What Is Creditable Coverage for Medicare?

Most people in the United States become eligible for Medicare coverage once they turn 65. However, with more than 20% of adults age 65 or over still working or seeking employment, many are weighing up their health insurance options. 

Retired individuals who have existing health coverage may also wonder if Medicare is the right option for them. If you're unsure whether to join Medicare or delay enrollment, you should consider whether you have creditable coverage.   

What Does Medicare Consider Creditable Health Insurance Coverage?

Medicare states that any health plan offering benefits equal to or greater than its own is creditable coverage. So if you have this level of coverage, you won't get penalized for delaying Medicare enrollment. 

Some of the most common types of creditable coverage include:

• Large employer group plans (for employees of US companies with 20+ workers and their spouses)
• Retirement or pension plans (for retirees and their spouses)
• Union-sponsored group health plans

If you’re approaching Medicare eligibility, you may be able to delay enrolling in Medicare Part D prescription drug coverage and continue with your existing drug plan with creditable Part D coverage providing it:

• Pays for at least 60% of your prescription costs
• Covers brand name and generic drugs
• Allows you to fill your prescriptions at a range of pharmacies
• Does not have annual benefit caps or have low deductibles

If you've delayed joining Medicare because you have other creditable coverage, you may be able to sign up for Medicare during a special enrollment period once you are ready to leave that coverage.

In the case of workers who stay on their or their spouse’s employer-provided health insurance past the point when they first became eligible for Medicare, their special period typically lasts eight months after their creditable coverage ends. Each individual situation may be different, however, so you should speak with the benefits administrator of your current plan to make sure you enroll in Medicare at the correct time.

It’s important to note that if you delay enrolling in Medicare Part B or Part D prescription drug coverage and didn’t have other creditable coverage, you will most likely be forced to pay late enrollment penalties whenever you eventually do decide to enroll in Medicare.

What's the Difference Between Creditable and Non-Creditable Coverage?

Unlike creditable coverage, non-creditable coverage has fewer benefits than Medicare. 

People with creditable coverage are just as well covered – and sometimes better off – than if they had Medicare. Conversely, people with non-creditable coverage are worse off and, therefore, it’s beneficial for them to leave their current health plan and enroll in Medicare.

If you have non-creditable coverage for 63 days or more before enrolling in Medicare, you may pay more for your monthly premiums when you do register:

• Part B late enrollment penalty: 10% more is added to your monthly Part B premiums for each 12-month period you had non-creditable coverage and were eligible for Medicare Part B but didn’t enroll.
  
  
• Part D late enrollment penalty: 1% of the national base beneficiary premium ($32.74 per month in 2022) multiplied by the number of months you had non-creditable coverage will be added to your monthly Part D premium.

You'll pay these penalties every month for as long as you receive Medicare.

Is a Medicare Advantage Plan Considered Creditable Coverage?

Medicare Advantage (Medicare Part C) plans are a private insurance alternative to the federal government's Original Medicare program (Medicare Part A and Part B). Part C plans bundle hospital and outpatient coverage and usually include prescription drug coverage. 

Medicare Advantage plans must offer benefits that are at least as comprehensive as Medicare Parts A and B. Therefore, all Medicare Advantage plans have creditable coverage. Plus, as they fall under the Medicare umbrella, you don't need to verify you have creditable coverage if you have a Medicare Advantage plan.

How Do You Calculate Creditable Coverage?

There are penalties for late enrollment in Medicare Parts B and D, so it's essential to ensure you have creditable coverage for outpatient services and prescription drugs. 

Under the Medicare Modernization Act, insurers must tell their Medicare-eligible policyholders if their plans offer creditable coverage. That means there's no need for you to calculate whether your plan has creditable coverage or not, though you should be proactive and make sure you understand whether or not your health insurance and prescription drug coverage are considered creditable.

How Do You Prove Creditable Drug Coverage?

If you have creditable drug coverage, your plan provider will send you a Notice of Creditable Coverage. 

You'll receive these notices each September providing your drug coverage remains creditable. It's wise to file these documents in a safe place as you may need them in the future to prove you maintained creditable drug coverage.

Do I Need a Certificate of Creditable Coverage?

A certificate of creditable coverage is a document that insurance companies can issue to indicate that someone has terminated their coverage. It shows the insured person's name, the period they held insurance, and when they canceled their policy. 

Certificates of creditable coverage are no longer necessary. However, if you're enrolling in a Part D plan or a Medicare Advantage plan after holding creditable drug coverage, you may need to verify this with your Notices of Creditable Coverage.

Deciding to Enroll in Medicare

Before deciding whether to enroll in Medicare or continue your existing health plan, make sure you know whether you have creditable coverage. 

If your coverage is creditable, you may need proof of this status to avoid late penalties. If you're unsure whether you have creditable coverage and could delay your Medicare enrollment, a local Medicare insurance agent can help you assess your options.

If you’re considering a private Medicare plan such as a Medicare Advantage plan, you can learn more and compare the plans that are available where you live by searching for plans online. You can also call to speak with a licensed insurance agent who can help you determine your eligibility and help you find the right plan for you based on your health care needs, current medications, your doctor and more.