What's creditable drug coverage?

Who is this for?

Learn how to use a drug list to see if your plan covers your prescription.

If you get your health insurance through an employer and want to avoid penalties related to Medicare Part D, you should learn about creditable drug coverage.

Are you used to getting your health coverage through an employer or group? After you become eligible for Medicare, your employer may continue to provide additional health coverage, like a Medicare Advantage plan.

When that coverage includes prescription drugs, it's important to know whether it's creditable. We'll help you understand exactly what that is and how it can affect what you pay in the future for a Medicare Part D prescription drug plan.

What's creditable mean?

It doesn't have anything to do with credit. In this case, creditable means as good as. Creditable drug coverage is as good as Medicare’s standard prescription drug coverage. It's expected to pay, on average, at least as much as a Medicare Part D plan.

Why is creditable important?

Having drug coverage that's as good as Medicare Part D now saves you from a penalty later. When you become eligible for Medicare, you're expected to have Part D drug coverage within a certain time frame. If you wait, you'll pay more for your coverage when you do enroll. This is called a late enrollment penalty.

Having creditable drug coverage protects you from that penalty. Here's an example of how it works.

You have health and prescription drug coverage through an employer and you're turning 65. You enroll in Original Medicare Part A and Part B.

You transition to a Medicare Advantage plan offered by your employer. That plan has creditable drug coverage. So you don't enroll in a Medicare Part D plan.

Your employer goes out of business a year later. You purchase your own Medicare Advantage plan that has Part D coverage.

Because you had creditable drug coverage before, you won't have to pay a late enrollment penalty for the Part D portion of your plan.

How do I know if my prescription coverage is creditable?

The employer or group providing your coverage is required to send you a notice each September. It'll tell you if your plan's drug coverage is creditable.

You can also call the employer or group to ask, too.

Always keep the letter that says your drug coverage is creditable. You'll need it if you lose that coverage and enroll in Part D. It's proof you don't have to pay a late enrollment penalty.

Tip: Don't go more than 63 days without Part D coverage. Even if the coverage you had before was creditable, you'll still pay a late enrollment penalty.

What if my drug coverage isn't creditable?

When you're transitioning into a Medicare plan through an employer or group, be sure to ask if the drug coverage is creditable. If not—or if the plan changes and drops creditable coverage—you'll need to enroll in a separate Part D prescription drug plan. To avoid a penalty:

  • Sign up within your time frame when you're first eligible for Medicare.
  • Make sure you get Part D coverage within 63 days if you recently lost your coverage.