Three Ways To Think About Retiree Drug Coverage.
The subsidy, an employer group waiver plan and a creditable coverage notice are three separate things that often get lumped together. This page pulls them apart.
Sorting The Options.
General information, not legal or tax advice. Check the cited sources before you act.
Retiree Drug Subsidy Overview
The hub for this series, with all five topics and the sources.
The Tax Trade-Off
Why the post-2012 deduction rule enters the comparison.
The CMS Process
What a sponsor does to apply for and settle the subsidy.
Three Separate Concepts.
The Retiree Drug Subsidy is a payment to a sponsor that keeps providing drug coverage to retirees who are not enrolled in a Part D plan. An employer group waiver plan, or EGWP, is Medicare drug coverage, under Part D or a Medicare Advantage arrangement, in which CMS has waived or modified certain requirements for an employer or union sponsor. The retiree enrolls in that Medicare plan. A creditable coverage notice is a disclosure about whether a plan’s drug coverage is worth at least as much as standard Part D.
Section 423.458(c) of the CMS regulations lets CMS waive or modify Part D requirements that stand in the way of designing, offering or enrolling in employer-sponsored plans. The CMS EGWP page adds that these plans must follow all Part C and Part D requirements unless one is explicitly waived.
Creditable Coverage Applies To Both Paths.
A qualified retiree plan must send creditable coverage notices to Part D-eligible people. That is one of the three conditions in 42 CFR 423.884. Under 423.56, entities that offer group coverage must tell Part D-eligible individuals whether it is creditable, at minimum before their initial enrollment period, before the Annual Coordinated Election Period begins, when creditable status changes, and on request. Coverage is creditable when its actuarial value equals or exceeds that of standard Part D coverage.
One rule separates the paths. The simplified method for showing creditable status is open only to group health plans that do not receive a retiree drug subsidy. It looks for reasonable drug and pharmacy access and a minimum average payment percentage, which is 73 percent for 2027, with later years set in CMS guidance. A plan receiving the subsidy relies on the actuarial attestation instead.
Questions That Drive The Choice.
A qualifying covered retiree must not be enrolled in a Part D plan, so a retiree who moves into an EGWP generally falls outside the subsidy. The decision therefore turns on trade-offs: what the sponsor receives net of the post-2012 tax change, how much drug cost it wants to keep carrying, what retirees pay, and how much administration it can manage.
This page does not rank the options. The right answer depends on claims, demographics and contract terms, and it changes as those facts change.
Building The Comparison.
Gather a year of retiree drug claims, the current attestation, the creditable coverage notices you sent and the latest final payment statement from CMS. Ask for EGWP proposals on the same retiree list so the numbers describe the same people. Compare net cost after tax, not the gross subsidy.
Then check timing. Moving retirees affects notices, enrollment periods and plan-year dates, so start well before the date you want to switch. We build the comparison, line up administrator offers and confirm which notices are owed. Your tax adviser and actuary should review the conclusions before anything is decided.
Related Rules And Tools.
Employer Group Waiver Plans (EGWPs) For Retiree Medicare Coverage
How employers use EGWPs to deliver retiree Medicare drug coverage.
Creditable Prescription Coverage for Employers
What makes drug coverage creditable and why employers are asked to say so.
Reporting Creditable Coverage: The Two Part D Disclosures Employers Owe
The two disclosures tied to Part D that an employer plan owes each year.
Laws And Sources
42 U.S.C. 1395w-132 — The Social Security Act provision that creates the special subsidy, defines a qualified retiree prescription drug plan and sets the 28 percent rate.
42 CFR 423.884 — What coverage must meet to qualify, plus the application contents, attestation timing and audit access.
42 CFR 423.56 — The creditable coverage definition, disclosure notices and their timing.
42 CFR 423.458 — Waiver and modification authority for employer-sponsored plans in paragraph (c).
CMS, Employer Group Waiver Plans — The CMS page describing EGWP coverage under Parts C and D and the waivers that apply.
CMS, Retiree Drug Subsidy Center — The program site for sponsors, with application and reconciliation deadline pages and announcements.
General information, not legal or tax advice.
Quick Answers.
Short replies on this page’s topic, each tied to a fuller guide.
Can A retiree be in an EGWP and still count for the subsidy?
Not generally. A qualifying covered retiree is defined as not enrolled in a Part D plan, and an EGWP is Medicare drug coverage.
Do we still send notices if we receive the subsidy?
Yes. Notices to Part D-eligible people are one of the conditions of a qualified retiree prescription drug plan under 42 CFR 423.884.
What is the simplified method for creditable status?
A CMS method for group plans that do not receive the subsidy. It requires reasonable coverage and access and a minimum average payment percentage, 73 percent for 2027 under 42 CFR 423.56.
The Rest Of This Series.
What The Subsidy Is
The sponsor, the qualifying retiree and the 28 percent payment, explained from the statute.
The Section 139A Exclusion
What section 139A says, where it came from and what it leaves open.
The Lost Deduction After 2012
The 2010 amendment, its 2013 start and the IRS examples for older and newer costs.
Application And Reconciliation
Applying to CMS, interim payments, final cost data and the records to keep.
An independent employee benefits consulting firm. We look at the entire benefits program — cost, plan performance, risk and administration.
Switch to CFH. Unhappy with your broker? Your employees won’t notice. You will. →