The Inflation Reduction Act (IRA) signed into law by President Biden in August will have a significant impact, most of which will be on individuals enrolled in Medicare. However, there are provisions that could affect employer-sponsored health plans. Here’s a look at key areas and highlights.
Prescription Drug Pricing
The IRA gives the Centers for Medicare & Medicaid Services (CMS) new negotiation abilities. It allows CMS to negotiate with pharmaceutical firms for Medicare plans for the first time. It puts a $2,000 annual limit on out-of-pocket costs for seniors enrolled in Medicare Part D, the federal drug coverage program.
The Kaiser Family Foundation (KFF) says this new limit will benefit more than 100,000 Californians. This figure is based on Part D participants with high out-of-pocket costs in 2020. Nationwide, about 1.4 million seniors spent $2,000 or more on prescription medications in 2020.
Initially, CMS’s negotiations will affect 10 drugs in 2026 – those on which Medicare spent the most money during the prior year. Fifteen drugs will be added in 2027. By 2029, the list expands to an additional 20 drugs. Drug makers that won’t negotiate with CMS could face a tax penalty. The Congressional Budget Office estimates savings over a decade could be more than $100 billion. The new law also mandates rebates from drug makers if they raise prices faster than the rate of inflation.
There is concern among some employer groups that this could result in a cost shift to commercial plans. But others have suggested the pharmaceutical industry does not need the bad press that could come from such an action. That could bring on more legislation.
Because of the way the IRA is written, it will affect only drugs that have no generic equal or biosimilar product. Molecular drugs must be on the FDA approved list for nine years. To be eligible for negotiation, biologics need to be on the list for 11 years. The impact will not be on drugs that are new to the marketplace.
The Act caps the price of insulin for seniors enrolled in Medicare Part B at $35 per month beginning in 2023. More than one-fifth of California residents with diabetes are 65 or older, so such a change will provide relief for many. The goal of Democrats was to include an insulin cap for commercial health plans, too. The Senate parliamentarian struck down that proposal. The rationale was that it did not follow the Byrd rule, which restricts what can be included in “reconciliation” legislation.
Reconciliation allows Congress to expedite budget-related legislation and avoid filibuster rules. A filibuster requires a 60-vote majority for passage. The IRA passed along a party-line vote, 51-50. Vice President Kamala Harris delivered the tie-breaking vote. It’s unknown if Congress can agree on separate legislation for an insulin cap for individual or group health plans during the current term.
HDHP Safe Harbor
There’s a new safe harbor for employers offering High Deductible Health Plans (HDHPs). Plan participants previously could lose eligibility to contribute toward a Health Savings Account (HSA) if expenses (other than preventive care) are reimbursed before meeting the deductible. But the IRA amends IRS provisions for plan years beginning after December 31, 2022. An HDHP participant will not lose HSA eligibility if the plan does not apply a deductible for selected insulin products. The term “selected insulin products” 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 insulin.”
Potential Boost for ICHRAs
For employers moving away from group health, an individual coverage health reimbursement arrangement (ICHRA) could be an option. ICHRAs allow employers to reimburse employees for some or all of the premiums they pay on their own for health insurance. Consult your benefits professional for details.
The IRA also includes climate, energy, and tax provisions affecting employers and workers. Among them are incentives to buy energy-efficient appliances, expanded tax credits for construction of energy efficient commercial buildings and homes, electric vehicle charging infrastructure, penalties for companies that don’t pay prevailing wages, and credits for creating new jobs in manufacturing, construction, and renewable energies.
Tax code changes to ensure all corporations pay their fair share is another provision. A surcharge on corporate stock buybacks and almost $80 billion in IRS funding are there, too. More than half will go toward enforcement. That could mean more retirement plan audits, so say some benefits attorneys.
Talk With an Accountant or Broker
You should talk with an accounting professional about what provisions of the IRA might offer advantages to your firm.
As it relates to health care, your insurance broker can help you understand the many advantages of offering employee benefits. Using a broker won’t cost you more than if you were to go to an insurance company directly. In fact, a broker could save you money. That’s because a broker will be able to discuss the provider networks and benefits of the plans available in your area.
Your broker can also share the advantages of a multi-carrier, employee exchange like CaliforniaChoice. The multi-carrier exchange gives you access to eight health plans and more than 100 coverage options for employees.
If you are not already working with an employee benefits broker, you can search for one online.