If you’re turning 65 and already have health or prescription drug insurance, you may be able to delay Medicare enrollment without late penalties – as long as you have creditable coverage. In this post, we’ll explain what Medicare means by creditable coverage and how it can help you avoid costly late enrollment penalties.   

What is Creditable Coverage?

“Creditable coverage” is health insurance or prescription drug coverage that is at least as good as the benefits provided by Medicare. It ensures that you can delay enrolling in Medicare without penalties, provided your plan meets Medicare’s standards. 

If you have other sources of creditable coverage, such as through a current or former employer or union, you may choose to stay in that plan rather than enrolling in Medicare immediately. This applies for Part A (hospital insurance), Part B (medical insurance), and Part D (prescription drug coverage). As long as you maintain creditable coverage, you can avoid a late enrollment penalty when you decide to join Medicare. 

If you lose creditable coverage, you’ll qualify for a Special Enrollment Period to enroll in Medicare or a Part D prescription drug plan without penalties. 

Without creditable coverage, delaying Medicare enrollment could result in significant penalties and higher costs for the rest of your life.

How Do I Know if I Have Creditable Coverage?

Your insurance provider is required to notify you whether your plan qualifies as creditable coverage under Medicare guidelines. This notification, called the notice of creditable coverage, is typically provided when you first enroll in your plan and annually thereafter before Medicare’s Annual Enrollment Period begins on October 15. 

Be sure to keep each notice you receive because when you do enroll in Medicare, you’ll have to prove you had creditable coverage for the entire period that you delayed enrollment.

What Employer Plans Qualify as Creditable Coverage?

Employer plans qualify as creditable coverage as long as the organization employs at least 20 people. If the employer has fewer than 20 employees, the plan is generally not considered creditable for Medicare Parts A and B, though it may qualify under Part D. 

You must also be an active employee, or the coverage must be through an actively employed spouse. Once you or your spouse retire, the coverage may no longer be creditable. 

Review your notice of creditable coverage or talk to your benefits administrator to confirm your plan’s status. 

Insurance Plans That Do Not Qualify as Medicare Creditable Coverage

Some insurance plans may not qualify as Medicare creditable coverage for Parts A and B. However, they may qualify for Part D. Examples of these plans include: 

• ChampVA: To keep your ChampVA benefits and avoid late penalties, you must enroll in Medicare. 
• COBRA: You must enroll in Medicare within 8 months of starting COBRA if you want to avoid late penalties. 
• Retiree insurance: To avoid late penalties, you must enroll in Medicare within 63 days of retiring. 
• TRICARE: You risk losing your TRICARE benefits if you wait to enroll in Medicare until after you turn 65. You also face late penalties. 
• Federal Employee Health Benefits (FEHB): Medicare does not consider FEHB to be creditable coverage. 
• VA: VA benefits count as creditable coverage for Medicare Part D, but not for Parts A and B. 

Can I Have Both Medicare and Creditable Coverage?

Yes, you can have both Medicare and creditable coverage. In most cases, your employer-sponsored plan is your primary insurance, meaning it pays for your medical expenses first, and Medicare is your secondary carrier. 

For some beneficiaries, having both creditable coverage and Medicare can keep out-of-pocket costs low. For example, most people get premium-free Medicare Part A, so if you enroll in only Part A to supplement your employer plan, out-of-pocket costs for hospital care may be lower. You can also enroll in Part B, and while you’d still owe your Part B premium ($185 in 2025), you may save on other medical costs. 

Weigh the costs and benefits of maintaining both types of coverage to determine what works best for you. 

Changes to Part D Creditable Coverage in 2025 

The Inflation Reduction Act introduces significant changes to Medicare Part D in 2025 that could impact what is considered creditable coverage. One of the biggest changes is a new $2,000 annual cap on out-of-pocket costs for Medicare Part D. While this makes prescription drugs more affordable for beneficiaries, it also changes how plans must be structured to still meet Medicare’s creditable coverage threshold. 

In the future, some employer plans could be deemed as “non-creditable” as they may not provide enough drug coverage compared to the enhanced Medicare benefit. To maintain creditable coverage status, employers may need to adjust their drug plans by increasing coverage levels, lowering deductibles, or changing the overall design of plans. 

Beneficiaries should verify their plan’s creditable coverage status each year to avoid any surprises, and penalties. 

What if You Don’t Have Creditable Coverage? 

If you don’t have creditable coverage when you become eligible for Medicare and you delay enrollment, you could face significant consequences. For example, delaying enrollment in Part B could result in an additional 10% added to your monthly premium for each year you delayed signing up. If you delay enrolling in Medicare Part D without having creditable drug coverage, the late enrollment penalty is calculated as 1% of the national base beneficiary premium ($34.70 in 2025) for every month you go without creditable coverage. 

Additionally, you might have gaps in coverage and face significant out-of-pocket costs for medical and prescription drug expenses. 

Is Creditable Coverage Better than Medicare? 

Creditable coverage doesn't mean better coverage. It doesn't even mean cheaper. You could have lower out-of-pocket costs AND better coverage with Medicare. It's always a good idea to weigh all of your options and see which choice offers the best coverage at the best price.