Inflation Reduction Act Indirectly Impacts Employer-Sponsored Group Health Plans

Congress has passed, and the President has signed, the Inflation Reduction Act of 2022. While the legislation largely focuses on climate change mitigation and deficit reduction, several provisions are of interest to group health plan sponsors and their advisors. Here are highlights:

• Enhanced Premium Tax Credit. The favorable premium tax credit rules adopted in the American Rescue Plan Act (ARPA) will now remain in effect through 2025. As background, the Affordable Care Act (ACA) created a refundable premium tax credit, which is available on a sliding-scale basis for individuals and families who are enrolled in an Exchange health plan and who are not eligible for other qualifying coverage or affordable employer-sponsored health insurance plans providing minimum value. ARPA expanded the ACA premium tax credit for taxable years 2021 and 2022 (see our Checkpoint article). The ACA limits the credit to taxpayers with household income between 100% and 400% of the federal poverty line who purchase insurance through an Exchange. ARPA eliminated the upper income limit for eligibility and increased the amount of the premium tax credit by decreasing, in all income bands, the percentage of household income that individuals must contribute for Exchange coverage. The adjusted percentage ranges from zero to 8.5%. [EBIA Comment: Indexing was to have resumed in 2023, with the percentage set to range from 1.92% to 9.12% (see our Checkpoint article). The new legislation supersedes the previously released indexing adjustments, which instead will continue to range from zero to 8.5% through 2025.]
• Medicare Prescription Drug Cost Reductions. Several cost reduction measures will benefit enrollees in Medicare Part D prescription drug coverage. Beginning in 2023, cost-sharing for insulin will be capped at $35 per month. Annual Part D out-of-pocket prescription drug costs will be capped at $2,000 starting in 2025. For the first time, HHS will be authorized (and required) to negotiate certain Medicare drug prices with manufacturers beginning in 2026. And, starting in 2023, manufacturers must pay Medicare a rebate if average prices of certain drugs increase faster than inflation. [EBIA Comment: Because the legislation does not include comparable prescription drug cost reductions for private plans, there is some concern that reduced costs for Medicare enrollees will result in increased costs for employer plans and participants as price increases are shifted to private plans to make up for lost revenue.]
• Insulin-Related HDHP Safe Harbor. The legislation amends Code § 223 to provide that plans will not lose their HDHP status by reason of failing to have a deductible for certain insulin products. This provision is effective for plan years beginning after December 31, 2022. [EBIA Comment: The provision codifies and expands IRS guidance that allows HDHPs to provide insulin on a no-deductible or low-deductible basis under specified circumstances without adversely affecting HSA eligibility (see our article).]

EBIA Comment: Although this sweeping legislation does not directly affect group health plans, plan sponsors, advisors, and administrators should not lose sight of potential indirect impacts. For instance, because applicable large employers (ALEs) potentially face shared responsibility penalties if full-time employees receive premium tax credits, expanded eligibility for the credits could increase penalty exposure for ALEs that do not offer affordable, minimum-value coverage to all full-time employees. In addition, the improvement to Medicare Part D drug coverage may affect the analysis of whether employer-sponsored prescription drug coverage is “creditable,” i.e., at least as good as standard Part D prescription drug coverage. For more information, see EBIA’s Health Care Reform manual at Sections XXI.G (“Premium Tax Credits”) and XXVIII (“Shared Responsibility for Employers (Play or Pay Penalty Tax)”), EBIA’s Group Health Plan Mandates manual at Section XXV (“Medicare Part D: Creditable Coverage Disclosures”), and EBIA’s Consumer-Driven Health Care manual at Section X (“HSAs: Required HDHP Coverage”).

Contributing Editors: EBIA Staff.