Note: This article is written for general informational and SEO purposes. It summarizes public regulatory developments involving HHS, CMS, Medicare Part D creditable coverage disclosures, HRAs, ICHRAs, and other account-based group health plans. It is not legal, tax, or benefits advice.
If employee benefits compliance had a mascot, it would probably be a filing cabinet wearing reading glasses and whispering, “Did you send the notice?” For years, employers that offered group health plans with prescription drug coverage have had to think carefully about Medicare Part D creditable coverage notices. These notices tell Medicare-eligible individuals whether their employer-sponsored prescription drug coverage is expected to pay, on average, at least as much as standard Medicare Part D coverage.
Now, the U.S. Department of Health and Human Services, through the Centers for Medicare & Medicaid Services, has moved to simplify one corner of that compliance universe. In its Contract Year 2027 Medicare Advantage and Part D rulemaking, HHS proposed excluding account-based group health plans from certain Medicare Part D creditable coverage notice requirements. The rule has since been finalized for coverage beginning in 2027, but the proposal remains important because it explains the logic behind the change: account-based plans are not prescription drug plans, and treating them like prescription drug plans can create confusion rather than clarity.
In plain English, the government looked at Health Reimbursement Arrangements, Individual Coverage HRAs, health FSAs, HSAs, and similar reimbursement-style benefits and said, “These are not really offering prescription drug coverage in the way Medicare Part D rules are trying to measure.” That is a small sentence with a big administrative impact.
What the HHS Proposed Rule Is Really About
The phrase “account-based groups” is a shortened way of referring to account-based group health plans. These are employer-linked arrangements that reimburse or help pay for medical expenses up to a fixed amount, rather than directly providing a full package of medical or prescription drug benefits. HRAs and ICHRAs are the most common examples in this discussion.
The Medicare Part D creditable coverage rules were built around a different concept: actual prescription drug coverage. If an employer plan offers drug benefits, Medicare-eligible employees and dependents need to know whether that coverage is “creditable.” If it is not creditable and the person delays enrolling in Part D too long, they may face a late enrollment penalty later. That is why the notice matters. It helps people avoid accidentally turning a benefits decision into a lifetime premium surcharge. Nobody wants their retirement budget haunted by paperwork from three open enrollments ago.
HHS and CMS recognized that account-based plans do not fit neatly into that framework. An HRA may reimburse medical expenses, premiums, deductibles, copays, or other eligible costs. But the HRA itself usually does not create a pharmacy network, formulary, deductible structure, or actuarial drug benefit comparable to Medicare Part D. It is more like a benefits wallet than a prescription drug plan.
Why Account-Based Group Health Plans Were a Problem Under Old Notice Logic
The old compliance tension came from the broad definition of group health plans and the practical question of whether arrangements like HRAs had to provide Medicare Part D creditable coverage disclosures. Some employers and administrators interpreted the rules conservatively and issued notices for account-based plans. Others struggled with whether a reimbursement account could even be tested under a standard designed for prescription drug insurance.
The result was a classic compliance mess: technically cautious, operationally awkward, and about as user-friendly as a vending machine that accepts only nickels. Employees could receive one notice saying their major medical prescription drug coverage was creditable and another notice suggesting an HRA was not creditable because it did not directly offer prescription drug coverage. For a Medicare-eligible employee, that sounds less like helpful disclosure and more like a benefits-themed riddle.
HHS explained that this dual messaging could confuse individuals who are trying to make informed decisions about Medicare Part D enrollment. The agency also noted that requiring account-based plans to determine and report creditable coverage status could impose administrative burdens on entities that may not have the resources, data, or actuarial structure needed to make that comparison.
What Counts as an Account-Based Plan?
Account-based group health plans generally provide reimbursements of medical care expenses up to a fixed dollar amount for a coverage period. The employer usually funds the arrangement, sets the rules, and determines which eligible expenses can be reimbursed. The employee does not receive an insurance policy from the HRA itself. Instead, the account works alongside or in connection with other coverage.
