New testing standards for creditable coverage require careful review 

The 2026 changes to the Medicare Part D drug benefit passed under the Inflation Reduction Act are generally modest compared to the significant adjustments made in 2025. However, new instructions related to determining the creditable coverage status of prescription drug coverage allow plan sponsors to utilize a revised methodology for 2026. Plan sponsors should review the new methodology as they determine the most suitable one for their particular group health plan.

Prior to Oct. 15 each year, plan sponsors providing prescription drug coverage must notify Part D-eligible individuals enrolled, or seeking to enroll, in their group health plan about whether the plan’s drug coverage is creditable — generally, whether it’s expected to pay, on average, at least as much as the Part D standard prescription drug coverage. Additionally, plan sponsors are required to report the creditable coverage status of their prescription drug plans to the Centers for Medicare and Medicaid Services each year, within 60 days of the plan year’s start.

The IRA significantly enhanced Medicare Part D beginning in 2025, raising concerns among some plan sponsors about whether their drug coverage would remain creditable.  Instructions provided by CMS for 2026 take into account the IRA’s enhancements and increased flexibility in how plan sponsors may determine whether their drug coverage is creditable going forward, updating their Simplified Determination Methodology for 2026. And for the first time, some Health Savings Account-qualifying High Deductible Health Plans may be able to use the SDM to determine creditable coverage status.

Why is creditable coverage important?

If a Part D-eligible individual does not sign up for Part D when first eligible, they will likely pay a higher premium permanently (called the Part D late enrollment penalty) if they eventually enroll. However, late enrollees who have creditable prescription drug coverage from the time they were first Part D-eligible until the time of actual Part D enrollment (without a coverage gap of at least 63 days) will not be penalized.

Plans that apply for the Retiree Drug Subsidy are also required to pass creditable coverage testing (in addition to a net value test). Such plans must obtain an actuarial certification confirming that the coverage is creditable.

Who’s a Part D-eligible individual?

Part D-eligible individuals include Medicare beneficiaries who are active employees, disabled, on COBRA and retirees, as well as Medicare beneficiaries who are covered as spouses, dependents or domestic partners under active employee coverage or retiree coverage.

2026 creditable coverage flexibility for non-RDS group health plans

For 2026, CMS is allowing three different testing standards to determine creditable coverage status for non-RDS group health plans:

1. 2009 creditable coverage SDM
2. The revised 2026 creditable coverage SDM
3. Actuarial certification

Under the 2026 SDM, prescription drug coverage that meets all of the following criteria will be considered creditable:

• Reasonable drug coverage: Provides reasonable coverage for brand name and generic prescription drugs and biological products;
• Access to retail pharmacies: Provides reasonable access to retail pharmacies; and
• Plan value: Designed to pay, on average, at least 72% of participants’ prescription drug expenses.

The 2026 SDM adds biological products to the criteria as compared to the 2009 SDM but does not specify what drug coverage or access to retail pharmacies will be considered “reasonable” by CMS. Although the requirement to cover at least 72% of participants’ prescription drug expenses marks an increase from the 60% requirement of the 2009 SDM, many group health plans should be able to satisfy the 2026 SDM criteria.

As mentioned above, for the first time, some HSA-qualifying HDHPs may be eligible to use the 2026 SDM to determine creditable coverage status. This option was not viable under the 2009 SDM, as that methodology required an annual deductible of no more than $250, rendering the SDM a non-starter for HDHPs. The 2026 SDM removes the deductible requirement.

CMS acknowledged that IRA enhancements have increased the value of the standard Part D plan beyond the 60% value included in the 2009 SDM. To minimize disruption, group health plan sponsors will be permitted to continue to use the 2009 SDM for 2026 — but only for 2026. 

Other changes for 2026 to Part D defined standard coverage

Notably, the 2026 annual deductible will increase from $590 to $615, and the annual out-of-pocket threshold will increase from $2,000 to $2,100. For plan sponsors that evaluate creditable coverage using actuarial certification, these adjustments are not anticipated to materially impact their results for 2026.

Next steps

If a plan sponsor determines that a group health plan offered to Part D-eligible individuals does not meet creditable coverage requirements, the plan sponsor should develop a proactive and compliant communication strategy to address the issue. The non-creditable coverage offering does not automatically need to be changed or removed. A plan sponsor may be fine with the result, especially if it’s only one of several drug coverage options. Part D-eligible individuals will need to understand the consequences of selecting the non-creditable coverage option.

Because of the Medicare Secondary Payor rules, communications should be crafted carefully to avoid implying that enrollment in Part D is preferable to enrollment in an employer-sponsored group health plan that would otherwise pay primary to Medicare. Additionally, plan sponsors should clarify that an otherwise HSA-eligible individual’s enrollment in Medicare Part D will disqualify them from making or receiving HSA contributions.