The short answer
Creditable coverage is drug coverage expected to pay at least as much as standard Part D, which lets you delay Part D without a penalty. Because Part D became richer, employer plans must pass a stricter test for 2027, and some high-deductible plans no longer qualify. Check the notice your plan sends before October 15.
- Test: plans must pay at least about 72 percent of drug costs on average, and the older, easier shortcut is retired for 2027 plan years.
- Notice: employers send it before October 15 each year; keep it as proof.
- Penalty: 1 percent of the $41.33 base premium (2027) per month without coverage, for life.
- Gap: 63 days in a row without creditable coverage triggers the penalty.
Applies to anyone eligible for Medicare who has drug coverage through an employer, union, retiree plan, COBRA, TRICARE, VA or a Marketplace plan, and to employers whose group plans cover people eligible for Medicare.
What is creditable prescription drug coverage?
Creditable coverage is drug coverage that is expected to pay, on average, at least as much as standard Medicare Part D. If your employer, union, retiree or military coverage is creditable, you can skip Part D without a penalty and enroll later. If it is not, going without Part D can add a penalty to your premium for life.
You do not have to guess. Plans that cover people eligible for Medicare must tell you each year, in a notice sent before October 15, whether their drug coverage is creditable.
Why some employer plans stopped being creditable
Part D got much richer starting in 2025. It now has a yearly out-of-pocket cap, $2,100 in 2026 and $2,400 in 2027, and no coverage gap. Because creditable coverage is measured against Part D, the bar for employer plans went up with it.
CMS responded with a stricter test. Under the older shortcut, a plan generally passed if it paid about 60 percent of drug costs. The revised method requires a plan to pay at least about 72 percent of drug costs on average. Employers could choose either test for 2026, but for plan years starting in 2027 the older shortcut is retired, and CMS expects the bar to keep rising.
High-deductible plans paired with a Health Savings Account are the most likely to fall short, because the deductible applies to prescriptions before the plan pays. A plan that was creditable last year can be non-creditable this year even if nothing about it changed. That is why this year’s notice matters more than usual.
Quick check
What does your creditable coverage notice mean?
Which drug coverage usually counts?
Most large employer and union plans and government programs are creditable. The ones to check carefully are high-deductible plans and some small employer plans.
| Type of coverage | Usually creditable? | What to do |
|---|---|---|
| Employer or union plan through current work | Often, but check the notice | Read this year’s notice before December 7 |
| High-deductible plan with an HSA | Often not, from 2026 and 2027 | Check the notice; plan for Part D if non-creditable |
| Retiree coverage from a former employer | Often | Confirm with the plan each year |
| COBRA with drug coverage | Can be | Ask the plan; remember COBRA does not delay Part B |
| TRICARE, VA drug benefits, FEHB | Yes, generally | Keep your coverage records |
| Marketplace (ACA) individual plan | Varies | Ask the insurer for a creditable coverage letter |
What should you do with the October 15 notice?
Read it, keep it, and act on it before Medicare’s open enrollment ends on December 7. The notice will say one of two things: your coverage is creditable, or it is not. If it is creditable, file it with your Medicare papers as proof in case you enroll in Part D later. If it is not, compare Part D plans or Medicare Advantage plans with drug coverage during open enrollment, October 15 to December 7.
Employers also send the notice when you first become eligible for Medicare, when you join the plan, and whenever the plan’s status changes. You can ask for a copy at any time.
How is the Part D late penalty calculated?
The penalty is 1 percent of the national base beneficiary premium for each full month you were eligible for Part D but had neither Part D nor creditable coverage, after your first chance to enroll. For 2027, the base premium is $41.33, so 14 months without coverage adds about $5.80 a month. The penalty is recalculated each year as the base premium changes, and it lasts as long as you have Part D.
A gap only counts once it reaches 63 days in a row. If you think a penalty is wrong, for example because you had creditable coverage but lacked the notice, you can ask your Part D plan for a reconsideration and send proof of the coverage.
Calculator
What would the Part D late penalty cost you?
What happens when your employer coverage ends?
When you lose creditable drug coverage, you have 2 months to join a Part D plan or a Medicare Advantage plan with drug coverage without a penalty. Line up the new plan so the gap stays under 63 days. If you are still working past 65, our guide to working past 65 and Medicare explains the timing for Part B as well, and our guide to the 2027 Part D out-of-pocket maximum explains what the new cap covers.
