What Is Creditable Coverage for Medicare?

Man working past the age of 65 with creditable coverage for Medicare

We’ve been talking about creditable coverage for Medicare in our last few posts. Creditable coverage is important for beneficiaries who want to delay their Medicare enrollment without being penalized. If you are someone who doesn’t want to enroll in Medicare when they turn 65, you’ll need to know what creditable coverage is and how it impacts your Medicare enrollment.

Why Do I Need Creditable Coverage?

You don’t have to have creditable coverage if you plan to enroll in Medicare as soon as your eligible. It’s only important for those who wish to delay enrollment until sometime after they turn 65 years old. These days, we work with plenty of clients who choose to continue working past the age of 65 and, therefore, often have other insurance options available through their employer. If the employer is helping to pay those premiums, it’s often cheaper for you to stay enrolled in their plan rather than move to Medicare.

This is a great option for those who have it. However, before you decide to keep your employer’s coverage, you have to find out if the plan is creditable. “Creditable” means that the plan offers at least as much coverage as Original Medicare (Part A and Part B) and Medicare Part D. We’ll talk more about what this means later. For now, let’s discuss what happens if you delay your Medicare enrollment without creditable coverage in place.

First, you’ll be penalized for the late enrollment. Medicare Parts A, B, and D all have late enrollment penalties. That being said, most people don’t pay a premium for Part A and therefore don’t incur penalties. Part B and Part D penalties are more common.

The Part B penalty begins adding up after you’ve gone without Medicare for a full 12 months. A 10% additional charge is added to your monthly premium for each 12-month period you delay coverage. Currently, the standard Part B premium in 2024 is $174.40. So, if you delayed Part B for just one year, your penalty would be:

10% x $174.40 = $17.44

If you delayed for 2 years, it would be:

20% x $174.40 = $34.88

Keep in mind that the Part B premium usually changes every year (typically an increase), so your penalty will increase over time as well. And unfortunately, you pay that premium for as long as you have Part B. Ouch!

The Part D penalty starts once you’ve gone 63 days without prescription coverage. It’s calculated by taking the national base beneficiary premium ($34.70 in 2024) by the number of months you went without coverage. Let’s say you went two years (24 months) without coverage. Your penalty would be:

1% x $34.70 x 24 = $8.33

As with the Part B penalty, you should assume this number will increase every year as the national base beneficiary premium changes. You’ll also pay this penalty for as long as you have Part D.

That’s probably enough to motivate you to enroll in Medicare on time, but there is another problem with delaying your enrollment. Without creditable coverage in place, you will not be eligible for a Special Enrollment Period (SEP) when you do decide to enroll.

Instead, you’ll have to wait for the General Enrollment Period (GEP), which runs from January 1 through March 31 every year. You may enroll in Medicare during this time, and your coverage will begin on the first day of the month after you enroll. This is a problem if you decide in May that you want to move to Medicare. Without creditable coverage, you’ll have to find some other form of insurance until January. If you have creditable coverage, on the other hand, you’ll be eligible for a Special Enrollment Period, and can enroll in Medicare around the time your group plan ends. This will result in no lapse in coverage.

Healthcare enrollment form with creditable coverage for Medicare

What Qualifies as Creditable Coverage?

If you’re still thinking about postponing Medicare, you’ll want to know what qualifies as creditable coverage. While we will give you an idea here, it’s important that you check with either your employer or the plan administrator to get proof that your plan is creditable. 

As it relates to Parts A and B, creditable coverage means that the policy has at least as much coverage as Original Medicare. A good rule of thumb is that if your employer has at least 20 employees, the plan is creditable. Federal Employee Health Benefits (FEHB) and union-sponsored plans also qualify as creditable. If your employer has less than 20 employees, you may not have creditable coverage, even if you feel like the plan offers great benefits.

Just because your medical plan is creditable, that does not necessarily mean your Part D plan is also creditable. We have found instances when this is true for our clients, so be sure to check both plans. For a prescription plan to be creditable, it must meet the following requirements:

  • Pays at least 60% of the cost;
  • Covers name-brand and generic medications;
  • Offers coverage at a variety of pharmacies;
  • Has no annual benefit limit or has a low deductible.

Carolina Senior Benefits Is Here to Help

Postponing Medicare is sometimes an excellent choice. But before you decide, chat with one of our Medicare advisors to make sure you have everything you need to do so without incurring any penalties. We’d also recommend grabbing a copy of CMS-L564, the form you’ll need to fill out if you decide to enroll in Medicare after turning 65. Keep this form handy and make copies to keep on file for future use. 

If you need Medicare guidance, call the experts at Carolina Senior Benefits today!