Inflation Reduction Act (IRA): Healthcare Pro-visions Employers Should Know
President Joe Biden signed the Inflation Reduction Act (IRA) into law on August 16, following House and Senate passage.
The law's healthcare provisions and increase in IRS auditors could impact employer-sponsored health and retirement plans, so group health plan sponsors should keep an eye on the legislation's provisions, experts say.
Lowering Prescription Drug Prices
The bill aims to lower the price of a prescription medication under Medicare Part D while also capping insulin prices under Medicare Part B. Specifically, it enables the Centers for Medicare and Medicaid Services to negotiate better prices with pharmaceutical companies.
The concern is that cheaper drugs through Medicare could lead to increased medication prices for non-Medicare plans, as pharmaceutical companies would attempt to offset any potential loss of revenue by charging more for commercial market plans. As a result, those covered by employer-sponsored plans would face higher healthcare costs.
Considering the potential fallout of the legislation, experts encourage employer plan sponsors to start working with their service providers as soon as possible to devise an approach to ensure everyone is treated fairly.
HSA Protection and Broader Insulin Coverage
The IRA also includes a provision that would broaden insulin coverage and protect Health Savings Accounts (HSAs).
A person is only eligible for an HSA if they are covered by a high-deductible health plan (HDHP). For a plan to be considered an HDHP, it cannot offer coverage before the deductible is met, except for certain preventive care services for chronic conditions, including insulin for people diagnosed with diabetes.
The IRA expands on this by allowing HDHPs to provide coverage for certain insulin products before the deductible is met, regardless of whether the person has been diagnosed as a diabetic. These insulin products are defined as any type of insulin delivered via any system or device that is FDA-approved for the treatment of diabetes.
The provision goes into effect for plans that start on or after December 31, 2022.
Extension of Expanded Access to ACA Plan Subsidies
In 2021, the American Rescue Plan Act eliminated the rule by which a person buying health insurance on the Affordable Care Act (ACA) marketplace had to earn less than 400% of the federal poverty limit. As a result, those making 400% or more of the poverty limit received premium tax credits that reduced the cost of contributions, so they did not exceed 8.5% of the person's income.
This expanded access to subsidies was to last through 2022, but the IRA has extended it through 2025.
While there are advantages to the extension, employers may face increased scrutiny as a result. Employers who have 50 full-time employees or more are obligated to provide their employees with access to affordable coverage that complies with the ACA.
When an employee receives premium tax credits, the IRS receives the tax information, which is then cross-referenced with the 1095- C information. Based on this data, the IRS can determine whether the employer is meeting its shared-responsibility mandate. Therefore, experts expect penalties to increase and advise employers to check their ACA filings before reporting the data.
Experts also believe these higher subsidies will likely become permanent, making ACA marketplace plans more attractive for employers. As a result, employers could simply fund individual coverage health reimbursement arrangements (ICHRAs), allowing employees to purchase their own ACA plans. However, note that employees cannot get both an ACA Premium Tax Credit (subsidy) and ICHRA funds from their employer that provide “affordable” coverage.
Potential Increase in Retirement Plan Audits
The IRS budget received almost $80 billion in new funding, of which $46 billion was earmarked for enforcement. Experts aren't certain how much of that money will reach the tax-exempt and government entities division that oversees retirement plans. However, some believe it is very likely that at least part of that funding will trickle down and result in more retirement plan audits.
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