On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law after the Senate and House narrowly approved the law. The new legislation does not directly affect group health plans, but plan sponsors should be aware of potential indirect impacts to their plans.
Medicare can now negotiate drug prices
Under the IRA, the Department of Health and Human Services (HHS) will establish a program to negotiate prescription drug prices for individuals covered by Medicare. The HHS Secretary will be responsible for negotiating with drug manufacturers to determine the fair price for drugs using factors outlined in the legislation regarding fair market value, along with research and development costs.
The program, which will be phased in over several years, will require Centers for Medicare and Medicaid Services (CMS) to negotiate maximum prices for brand name drugs that account for the greatest amount of Medicare spending and do not have generic equivalents. The program will begin with ten Medicare Part D drugs in 2026, growing to 20 brand name drugs per year in 2029 and beyond.
Starting in 2023, cost-sharing for insulin will be capped at $35 per month. Medicare Part D out-of-pocket prescription drug costs will be capped at $2,000 annually beginning in 2025.
Affordable Care Act (“Obamacare”) subsidies are extended
The Internal Revenue Service (IRS) extends the Affordable Care Act (ACA) premium tax credits (subsidies) adopted by the American Rescue Plan Act (ARPA) through 2025. The ACA limits subsidies available to those who purchase insurance coverage on the Exchange to individuals with household incomes between 100%- 400% of the federal poverty level (FPL). Under ARPA, the subsidies were expanded for tax years 2021 and 2022 by reducing the amount that subsidy-eligible households are required to pay towards Exchange coverage premiums. It also permits households with income greater than 400% of the FPL to qualify. The IRA extends the ARPA subsidies through 2025.
HSAs won’t be affected by the insulin price cap
While the $35 cap on insulin applies only to Medicare beneficiaries, the Inflation Reduction Act does amend the Internal Revenue Code to state that, starting with plan years beginning January 1, 2023, health plans that provide insulin at no cost before the deductible is met will not affect health savings account (HSA) eligibility. The IRS previously provided guidance on no- or low-cost insulin and HSA eligibility in 2019 through IRS Notice 2019-45.
Employer plans may be impacted, but indirectly
While there is no direct impact on employer-sponsored health plans, caps on Medicare Part D out-of-pocket limits and other cost reductions could affect prescription drug coverage creditable status. Employers must provide notice of a health plan’s creditable coverage status at different times, and at least annually before October 15. Changes to premium tax credits may affect an employer’s potential liability under the ACA employer mandate. Employers are encouraged to watch for future developments regarding this issue.
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For further information on this or any other topics, please contact your EPIC consulting team.
EPIC offers this material for general information only. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. The matters addressed in this document and any related discussions or correspondence should be reviewed and discussed with legal counsel prior to acting or relying on these materials.
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