The Centers for Medicare and Medicaid Services (CMS) has released a final rule that exempts account-based plans such as health reimbursement arrangements (HRAs) including individual coverage HRAs (ICHRAs), health flexible spending accounts (FSAs) and health savings accounts (HSAs), from creditable coverage disclosure requirements. The change applies to coverage beginning Jan. 1, 2027.
Background
Employers with group health plans that provide prescription drug coverage to individuals who are eligible for Medicare Part D must inform both those individuals and CMS whether that coverage is creditable. A group health plan’s prescription drug coverage is considered creditable if its actuarial value equals or exceeds the actuarial value of standard Medicare Part D prescription drug coverage; coverage that does not meet this standard is deemed non-creditable.
For this purpose, the term “group health plan” includes account-based medical plans such as HRAs, health FSAs or HSAs, to the extent they are subject to the Employee Retirement Income Security Act as employee welfare benefit plans that provide medical care.
Final Rule Exemption
Consistent with its earlier proposal, the CMS final rule adopts changes intended to reduce administrative burden by eliminating duplicative or outdated requirements. As part of this effort, CMS is exempting account-based plans—such as HSAs, health FSAs and HRAs (including individual coverage HRAs)—from the creditable coverage disclosure requirements.
According to CMS, these account-based plans do not actually offer prescription drug coverage; rather, they are designed to provide savings on health care costs through pre-tax contributions and reimbursements to supplement other coverage, such as another group health plan. CMS explains that requiring these plans to determine if their coverage is creditable and report that status unduly increases administrative burden and could result in confusion for beneficiaries.
Revised Simplified Determination Method
The elements under the revised simplified determination method to deem a prescription drug coverage benefit creditable, are outlined below:
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The plan provides reasonable coverage for brand name and generic prescription drugs and biological products;
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The plan provides reasonable access to retail pharmacies; and
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The plan is designed to pay on average at least 72% of participants’ prescription drug expenses.
Notably, the Final Instructions clarify that for calendar year 2026 only, employer plan sponsors have the choice to use either the current simplified determination method or the revised simplified determination method to determine whether their prescription drug coverage is creditable.
