November 15 Notice Deadline Approaching 
(October 3, 2005)

Medicare Part D (the new prescription drug program that becomes effective January 1, 2006) imposes a notice requirement on employers providing prescription drug coverage under their group health plans. The first notice must be given prior to November 15, 2005, the first day of the initial enrollment period for Medicare Part D coverage.

Why?  This notice informs Medicare-eligible individuals whether their employer-provided prescription drug benefit is "creditable coverage." This information is very important because eligible individuals who do not enroll in Part D when first eligible, but enroll later, will have to pay a late enrollment penalty if they go 63 days or more without creditable coverage. The late enrollment penalty is a permanent premium increase of at least 1% of the premium that otherwise would apply for each month without creditable coverage.

"Creditable coverage" is coverage that is equal in value to the basic coverage provided under the Medicare Part D prescription drug program. Employers must determine whether their prescription drug coverage is creditable coverage using a safe-harbor method or by performing an actuarial analysis. The Centers for Medicare and Medicaid Services ("CMS") provides guidance on determining whether a particular program is creditable at the CMS website at http://www.cms.hhs.gov/medicarereform/ccguidances.asp.

Who?  The notice need only be provided to individuals who are: 1) enrolled in or eligible to enroll in the employer's prescription drug coverage plan, 2) entitled to Medicare Part A and/or enrolled in Medicare Part B, and 3) reside in the service area of a Part D prescription drug plan. However, due to the difficulty of identifying Medicare-eligible individuals, particularly with respect to dependents, employers may find it easier to provide the notice to all participants, covered spouses and dependents enrolled in the employer's prescription drug plan. Employers also will be required to provide notice of creditable coverage to CMS once CMS issues guidance about the content and method for providing such notice.

When?  The notice must be provided:

• Each year prior to the Part D annual open enrollment period (beginning November 15);

• Prior to the date an individual first becomes eligible for Part D coverage;

• Prior to the effective date of coverage under the employer's prescription drug coverage for any Medicare-eligible individual who enrolls in the plan;

• Whenever the employer's prescription drug coverage changes so that it is no longer creditable coverage, or becomes creditable coverage; or

• Upon an individual's request.

If the notice is provided annually to all plan participants, CMS will consider the first two requirements above to be satisfied. In addition, CMS has indicated that "prior to" means that the notice has been provided within the past 12 months. Therefore, an annual notice will satisfy all of the requirements listed above, except for the last two.

What?  CMS has provided two model forms of notice -- one if the employer's coverage is creditable coverage and one if it is not creditable coverage. These model notices can be found at http://www.cms.hhs.gov/medicarereform/ccguidances.asp. These model notices must be modified appropriately to fit a particular employer's circumstances and are only good for the initial enrollment period beginning November 15, 2005. Some employees may find the model notices too confusing or misleading to give to participants and may choose to work with their advisors to draft their own notices. CMS intends to provide additional model notices and guidance for Part D enrollment periods after May 15, 2006.

How?  While the employer providing coverage is responsible for providing the notice, nothing in the guidance prevents an employer from having it provided by a third party, such as the insurer providing the prescription drug coverage. The notice may be sent as a separate mailing or provided with other informational materials. If incorporated with other information, the reference to the notice must be prominently and conspicuously referenced in at least a 14-point font in a separate box, bolded or offset on the first page of the information being provided. The notice also may be provided electronically, but only if the individual has expressly consented to receiving electronic disclosure. Other requirements also apply to the provision of notices electronically making this method rather burdensome for employers that do not already provide other notices in compliance with the DOL's electronic disclosure requirements for participants who do not have website access.

If you have any questions regarding this alert or other Employee Benefits Law related issues, please contact Gene Griggs at 704.342.5320 or ggriggs@poynerspruill.com or one of our other Employee Benefits attorneys.