Millions of workers and retirees get their prescription help through a health reimbursement arrangement, a flexible spending account or a health savings account instead of a standalone drug plan. For years, the employer or plan administrator behind that account had to send a yearly notice stating whether the coverage was as good as Medicare’s own drug benefit — a notice that mattered enormously to anyone who might later sign up for Medicare Part D. The Centers for Medicare & Medicaid Services has now finalized a rule that drops that requirement for these account-based plans, and the change quietly raises the odds that a household only learns about a Part D penalty after the penalty has already started.
CMS Exempts HRAs, FSAs and HSAs From the Part D Disclosure Rule
Under the long-standing rule, any group health plan offering prescription drug coverage to a Medicare-eligible person has had to tell that person, in writing, whether the coverage counts as “creditable” — meaning it pays, on average, at least as much as Medicare Part D. The notice was supposed to arrive every year, typically before the fall Medicare enrollment window, so a worker or retiree could decide whether to sign up for Part D or stay put without risk.
In the Contract Year 2027 Medicare Advantage and Part D final rule, CMS excluded account-based plans — health reimbursement arrangements, including individual coverage HRAs, health flexible spending accounts and health savings accounts — from that disclosure duty entirely. The agency’s stated reasoning is that these accounts reimburse costs rather than insure them directly, so measuring them against Part D’s actuarial value does not fit how the accounts actually work.
The exemption sits inside the same rulemaking that carries the Inflation Reduction Act’s Part D redesign — the eliminated coverage gap and the new annual out-of-pocket cap — into 2027 and beyond, finalized through the formal notice-and-comment process recorded in the Federal Register.
Free retirement updates: A quiet rule change can shrink your Social Security or Medicare check, and no one warns you. The free Retirement Shield newsletter catches these early and tells you what to do. Get it free.
The 63-Day Rule Behind the Part D Late Enrollment Penalty
The creditable-coverage notice exists because of what happens without it. A person who goes 63 or more consecutive days without creditable drug coverage after first becoming eligible for Medicare can be charged a late-enrollment penalty once that person eventually joins a Part D plan.
Medicare calculates the penalty at 1% of the national base beneficiary premium — $38.99 in 2026 — for every full month spent without coverage, and adds it to the monthly Part D premium for as long as that person keeps Medicare drug coverage. Fourteen uncovered months, using the same 2026 figures, works out to roughly $5.50 added to the premium every month, a number that moves each year as the base premium changes.
That penalty is why the paperwork mattered more than it looked. Without a notice, a worker relying on an HRA, FSA or HSA has no built-in signal telling them whether that 63-day clock has already started running.
The Last Notice Goes Out This Fall, Then the Letter Is Gone
The exemption CMS finalized reaches every account-based plan, timed to coverage that begins January 1, 2027. This fall’s disclosure, covering 2026, is the final one required under the old rule — the last time an HRA, FSA or HSA administrator has to send it before the requirement disappears for good.
Legal analysis published in the days after the rule’s release, including a review by the Wagner Law Group, confirms the account-based exemption applies starting with coverage that begins January 1, 2027 — the first year households enrolled in these accounts will not receive the letter at all.
Employer Drug Plans Still Have to Send the Letter
The change is narrow. CMS kept the disclosure obligation in place for group health plans that provide prescription drug coverage directly — a traditional employer drug plan, rather than a reimbursement account that pays toward costs incurred elsewhere.
The distinction matters for a household juggling more than one type of coverage. An HRA that reimburses drug costs loses its notice requirement starting in 2027, while a company-sponsored drug plan sitting alongside it does not, and a person covered by both could easily assume the exemption applies to everything they carry when it only applies to one piece of it.
Retirees who left a job but kept a retiree HRA, and workers on an individual coverage HRA who buy their own Marketplace or Medicare-adjacent plan, are the households most likely to be affected, since those account types sit squarely inside the exemption CMS finalized this spring.
Checking Coverage Without Waiting for a Notice
Once the letter stops arriving, the only way to know where an account-based plan stands is to ask directly. A plan administrator or benefits office can still say, in plain terms, whether the reimbursed coverage is considered creditable, even once there is no formal annual notice requiring the answer.
CMS frames the broader CY2027 rule as an effort to cut administrative paperwork across Medicare Advantage and Part D while leaving the underlying benefit structure intact. The account-based exemption is one line item in that larger deregulatory package — a small paperwork change with an outsized effect on the one group of households whose coverage never came with a clear label in the first place.
Inside the kit
51 state Medicare cost-help packs, the new Part D out-of-pocket cap, the prior-authorization appeal steps and a medication and cost tracker.
The Medicare Cost & Coverage Protection Kit includes a 10-page kit, 51 state Medicare cost-help packs and the new Part D out-of-pocket cap.
Open The Medicare Cost & Coverage Protection Kit.
This article was produced with AI assistance and reviewed by a human editor. Figures are linked to their primary sources; where a claim could not be verified from the public record, we say so.
