Compliance News | August 10, 2022
The U.S. Senate has passed the landmark Inflation Reduction Act, an economic package that includes:
The bill was passed using the budget reconciliation process, which permits passage with simple majorities.
The Senate voted on the legislation after an overnight “vote-a-rama” during the weekend, during which amendments to the legislation were submitted but generally voted down. The House of Representatives is expected to return to Washington to vote on the measure on August 12, 2022.
The Inflation Reduction Act contains significant business tax changes, including a corporate minimum tax of 15 percent, as well as increased funding to the IRS for tax enforcement. It also includes extensive green tax credits to address climate change.
An important part of the law will impact the ACA Exchanges and the Medicare program, including the Medicare Part D program and Employer Group Waiver Plans (EGWPs) used by employers and other plan sponsors to provide prescription drug coverage to retirees. Plan sponsors that offer an EGWP should work with their professional advisors to understand the impact of the changes on their program.
While the bill caps the amount that individuals covered by Medicare will pay for insulin, it does not adopt requirements that affect group health plan cost-sharing for insulin.
The Inflation Reduction Act extends through 2025 the premium assistance tax credits that were increased by the American Rescue Plan Act (ARPA). Individuals who purchase health insurance on the ACA Marketplace (or a state Exchange) will have lower insurance premiums due to these changes, and households with incomes above 400 percent will remain eligible for help through 2025. If the premium assistance tax credits had not been extended, it was expected that premiums for Marketplace coverage would have increased substantially this fall.
The Inflation Reduction Act makes several improvements in insulin coverage under the Medicare program, including limiting cost-sharing for Medicare beneficiaries to no more than $35/month beginning in 2023.
For employers with Health Savings Account (HSA)-qualified high-deductible health plans (HDHP), the Act provides a safe harbor that permits HDHPs to cover any insulin dosage form (e.g., vial, pump or inhaler) of any different type (e.g., rapid-acting, short-acting, intermediate-acting, long-acting, ultra-long-acting and premixed) before the individual meets the plan’s deductible.
This provision is effective for plan years beginning after December 31, 2022. Current law permits coverage of preventive services before the deductible is met, so plan sponsors may already be covering insulin before the deductible is met. (See our July 29, 2019 insight on IRS Notice 2019-45.)
For the first time, the Inflation Reduction Act would require the federal government to negotiate prices for some high-cost drugs covered under Medicare. Eligible drugs will first come from the Medicare Part D program (outpatient prescription drugs), but eventually will include both Part D and Part B drugs. (Part B drugs are administered in a doctor’s office or hospital.) The Department of Health and Human Services (HHS) would negotiate prices for up to 10 Part D drugs in 2026, 15 Part D drugs in 2027, 15 Part B and D drugs in 2028 and 20 Part B and D drugs in 2029 and beyond.
Drugs available to be negotiated would be selected from among the top 50 drugs by total expenditure in 2023 for Part D or Part B. Drugs must have been licensed by the FDA for seven years (11 years for biologics).
HHS would negotiate with manufacturers to determine a maximum fair price for the selected drug. The maximum fair price would be based on the lowest of a percentage of the average price determined by years on the market, a plan-specific enrollment weighted price for Part D drugs or an average price for Part B drugs. HHS would have to adopt processes to assure the implementation of the maximum fair price for Medicare-eligible individuals in both Part B and Part D plans. Penalties on manufacturers for imposing a higher price or failing to negotiate could include civil monetary penalties and an excise tax.
The Congressional Budget Office estimates the drug negotiation program would save Medicare about $102B over the next 10 years. However, the law does not require manufacturers to make the negotiated price available to employer-sponsored group health plans.
Additionally, beginning in 2023, the Inflation Reduction Act would require drug manufacturers to pay a rebate to Medicare if certain Part B drug prices rise faster than inflation, calculated by the consumer price index for all urban consumers (CPI-U). For Medicare beneficiaries, cost-sharing for these rebatable Part B drugs will be capped at 20 percent of the inflation adjusted amount beginning in April 2023. Similarly, beginning in October 2023, drug manufactures must pay a rebate to Medicare if certain Part D drug prices rise faster than inflation. Manufacturers that do not comply would be subject to civil monetary penalties.
Advocates for employer-sponsored group health plans attempted to have language inserted into the Inflation Reduction Act that would require payment of rebates to employer-sponsored plans as well as Medicare. However, the Senate Parliamentarian did not permit this language to be included, as it did not have a federal budgetary impact.
The Inflation Reduction Act would also eliminate cost sharing for adult vaccines covered under Medicare Part D beginning in 2023. It also repeals the previous administration’s drug rebate rule, which would have eliminated rebates in favor of point-of-sale discounts.
The Medicare Part D prescription drug benefit would be significantly modified to eliminate participant coinsurance during the catastrophic payment period and change who pays during that period.
Medicare beneficiaries’ out-of-pocket spending on outpatient prescription drugs would be capped at $2,000 in 2025, indexed annually. In addition, in 2024, a 5 percent beneficiary coinsurance requirement above the Medicare Part D “catastrophic” threshold would be eliminated. Beneficiaries in Part D programs would be allowed to elect to smooth out-of-pocket costs over the year, instead of paying large amounts in a single month. Beneficiary premiums for Part D plans could not increase more than six percent per year from 2024 through 2029.
Payments by the federal government to Part D plans would decrease, with plans picking up a larger share of the costs during the period after which an individual has met their out-of-pocket costs.
The Inflation Reduction Act ushers in a new manufacturer discount program beginning in 2025, to replace the coverage gap discount program which will sunset at the end of 2024. The Inflation Reduction Act also expands income eligibility for benefits under the Medicare D Low-Income Subsidy Program.
While the Inflation Reduction Act may not require immediate benefit plan changes, it has the potential to significantly affect plan costs for both prescription drugs and retiree Medicare supplemental programs, particularly EGWPs. Plan sponsors should review the new law with their benefit advisors to determine the financial impact on their programs.
This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.
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