On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. The IRA’s provisions primarily focus on reducing the federal budget deficit and carbon emissions over the coming years. However, several healthcare provisions in the IRA may impact employers that offer group health plans.
One of the primary healthcare goals of the Inflation Reduction Act was to reduce the cost of prescription drugs under Medicare Part D. In addition to capping insulin costs, the IRA will allow the Centers for Medicare & Medicaid Services to negotiate lower drug costs with pharmaceutical companies.
While this is intended to save the government money, employer groups are worried that pharmaceutical companies could attempt to recuperate some of their losses by increasing prices for employer-sponsored plans. However, proponents of the legislation say reduced Medicare drug prices could open the door for employer-sponsored plans to negotiate reduced costs as well.
The 2021 American Rescue Plan Act extended access to federal subsidies for people who buy health insurance on the Affordable Care Act (ACA) marketplace. For those insured under the ACA, premium tax credits (PTCs) lower the cost of ACA plan premium contributions to no more than 8.5% of an individual or family’s income. The IRA extended these subsidies through 2025 but there could be consequences for employers.
The ACA’s employer shared-responsibility mandate requires employers with 50 or more full-time employees to offer ACA-compliant coverage to employees. Yet, when employees receive a PTC, it is a trigger for the IRS to identify which organizations are failing to comply with the employer shared-responsibility mandate. Given that PTCs are going to be more accessible over the next three years, it is likely that more businesses will face penalties for failure to comply with the mandate. To avoid penalties, employers should verify their ACA filings before reporting the information to the IRS.
Currently, employers can forgo offering group health plans and instead fund individual coverage health reimbursement arrangements (HRAs). An HRA enables employers to provide non-taxed reimbursements to employees for qualified medical expenses, including monthly premiums and out-of-pocket costs. By funding an HRA, employees get the opportunity to purchase coverage on the ACA marketplace instead of participating in an employer-sponsored health plan.
With the extension of PTC subsidies, it is believed that individual coverage on the ACA marketplace will become an appealing option to employers and there is a good chance many will start funding tax-exempt HRAs instead of providing group health plan coverage to employees.
This article is intended to provide an overview of IRA provisions that may impact employers and is not a substitute for speaking with our team of healthcare experts. If you’d like to learn more about the IRA and how it might affect your business, please reach out to our WR Healthcare Consultants or email email@example.com with your inquiries. To read more projections related to the 2022 Inflation Reduction Act, click here.