Medicare Creditable Coverage: What You Need to Know

As you approach 65, understanding Medicare creditable coverage can help you avoid costly penalties and make confident healthcare choices.

Medicare Creditable Coverage

Medicare kicks in for most Americans at this age. This is when most people sign up for Original Medicare (parts A and B), and often for a Part D plan, which covers prescription drugs.

Typically, you must enroll in for Parts B and D during your initial eligibility period when you turn 65. Otherwise you may have to pay a late enrollment penalty for Part B and Part D.

But there’s an important exception to that rule. If you’re still working or have other coverage at age 65, you may be able to delay enrollment without paying late enrollment penalties.

This is because most workplace coverage or other coverage such as VA healthcare benefits counts as creditable coverage. And you can delay enrollment as long as you keep this creditable coverage in place.

Knowing what counts as creditable coverage can help you make smart decisions about Medicare enrollment and steer clear of expensive penalties. This guide is designed to assist those approaching Medicare or transitioning to it, making the process simpler and less stressful.

What is Medicare Creditable Coverage?

Medicare creditable coverage refers to health insurance that is considered at least as good as Medicare’s standard coverage.

To be creditable, medical plans generally must cover at least 20 employees and provide benefits similar to Medicare Part B.

What Medicare Part B Covers

Medicare Part B pays 80% of these costs, after you cover the Part B deductible, which is $240 per year as of 2024.

Here’s what Medicare Part B covers:

Medicare Part B pays 80% of these costs, after you cover the Part B deductible, which is $240 per year as of 2024.

So for your coverage from work or other sources to be considered creditable, it must provide at least this much value. As long as you or your employer keeps it active, you can delay Medicare Part B enrollment without late fees.

Similarly, for prescription drug coverage to be creditable, your existing drug plan must cover at least 20 employees or union members. It must also meet or exceed the actuarial value of standard Medicare Part D coverage. This means the plan is expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage.

If you keep this coverage active and it covers at least 20 employees, you can delay Medicare Part D enrollment penalty-free.

Your coverage isn’t creditable if it’s an individual plan or an employer plan with fewer than 20 employees. You’ll need to enroll in Medicare Parts B and D on time when you turn 65. Otherwise, you risk a coverage gap and late enrollment penalties for both Part B and Part D.

Special Note for Veterans About Medicare Creditable Coverage

VA healthcare benefits are a special case.

VA drug benefits are considered creditable coverage, and allow you to delay enrollment in Medicare Part D without paying a late enrollment penalty.

However, VA health insurance does not qualify as creditable coverage under Medicare Part B. If you have VA health benefits, enroll in Medicare Part B during your seven-month initial enrollment period around age 65.

If you fail to enroll during this period, you will likely face a significant late enrollment penalty when you sign up for Medicare Part B. 

How Much Are Medicare Creditable Coverage Late Enrollment Penalties?

Failing to maintain creditable coverage can result in significant penalties, which may last for the rest of your life.

Understanding these penalties is crucial to avoid paying more than necessary for your healthcare.

Part B Late Enrollment Penalty

If you don’t sign up for Part B during your Initial Enrollment Period, you may face a late enrollment penalty.

The Initial Enrollment Period (IEP) spans three months before to three months after your 65th birthday if you lack creditable coverage.

What counts as creditable coverage? Creditable coverage for Part B generally means employer or union health insurance that meets or exceeds the standard benefits of Medicare coverage.

How is the penalty calculated? For every 12-month period you delay enrollment in Part B without creditable coverage, you’ll face a penalty equal to 10% of the standard Part B premium. The penalty is added to your premium for as long as you have Part B. This can add up quickly if you wait several years to enroll.

For example, if you delay enrollment for 2 years, your penalty would be 20% of the premium. You’d also pay that extra amount every month, in addition to your regular Part B premium, for as long as you’re enrolled.

Important to know: Even if you later enroll in Part B, the penalty doesn’t go away—it continues for life. This makes timely enrollment, or having appropriate creditable coverage, essential to avoiding long-term costs.

Part D Late Enrollment Penalty

Similar to Part B, failing to maintain creditable prescription drug coverage under Medicare Part D can also result in a penalty.

This penalty occurs if there’s a gap of 63 or more consecutive days after your Initial Enrollment Period in which you did not have creditable drug coverage. The penalty is calculated by multiplying 1% of the “national base beneficiary premium” by the number of full, uncovered months you were eligible but didn’t enroll in Part D.

The resulting amount is added to your monthly Part D premium for as long as you have Medicare drug coverage. For an 18-month delay, your penalty would be 18% of the national base premium, added to your monthly premium.

Similar to the Part B penalty, this charge continues for life.

General Enrollment Period (GEP) and Its Impact

If you miss your Initial Enrollment Period and don’t qualify for a Special Enrollment Period, you can still enroll.

The General Enrollment Period runs from January 1 to March 31.

However, your coverage won’t begin until July 1 of that year, potentially leaving you without coverage for several months and further compounding penalties.

How to Determine if Your Coverage is Creditable

To determine if your coverage is creditable, it’s essential to be proactive and verify the status with your plan provider or benefits administrator.

Employers and unions must send annual notices explaining the creditable status of your drug coverage. If you don’t receive it, contact them directly. This verification is crucial, even with spousal coverage, as you can’t assume it automatically qualifies as creditable.

COBRA Considerations

If you have COBRA coverage, it’s particularly important to inquire about its creditable status, as COBRA may not always meet Medicare’s standards for creditable coverage.

Regardless of your coverage source, confirm your coverage’s creditable status to make informed healthcare decisions and avoid penalties..

Special Enrollment Periods (SEPs)

Note: After losing creditable coverage, you typically have 62 days to enroll in Part D without facing a late enrollment penalty.

If you lose coverage for any reason, it’s critical to get new coverage in place. If you’re over 65, that probably means taking advantage of your special enrollment period guaranteed enrollment privileges to sign up for Original Medicare.

It’s often wise to consider additional private coverage, either via a Medicare supplement (Medigap) policy with an optional Part D plan stacked on top to cover your prescription drug costs, or a Medicare Advantage plan. Most Medicare Advantage plans include a built-in prescription drug policy.

The Medi-Share 65+ Alternative

Another great option is to opt for a health sharing plan called Medi-Share 65+.

It’s not medical insurance, but it’s a strong, affordable Medigap alternative. It helps cover Medicare’s deductibles, copays, and 20% Part B coinsurance.

That protection is important because there is no cap on that 20% coinsurance. Without additional protection in place, your potential out-of-pocket costs under Medicare alone are unlimited. 

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