Health Reimbursement Arrangements
A Health Reimbursement Arrangement, or HRA, is an employer-funded benefit that reimburses eligible medical expenses. Traditional HRAs often sit next to a group health plan. Excepted benefit HRAs may reimburse limited expenses. Individual Coverage HRAs allow employers to reimburse employees for individual health insurance premiums and qualified medical expenses when employees are enrolled in individual coverage or Medicare.
Individual Coverage HRAs
ICHRAs have become especially important because they allow employers to offer a defined-dollar health benefit instead of a traditional group health plan. Employees use the arrangement with individual health insurance coverage or Medicare. That structure is flexible, but it also explains why Medicare Part D notice rules became tricky. The ICHRA may reimburse premiums or out-of-pocket costs, yet the underlying insurance policy is the product that actually provides prescription drug coverage.
FSAs, HSAs, and Similar Arrangements
Health flexible spending arrangements and health savings accounts are also account-based in nature. They help pay for eligible health expenses, but they are not comprehensive prescription drug coverage. They are financial tools within the health benefits ecosystem, not stand-alone substitutes for Part D. Asking them to behave like drug plans for notice purposes is like asking a receipt envelope to explain pharmacy actuarial value. Admirable ambition, wrong object.
The Medicare Part D Creditable Coverage Notice Requirement
Medicare Part D creditable coverage rules exist because Medicare beneficiaries need to know whether they can safely delay Part D enrollment without risking a penalty. Creditable coverage generally means prescription drug coverage that is expected to pay at least as much as standard Medicare Part D coverage. Employers and other entities that offer prescription drug coverage to Medicare Part D eligible individuals must disclose whether that coverage is creditable or non-creditable.
The notice is important because Medicare’s late enrollment penalty can apply when someone goes 63 days or more without Part D or other creditable prescription drug coverage after becoming eligible. The penalty is generally calculated based on the number of uncovered months and may last as long as the person has Medicare drug coverage. In other words, it is not a tiny one-time “oops” fee. It is the kind of administrative consequence that follows a person around like a very boring ghost.
Why HHS Proposed the Exclusion
HHS proposed excluding account-based plans because these arrangements do not directly offer prescription drug coverage. Instead, they provide a reimbursement mechanism or tax-advantaged way to help pay for health costs. That distinction matters. The creditable coverage test is designed to compare the actuarial value of prescription drug benefits, not the value of a reimbursement account that may be used for many types of medical expenses.
The agency also focused on clarity. If an employee receives a non-creditable notice from an HRA and a creditable notice from the underlying group health plan, the employee may misunderstand which notice matters for Medicare Part D purposes. The better approach, according to the rulemaking, is to require disclosures from the plans that actually provide prescription drug benefits while excluding arrangements that merely reimburse or supplement costs.
Finally, HHS framed the change as a reduction in unnecessary administrative burden. Employers, third-party administrators, and benefits vendors would no longer need to spend time trying to force reimbursement arrangements into a prescription drug coverage analysis. That does not eliminate all Medicare Part D compliance duties, but it does remove one confusing branch from the benefits compliance tree.
What the Rule Does Not Change
The exclusion is not a free pass for every employer health plan. Group health plans that directly provide prescription drug coverage must still comply with Medicare Part D creditable coverage disclosure requirements. If an employer sponsors a medical plan with a pharmacy benefit, the employer still needs to determine whether that prescription drug coverage is creditable and provide required notices to Medicare-eligible individuals and CMS.
This is the most important practical takeaway. The proposed exclusion applies to account-based arrangements, not to the employer’s underlying prescription drug plan. A company that offers a major medical plan with prescription drug coverage and also offers an HRA cannot ignore Part D notices entirely. The HRA may be excluded, but the drug benefit still needs attention.
Why Employers Should Care
For employers, the proposed rule reduces uncertainty. Benefits teams have enough annual tasks: open enrollment communications, ACA reporting, COBRA notices, summary plan descriptions, plan document updates, vendor renewals, payroll coordination, and the occasional employee email sent in all caps. Removing account-based plans from Medicare Part D notice requirements makes the compliance calendar a little less crowded.
