President Biden signed the Inflation Reduction Act (IRA) into law on August 16, 2022. Among other provisions, the IRA:
- Addresses aspects of the Affordable Care Act (ACA)
- Requires Medicare to negotiate drug prices with manufacturers
- Caps the cost of prescribed insulin for Medicare recipients at $35 a month
- Provides an insulin safe harbor for high-deductible health plans (HDHPs)
Here’s how the Society of Human Resource Managers (SHRM) expects these provisions to impact employer-sponsored group health plans.
ACA Subsidies Extended to 2025
The American Rescue Plan of 2021 (ARPA) expanded access to premium tax credits (PTCs) that subsidize the purchase of health insurance on the ACA marketplace. The IRA extends those subsidies through 2025.
According to SHRM, the receipt of PTCs by a company’s employees triggers IRS scrutiny of whether the employer is meeting its ACA shared-responsibility mandate. With the extension of PTCs for three more years, that scrutiny will continue.
As a reminder, the ACA’s shared-responsibility mandate requires employers with 50 or more full-time or equivalent employees to offer affordable, ACA-compliant coverage to employees. Failure to do so results in substantial penalties.
Potential Impact on ICHRAs
With the extension of the higher ACA subsidies through at least 2025, marketplace healthcare coverage will become a more appealing option. According to SHRM, this could lead to more employers choosing to meet their shared-responsibility mandate by funding an Individual Coverage Health Reimbursement Arrangement (ICHRA) rather than sponsoring a group health plan.
ICHRAs help employees purchase individual health coverage on ACA exchanges and elsewhere. The employer reimburses premium costs up to a set amount per month. Some employers also use the ICHRA to reimburse for certain out-of-pocket expenses not covered by insurance.
Prescription Drug Costs
Today, prescription drugs in the U.S. cost two to three times what they do in other countries. The Inflation Reduction Act seeks to reduce that disparity by allowing the Centers for Medicare and Medicaid Services (CMS) to negotiate with pharmaceutical companies. It also caps insulin costs for Medicare Part B recipients at $35/month.
According to SHRM, this provision has sparked some concern in the industry that lower costs for drugs purchased through Medicare could result in significant cost-shifting to commercial market plans and lead to higher prescription costs for non-Medicare plans.
Insulin Safe Harbor for HDHPs
For plan years beginning on or after January 1, 2023, the IRA permits HDHPs to cover insulin for a broader range of uses prior to satisfying the deductible. This will not affect the ability of account owners to contribute to their Health Savings Accounts (HSAs).
More Information
This blog is intended for educational purposes only and should not be construed as legal or tax advice. For more information on the Inflation Reduction Act and its provisions, contact your qualified benefits attorney.
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