On August 12, 2022, the U.S. House of Representatives passed the Inflation Reduction Act (IRA). Following the passage, President Biden is expected to officially sign the IRA into law on Tuesday, August 16, 2022. The IRA was narrowly passed along partisan lines under “reconciliation” rules, which enabled the bill to be passed by an evenly divided Senate, with Vice President Harris casting the deciding vote. While the new law will have significant impacts on corporate taxation and climate change, it also contains several provisions impacting group health plans that are of importance.
ACA Subsidies
The IRA puts in place a three-year extension of the expanded Affordable Care Act (ACA) subsidies that were originally enacted as part of the American Rescue Plan Act of 2021 (ARPA). ARPA subsidies give help to nearly 90 percent of those who signed up for health coverage on the health insurance marketplaces during the 2022 open enrollment period, assisting individuals who make as much as $52,000 and families with an income of up to $106,000. Those subsidies were set to expire at the end of 2022 without the passage of an extension, and policymakers had been concerned about skyrocketing premiums for those reliant on the subsidy in 2023. More than 10 million Americans were projected to lose part or all of their premium tax credits, resulting in a potential loss coverage for 3 million insureds.
While the passage of this extension does not directly impact employer-provided group health insurance, it will certainly have indirect impacts. Under the shared responsibility provisions of the Affordable Care Act (ACA), applicable large employers (ALEs—those with at least 50 full-time or full-time-equivalent employees in the prior calendar year) must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS. The employer shared responsibility provisions are sometimes referred to as “the employer mandate” or “the pay or play provisions.” Although it should be mentioned that the three affordability safe harbors used by employers are unaffected directly. Therefore, penalties are still based on the employee’s self-only cost to elect coverage on the employers least expensive plan and are not based on the family premium cost.
Whether an employer will owe a penalty to the IRS depends in part on whether at least one full-time employee receives a subsidy for purchasing coverage on a health insurance exchange. The expansion of the subsidies under ARPA made it more likely that employees would qualify for a subsidy. Now is a good time for employers to ensure that their coverage for 2023 provides minimum value and is considered affordable. There is more information regarding those determinations on the IRS website, and your AssuredPartners employee benefits consultant can also help you with making that determination. The affordability threshold for 2022 is 9.61% of household income, but in 2023, that percentage will decrease to 9.12%.
Medicare Drug Prices
The IRA will also have a significant impact on retiree drug spending, for the first time allow the government to negotiate prices on select Medicare medications. It will also cap seniors’ out-of-pocket spending on drugs at $2,000 a year and penalize drug makers that increase prices for Medicare Part B and D drugs by more than the inflation rate. Additionally, the IRA will cap the cost for insulin at $35 per month for Medicare enrollees starting in 2023.
Under the legislation that established the Part D drug program in 2003, the government was prohibited from negotiating directly with pharmaceutical manufacturers. Individual insurance companies participating in Part D can negotiate, but they have not had the bargaining power of the federal government. Allowing the government to negotiate directly is expected to save about $100 billion through 2031, according to Congressional Budget Office estimates.
There is no provision in the IRA that requires drug manufacturers to give the same prices to the private insurance market that it negotiates with the federal government. Democrats in Congress had attempted to include such a provision, but were unable to do so, since that provision failed to have a direct impact on federal spending and taxation, and therefore could not be included in a “reconciliation” bill. Without such a provision, it remains to be seen whether the federal government’s new bargaining power will decrease costs across the prescription drug market or if it will result in cost-shifting to employer-provided health plans.
This blog post was originally posted by AssuredPartners and written by Amy Donovan, Esq. Pierce Group Benefits is a part of the AssuredPartners family of companies.