On August 16, 2022, President Biden signed into law the Inflation Reduction Act (“IRA”). The new legislation contains several provisions impacting group health plans. Below is a description of some of the key changes that will be implemented in the wake of the IRA’s passage.
Affordable Care Act (“ACA”) Subsidies. The IRA implements a three-year extension (i.e., through 2025) of the ACA premium tax credit increase under the American Rescue Plan Act of 2021 (“ARPA”). Individuals who purchase health insurance through an ACA Marketplace may continue to have a lower premium due to these changes.
NOTE: Under the shared responsibility provisions of the ACA, applicable large employers (i.e., 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.
To be sure, the IRA does not directly impact the ACA’s three affordability safe harbors available to employers, and penalties are still based on the employee’s self-only cost to elect coverage on the employer’s least expensive plan (and not on the family premium cost). However, the IRA’s expansion of the ARPA subsidies makes it more likely that employees will qualify for a subsidy and thereby expose employers to liability for employer-shared responsibility payments. Consequently, employers need to ensure that their health insurance coverage for 2023 still provides minimum value and is considered affordable.
Insulin coverage. For employers with Health Savings Account (“HSA”) qualified high-deductible health plans (“HDHPs”), the IRA provides a safe harbor that allows HDHPs to cover any insulin dosage form of any different type before the individual meets the plan’s deductible. This provision is effective for plan years beginning after December 31, 2022.
Additionally, the IRA caps the cost of insulin at $35 per month for Medicare enrollees starting in 2023.
Retiree Medicare Supplemental Programs. The IRA will also have a significant impact on retiree drug spending by allowing, for the first time, government negotiation on prices of 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 drugs by more than the inflation rate.
Potential Increase in IRS Plan Audits. The IRA includes almost $80 billion in new funding for the IRS, of which almost $46 billion is allocated to enforcement. Although it is unclear how much of this funding amount will be devoted to the IRS’s Tax Exempt & Government Entities Division (which has oversight authority over group health plans), it is likely that plan audit activity will increase in the future.