The rule is especially relevant for employers adopting ICHRAs. As ICHRAs become more common, employers need clear guidance about which responsibilities remain with the reimbursement arrangement and which responsibilities belong to the insurance coverage employees purchase. The HHS rule helps separate those lanes.
For third-party administrators, the change also reduces operational ambiguity. Instead of developing a process to classify reimbursement accounts as creditable or non-creditable, administrators can focus on whether the employer’s actual prescription drug coverage triggers disclosure obligations. That is a more logical workflow and a better use of compliance resources.
Why Employees and Medicare-Eligible Individuals Should Care
Employees may not follow Federal Register notices for fun. That is understandable. Most people have hobbies that do not involve regulatory footnotes. But the issue matters because Medicare-eligible individuals rely on employer notices when deciding whether to enroll in Medicare Part D.
If the notice system becomes cleaner, employees should receive fewer conflicting messages. A Medicare-eligible person should be able to identify the coverage that actually provides prescription drug benefits and evaluate whether that coverage is creditable. Removing extra notices from reimbursement accounts can make the decision path simpler.
Still, employees should not assume that an HRA, ICHRA, FSA, or HSA replaces Medicare Part D. These arrangements may help reimburse certain costs, but they do not necessarily protect someone from a late enrollment penalty. The key question remains whether the person has creditable prescription drug coverage from a plan that actually provides drug benefits.
Example: How the Proposed Rule Works in Real Life
Imagine an employer offers a traditional group medical plan with prescription drug coverage and also offers an HRA to reimburse certain deductibles and copays. Under the old uncertainty, the employer might wonder whether both the medical plan and the HRA required Medicare Part D creditable coverage notices. That could lead to duplicate or confusing communications.
Under the proposed and finalized approach, the HRA would be excluded from the account-based plan notice requirement because it does not directly offer prescription drug coverage. The employer would still analyze the medical plan’s prescription drug benefit and issue the appropriate creditable or non-creditable coverage notice for that plan.
Now consider an employer offering an ICHRA. The employee uses the ICHRA to buy individual health insurance. The ICHRA reimburses eligible premiums or medical expenses, but the individual insurance policy is the product that may include prescription drug coverage. The reimbursement arrangement itself is not the drug plan. That distinction is the entire point of the HHS rule.
Compliance Checklist for Employers
1. Identify All Account-Based Arrangements
Employers should list every HRA, ICHRA, excepted benefit HRA, health FSA, HSA-compatible arrangement, or similar account-based benefit. The goal is to understand which benefits are reimbursement accounts and which benefits directly provide prescription drug coverage.
2. Separate Reimbursement Accounts From Drug Benefits
The employer should determine whether each plan actually offers prescription drug coverage. If a benefit only reimburses expenses, it may fall under the account-based exclusion. If it directly provides drug benefits, Medicare Part D notice obligations may still apply.
3. Update Open Enrollment Materials
Benefits communications should be clear. Employees should not be told, or accidentally led to believe, that an HRA is a substitute for Medicare Part D. A simple explanation can prevent expensive confusion later.
4. Coordinate With Vendors
Employers should talk with brokers, benefits counsel, third-party administrators, payroll teams, and enrollment platforms. Everyone should know which notices are still required and which account-based notices are no longer needed for coverage beginning in 2027.
5. Keep 2026 in Mind
The final version of the rule applies beginning with 2027 coverage. Employers should be careful not to stop required 2026 notices too early. Benefits compliance has a calendar, and that calendar is not impressed by wishful thinking.
Business Impact: Less Noise, Better Signals
The biggest benefit of the HHS rule is not dramatic cost savings. It is signal clarity. Medicare Part D notices are supposed to tell people whether their prescription drug coverage is good enough to avoid penalties. When reimbursement accounts are pulled into that system, the message can become noisy.
By excluding account-based plans, HHS is narrowing the notice requirement to coverage that is better suited for the actuarial comparison. That helps employers reduce unnecessary administrative work and helps employees focus on the notice that actually matters.
