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 the IRA 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 is likely to continue.
As a reminder, the ACA shared-responsibility mandate requires employers with 50+ full-time/full-time equivalent employees to offer affordable, ACA-compliant healthcare coverage. Failure to do so can result in substantial penalties.
Potential Increase in ICHRAs
With the extension of the higher ACA subsidies for at least three years, the appeal of marketplace coverage is likely to expand. According to SHRM, this may result in more employers choosing to fulfill their shared-responsibility mandate by funding an Individual Coverage Health Reimbursement Arrangement (ICHRA) rather than sponsoring a group plan.
With an ICHRA, the employer helps employees purchase individual health coverage on ACA exchanges and elsewhere. The ICHRA reimburses premium costs and, under some plan setups, also reimburses for certain out-of-pocket medical expenses.
Prescription Drug Costs
Prescription drugs cost an average of two to three times more in the U.S. than other countries. The Inflation Reduction Act seeks to reduce that gap by having the Centers for Medicare and Medicaid Services (CMS) negotiate drug prices 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 among insurers and employers that lower costs for drugs purchased through Medicare could result in both significant cost-shifting to commercial market plans and higher prescription costs for non-Medicare plans.
Insulin Safe Harbor for HDHPs
For plan years that start on or after January 1, 2023, the IRA allows HDHPs to cover insulin more broadly prior to satisfying the deductible without negatively affecting the active status of linked Health Savings Account (HSA) accounts.
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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