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Inflation Reduction Act Indirectly Affects Employer Plans

Posted on August 29th, 2022

The Inflation Reduction Act (IRA) signed into law last week included some healthcare provisions that primarily impact Medicare and plans sold on a Health Insurance Marketplace; however, some of the provisions included in the law may indirectly impact employers and group health plans.
For instance, the IRA extends the enhanced premium tax credits available through the Health Insurance Marketplace and that were previously authorized under the American Rescue Plan Act (ARPA). The IRA removes the requirement that household income must be within 400% of the Federal Poverty Level (FPL) to qualify for a premium tax credit, and the IRA caps the most a person will need to pay for the second-lowest cost Silver Plan (SLCSP) at 8.5% of their household income (down from the expected 9.12% in 2023).
These provisions mean more individuals will qualify for a premium tax credit. Employers who are subject to the Employer Mandate will be at risk of more penalties if they do not provide a group health plan to their full-time employees that is affordable and has minimum value.
The IRA also made enhancements to the Medicare Part D prescription drug program. Cost-sharing for insulin will be capped at $35 per month starting in 2023. Annual out-of-pocket costs under the Part D program will be capped at $2,000 (adjusted annually for inflation) starting in 2025. For the first time ever, the Department of Health and Human Services (HHS) will be able to negotiate drug prices with manufacturers beginning in 2026. Additionally, starting next year, drug manufacturers will have to pay the Medicare program a rebate if average prices of certain drugs increase faster than inflation.
These changes to Medicare really have two potential indirect impacts to employers and group health plans. First, the IRA did not include comparable prescription drug cost price reductions for private health plans. There is a concern that the cost reductions for Medicare enrollees will result in cost shifting to private health plans to make up for lost revenues.This would mean higher costs to employers and employees.
Second, the enhancements to Medicare Part D may have a significant impact on the creditable coverage status of the prescription drug coverage provided under a group health plan. Employees who delay enrollment in Part D upon first becoming eligible are subject to a late enrollment penalty unless they have coverage elsewhere that is at least as good as the standard Part D plan. While there is no penalty to an employer for failing to provide creditable prescription drug coverage, this will be of particular concern to employees who are eligible for Medicare. There will likely be more guidance issued as to how to determine creditable coverage status based on the Medicare prescription enhancements authorized by the IRA.

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