In compliance terms, this is a modest but meaningful adjustment. It does not rewrite Medicare Part D. It does not remove employer obligations for prescription drug plans. It simply says that a reimbursement account should not be treated like a pharmacy benefit for creditable coverage disclosure purposes.
Potential Concerns and Limitations
Some stakeholders worried that excluding account-based plans could reduce beneficiary awareness. After all, if an HRA can reimburse drug expenses, employees might incorrectly assume it is prescription drug coverage. That concern is reasonable, especially for workers transitioning into Medicare who are already juggling Parts A, B, C, D, Medigap, employer coverage, retiree benefits, and enough acronyms to fill a cereal box.
The answer is better communication. Employers should explain that account-based plans may reimburse expenses but are not the same as creditable prescription drug coverage. The exclusion from notice requirements should not become silence. It should become clearer, more targeted education.
Another limitation is that the rule does not eliminate the need for actuarial analysis where an employer directly offers prescription drug coverage. Employers still need to review plan design, coordinate with carriers, and confirm whether their prescription drug benefit is creditable under current CMS standards.
Experiences Related to HHS Proposing the Account-Based Plan Notice Exclusion
In practical benefits administration, this topic usually shows up at the worst possible time: right before open enrollment, when HR teams are already trying to finalize rates, answer employee questions, update enrollment guides, and discover why the benefits portal suddenly forgot everyone’s dependents. The proposed HHS rule feels technical, but the experience behind it is very human. Benefits managers have been dealing with a recurring question: “Do we have to send a Medicare Part D notice for this HRA too?”
For many employers, the answer was never emotionally satisfying. A traditional medical plan with a prescription drug benefit clearly belongs in the creditable coverage analysis. But an HRA is different. It is a reimbursement arrangement. It may help pay a deductible, a copay, or even certain premiums, but it does not operate like an insurance plan with a formulary and pharmacy network. So when employers issued a non-creditable notice for the HRA while also sending a creditable notice for the actual drug plan, employees sometimes became confused. Some wondered if their employer coverage was safe. Others called HR, brokers, Medicare counselors, or family members who had the misfortune of “being good with paperwork.”
The experience for administrators was not much better. A small employer offering an ICHRA might not have an in-house benefits attorney or actuarial team. A nonprofit, school district, or family-owned business may rely heavily on a broker or third-party administrator. When rules appear to require a reimbursement account to be measured like prescription drug insurance, compliance becomes more complicated than it needs to be. The HHS proposal acknowledges that mismatch.
One useful example is a Medicare-eligible employee who has an ICHRA and uses it to buy an individual market policy. The employee may ask whether the ICHRA itself is creditable coverage. The better answer is that the employee should look at the actual prescription drug coverage provided by the insurance policy or Medicare arrangement, not the reimbursement account. That is a cleaner explanation and a better decision-making path.
Another experience comes from open enrollment communications. When notices multiply, attention drops. Employees skim, misunderstand, or ignore documents that look repetitive. Removing unnecessary account-based plan notices can make the remaining Part D notice more meaningful. It is the benefits version of cleaning out a junk drawer: the important item was always there, but now employees have a better chance of finding it.
For employers, the practical lesson is to avoid treating the rule as merely a paperwork reduction. The better approach is to use it as a communication reset. Explain what the HRA does, what it does not do, and where employees should look for prescription drug coverage information. That one paragraph in an enrollment guide can prevent a dozen confused calls and, more importantly, help Medicare-eligible individuals avoid costly enrollment mistakes.
Conclusion
The HHS proposal to exclude account-based group health plans from Medicare Part D creditable coverage notice requirements is a sensible effort to align disclosure rules with how modern benefits actually work. HRAs, ICHRAs, FSAs, HSAs, and similar arrangements can be valuable tools, but they are not traditional prescription drug plans. Treating them as if they were can confuse Medicare-eligible individuals and create needless administrative work for employers.
The main compliance message is simple: account-based plans are excluded from these specific notice requirements beginning with 2027 coverage, but group health plans that directly offer prescription drug coverage must still comply. Employers should update processes, coordinate with vendors, and keep employee communications clear. In benefits compliance, clarity is not just polite. It is protective.
