On Tuesday, August 16, 2022, President Biden signed into law the Inflation Reduction Act (H.R. 5376).  The Act primarily focuses on investments in climate change initiatives and adjustments to the Medicare program, but will have some impact to employer health plans.

  • Section 11408: Allows high deductible health plans (HDHPs) to waive the deductible for “selected insulin products” without jeopardizing the ability to contribute to a health savings account (HSA)
    • This means “any dosage form (such as vial, pump, or inhaler dosage forms) of any different type (such as rapid-acting, short-acting, intermediate-acting, long-acting, ultra long-acting, and premixed) of [licensed] insulin” can be covered before the deductible, with low or no cost-sharing, for plan years beginning on or after January 1, 2023.
    • We’ve actually had the ability for HDHPs to have insulin covered for individuals with diabetes since 2019 IRS guidance without applying the deductible. Now Congress has codified the part of that guidance addressing insulin into law.
  • Sections 11001 through 11406: Enacts several Medicare changes. This is not an exhaustive list and is only directly relevant to Medicare, but the Act enables CMS to start negotiating some prescription drug prices, penalize drug manufacturers that increase prices for Medicare Part B and D drugs by more than inflation rates, provides Part D-covered vaccines at no cost, caps insulin at $35/month, and for the first time ever, imposes an annual out-of-pocket maximum for Part D and Medicare Advantage prescription drug plans ($2,000 in 2025, indexing annually thereafter) with a new ability for members to spread their cost-sharing over the year in capped monthly installments
    • Concern has been expressed that when Medicare starts negotiating down the price of expensive drugs, those drug manufacturers may try to recoup those revenues from group and individual health plans
    • The new annual out-of-pocket limit on Part D may impact calculations that determine whether group health plans are creditable toward Part D
    • Group health plans may follow Medicare’s lead of providing vital vaccinations at no cost and capping insulin costs to members (e.g., UHC announced July 15, 2022, that eligible members in fully insured health plans will have no cost share for insulin and other acute-care life-saving drugs starting in 2023, with HSA-qualified HDHPs perhaps being limited to what’s addressed in the 2019 IRS guidance addressed above)
  • Sections 10101 and 10102: Implements a minimum tax of 15% on corporations with financial statement income exceeding $1 billion, plus a 1% tax on some stock buy-backs
    • Many major insurers and PBMs exceed $1 billion, so new taxes on them may result in passing those new extra costs through to policyholders
  • Section 10301: Billions for “funding the Internal Revenue Service and improving taxpayer compliance”
    • Some in the tax industry have warned this may lead to increased retirement plan audits
  • Section 12001: Extends the American Rescue Plan’s enhanced tax credits for Exchange coverage three more years (through the end of 2025)
    • These tax credits have significantly reduced how much Exchange coverage costs, and has even allowed those earning more than 400% of the federal poverty level (FPL) to qualify
    • For applicable large employers (ALEs), this means any offer of coverage to a full-time employee not meeting an affordability safe harbor has a greater chance of triggering a §4980H(b) penalty
    • Affordability is therefore going to remain a high priority for ALEs, especially with the affordability percentage dropping precipitously to 9.12% for 2023

Employer Take-Aways:

  • Employers wishing to offer insulin in their HSA-qualified HDHPs at low- or no-cost to members will want to ensure that is part of renewal underwriting discussions for 2023.  It may also be worth revisiting that list from 2019 to consider whether to waive the high deductible on any of those items as well.
  • Employers may wish to explore other enhancements similar to the ones being made to Medicare and UHC plans, such as offering no-cost coverage of adult vaccines and acute life-saving drugs, or the ability to spread prescription drug cost-sharing into monthly installments, but be careful to not violate HSA rules with respect to HDHPs.
  • ALEs need to remain vigilant to ensure the lowest-cost single plan providing minimum value meets an affordability safe harbor, especially with the reduced affordability percentage for 2023 and extension of the enhanced Exchange tax credits through the end of 2025.
  • All other elements of the Inflation Reduction Act are just a heads-up that they may have an indirect impact to employers and their health plans in the coming years with extra taxes and potential drug cost shifting from Medicare to group plans.

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.

This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.