decide to keep working and are enrolled in a group plan, it's not uncommon for people to choose to delay Medicare. That’s especially true if your employer pays for all or some of your monthly premiums. So, whether it's you who decides to keep working or you’re the spouse on a group plan, you can delay enrollment without any penalties - as long as your employer's plan is creditable.

If your health insurance coverage isn’t creditable, two things will happen.

First, the pesky little penalties! Parts A, B, and D all have penalties for those who delay enrollment. That being said, most people receive premium-free Part A. If that applies to you, you won’t be penalized, even if you don't have creditable insurance in place.

The Part B penalty begins after you’ve gone without coverage for a full 12 months. A 10% penalty is added to your monthly premium for each of the 12-month periods you delayed coverage. The standard premium (in 2023) is $164.90. So, if you delayed Part B for a full 24 months, your penalty would be:

20% x $164.90 = $32.98

You’ll pay that penalty for as long as you have Part B. And, you should expect that penalty to increase annually since the Part B premium typically increases each year.

The Part D penalty begins after you’ve gone 63 days without drug coverage. It’s calculated by multiplying 1% of the national base beneficiary premium ($32.74 in 2023) times the number of months you didn’t have Part D. Using the same example as we did for Part B, this would be the penalty:

1% x $32.74 x 24 = $7.86

As with Part B, you’ll pay this penalty for as long as you’re enrolled in a Part D plan.

The penalties are probably enough to motivate you to have creditable insurance in place. However, there is another reason. Without it, you won’t be eligible for a Special Enrollment Period (SEP) when you are ready to enroll.

The troubling thing about that is you’ll have to wait until the General Enrollment Period (GEP) to enroll in Parts A and B. The GEP occurs annually from January 1 to March 31. If you enroll during the GEP, your coverage will not begin until July 1.

On the other hand, if you have creditable coverage, you can enroll around the time your group plan ends, and you’ll have no lapse in coverage.

Creditable Coverage for Part B

Creditable coverage for Part B (and Part A) means that the policy has at least as much coverage as Traditional Medicare. If your employer has at least 20 employees, your coverage is creditable. Union-sponsored plans and Federal Employee Health Benefits (FEHB) also fall into creditable coverage. If you have a smaller employer, you should check with your HR department or call your insurance carrier directly to verify coverage.

Creditable Coverage for Part D

Part D is not as straightforward. Even for those employed by large companies, we highly suggest making sure the prescription portion of the plan is creditable. There have been some instances when, even though the medical portion passed, the prescription drug coverage did not.

Prescription drug coverage is creditable if it:

• Pays at least 60% of the cost;
• Covers name-brand and generics;
• Offers a variety of pharmacies; and
• Has no annual benefit limit or has a low deductible

If you decide to postpone Medicare enrollment, we suggest you download a copy of the CMS-L564 form. The Social Security Administration will request this document in order to waive your penalties. Keep copies as you may need to send it to multiple carriers.

If you have questions about your current insurance or need help deciding if you should stay on your employer's group plan or move to Medicare, speak with one of our local Medicare agents. Our advisors will help you decide which choice makes sense for you and your family.