Are You Medicare-Eligible and Covered by an Employer Health Plan? 2025 Changes May Impact You 

If you have prescription drug coverage through your employer health plan, you may have received notice from your employer regarding “creditable” or “non-creditable” Medicare Part D prescription drug coverage. This notice is particularly important if you are Medicare-eligible during your employer’s open-enrollment period this year.  

The term “creditable” prescription drug coverage generally describes whether your employer plan’s coverage provides, on average, as much as or more than Medicare’s standard Part D plan.¹ “Non-creditable” means the employer plan doesn’t provide, on average, as much coverage as Part D. 

Why does creditable (or non-creditable) coverage matter? 

First of all, failing to maintain creditable coverage for 63 days or more — when you’re Medicare-eligible — could incur a late enrollment penalty when you eventually go on Medicare and enroll in Part D prescription drug coverage.² 

Secondly, a provision of the 2022 Inflation Reduction Act goes into effect in 2025 for employer-sponsored group health plans that caps the annual out-of-pocket prescription costs to $2,000 for individuals participating in Medicare Part D. If an employer plan is considered creditable, it typically is expected to limit drug costs to $2,000 annually for a Medicare-eligible individual. However, the 2025 provision may cause some employer plans to become non-creditable if they don’t limit out of pocket prescription costs to $2,000 each year per covered individual. 

How might 2025 Medicare changes affect me? 

If you are Medicare-eligible and enroll in your employer’s plan — which has non-creditable prescription drug coverage — during this year’s open enrollment period, your enrollment in Medicare Part D in 2025 could incur late-enrollment penalties. 

The late enrollment penalty amount is typically applied each month to your premium for as long as you have Medicare. It will apply if there’s a period of 63 days in a row after the initial enrollment period when you don’t have creditable prescription drug coverage or Medicare Part D. The penalty is calculated by Medicare at 1% of the “national base beneficiary premium” ($36.78 in 2025) times the number of full, uncovered months you didn’t have coverage.³ The penalty is rounded to the nearest $0.10 and gets added to your monthly Part D premium.

What do I do next?

Review your employer plan prescription coverage before the end of your open-enrollment period to determine whether it is considered creditable in 2025 and can help you avoid penalty if you will be enrolling in Medicare Part D next year. While the amount shown in the example Medicare penalty amount may not seem like much, over several years it can add up to a large cost that could be avoided by acting now. For instance, per the example, $3.30 per month for 20 years equals $792.00 total.

If you’re a Mercer Advisor’s client, contact your wealth advisor to discuss your prescription drug coverage options for 2025 and help avoid potential lifetime Medicare penalties. Not a Mercer Advisors client? Let’s talk.

1. “Medicare Part D Creditable Coverage – Changes & Challenges for 2025,” Risk Strategies, July 24, 2024.
2. “Part D late enrollment penalty,” Medicare, 2024.
3. “CMS Releases 2025 Medicare Part D Bid Information and Announces Premium Stabilization Demonstration,” Centers for Medicare & Medicaid Services, July 29, 2024.