Medigap plans do not include drug coverage, so if you choose Original Medicare with a Medigap plan, you still need a separate Part D plan. Compare options on our Part D page and in our guide to choosing a 2027 Part D plan.
What employers need to do
If your group plan includes drug coverage and covers anyone eligible for Medicare, you have two separate obligations: a notice to members before October 15 each year, and a disclosure to CMS within 60 days after the plan year starts, plus within 30 days after the plan ends or its creditable status changes. Confirm your plan’s status with your carrier or actuary, since the 2027 rules are stricter.
Starting with coverage that begins in 2027, account-based plans such as HRAs, FSAs and HSAs no longer need their own creditable coverage notice. The underlying health plan’s drug coverage still does. If you are weighing plan designs, see our HSA and Medicare guide and ICHRA vs QSEHRA.
For employers
Your creditable coverage deadlines
Questions people ask
What does creditable coverage mean for Medicare Part D?
It means your drug coverage is expected to pay, on average, at least as much as standard Part D. With creditable coverage, you can delay Part D without a late enrollment penalty.
Is my employer drug coverage creditable?
Check the notice your plan must send before October 15 each year. Most large employer plans are creditable, but high-deductible plans with an HSA are more likely to fail the stricter test that applies from 2026 and 2027.
Why did my plan lose creditable status?
Part D became richer in 2025 with a yearly out-of-pocket cap, so CMS raised the bar employer plans must meet. For plan years starting in 2027, only the stricter test can be used.
What should I do if my notice says non-creditable?
Compare Part D plans or Medicare Advantage plans with drug coverage and enroll during open enrollment, October 15 to December 7, or during your own enrollment period if you are new to Medicare.
How much is the Part D late penalty in 2027?
It is 1 percent of the $41.33 national base premium for each full month without coverage, rounded to the nearest 10 cents. For example, 14 months adds about $5.80 a month, for as long as you have Part D.
How long can I go without drug coverage before a penalty applies?
A penalty applies after a gap of 63 days or more in a row without Part D or creditable coverage, once your first chance to enroll has passed.
Is COBRA drug coverage creditable?
It can be, if the plan says so in its notice. But COBRA does not let you delay Part B, so check the Part B rules separately before relying on COBRA.
Are VA and TRICARE drug benefits creditable?
Yes, generally. Keep records of the coverage in case you enroll in Part D later.
Do I need Part D if I have a Medigap plan?
Yes, unless you have other creditable drug coverage. Medigap plans do not include prescription drug coverage.
I never got a notice. What should I do?
Ask your employer or plan for a written notice of creditable coverage. If you later need to challenge a penalty, that notice is your proof.
When do employers have to send the notice?
Before October 15 each year, before a person's Medicare Initial Enrollment Period, when they join the plan, when the plan's status changes, and on request.
Do HSAs and HRAs need their own creditable coverage notice?
For coverage beginning in 2027, account-based plans such as HRAs, FSAs and HSAs are no longer required to send their own notice. The health plan's drug coverage still is.
Sources
- CMS, Final CY 2026 Part D Redesign Program Instructions (fact sheet), accessed September 28, 2026
- CMS, Final CY 2026 Part D Redesign Program Instructions, accessed September 28, 2026
- CMS, Contract Year 2027 Medicare Advantage and Part D final rule, April 2026
- Electronic Code of Federal Regulations, 42 CFR 423.56: Procedures to determine and document creditable status, accessed September 28, 2026
Got a non-creditable notice, or not sure what yours means?
Send us your notice or your plan details, and a licensed advisor will tell you whether you need Part D and compare plans before December 7, within one business day. No obligation.
Check my drug coverageCall or text (773) 657-9140Smart Insurance Agents LLC is an independent, licensed insurance agency and is not connected with or endorsed by the U.S. government or the federal Medicare program. We do not offer every plan available in your area. Please contact Medicare.gov, 1-800-MEDICARE, or your local State Health Insurance Assistance Program for information on all of your options. Content is for general information and is not a guarantee of coverage or rates; figures are subject to change by CMS and carriers.