What Employers Need to Know About the 2026 CMS Creditable Coverage Redesign

On April 7, 2025, the Centers for Medicare & Medicaid Services (CMS) released its Final Part D Redesign Program Instructions for calendar year 2026. These instructions provide guidance on the implementation of changes to the Medicare Part D drug benefit, reflecting provisions from the Inflation Reduction Act of 2022 (IRA). Among other things, these changes directly impact how employer-sponsored prescription drug plans determine creditable coverage.

What Is Creditable Coverage?

Creditable coverage means that a prescription drug plan is expected to pay, on average, as much as or more than the standard Medicare Part D plan. Employers must notify both Medicare-eligible individuals and CMS each year whether their coverage meets this standard.

There are two primary methods for making this determination:

• • • Insured Plans: Employers should first check with their insurance carriers to see if a creditable coverage determination has already been made.
    • Self-Insured Plans: If no determination is available, employers may use either a simplified determination method or an actuarial analysis, depending on the plan design.

What’s Changing in 2026? Designed-Based Safe Harbor

CMS has finalized a revised simplified determination method to align with the enhanced Medicare Part D benefits under the IRA. Under the Revised Simplified Determination method, coverage will be deemed to be creditable if it meets all the following standards:

• • • offers reasonable coverage for brand names and generic prescription drugs and biological products;
    • provides reasonable access to retail pharmacies; and
    • is designed to pay, on average, at least 72% of participants’ prescription drug expenses.

This change reflects the richer Part D benefit design that takes effect in 2026. The requirement to cover at least 72% of participants’ prescription drug expenses is an increase from the current simplified methodology’s 60% requirement.

Employers should carefully review their plan design to determine which method is appropriate. If a plan’s prescription drug coverage does not satisfy the requirements for being considered creditable under the design-based simplified methods, an actuarial determination could still be used to demonstrate that a plan is creditable.

The CMS updates for 2026 mark a significant shift in how employer-sponsored prescription drug plans are evaluated for creditable coverage. Plan sponsors will likely need to review their prescription drug coverage to ensure compliance and continue to support their Medicare-eligible employees and retirees effectively.

What Should Employers Do Now?

1. 1. 1. Review Your Plan Design: Determine whether your current prescription drug coverage meets the new 72% threshold.
      2. Consult Your Carrier or Actuary: If you’re unsure, seek guidance from your insurer or a qualified actuary.
      3. Update Your Notices: Ensure your creditable coverage notices for Medicare-eligible individuals reflect the correct determination method for 2026.
      4. Plan Ahead for 2027: The revised method is expected to become the sole standard after 2026, so begin preparing now.

For more details, you can view the full CMS fact sheet here.

As federal policies evolve, rely on our team of compliance leaders to help you stay on top of key actions, pending legislation, and regulatory changes that may impact your organization. Visit OneDigital's resource page for real-time updates: Federal Policy Updates for Employers: What to Watch in 2025.