Will the Inflation Reduction Act Increase or Lower Workers Comp Costs?
The so-called Inflation Reduction Act (HR 5376) signed into law by President Biden includes certain health care cost-reducing measures.
These measures include:
- Allowing Medicare to negotiate the cost of a small number of high-priced prescription drugs directly with manufacturers. Price reductions would take effect on 10 Part D drugs in 2026, 15 Part D drugs in 2027, 15 Part B and Part D drugs in 2028, and 20 Part B and Part D drugs in 2029.
- Capping out-of-pocket insulin costs for Medicare beneficiaries at $35 per month. Importantly, this provision does not reduce the cost of insulin, only the cost for individuals on Medicare who use insulin. It simply shifts the cost to the broader base of taxpayers.
- Extending subsidies for the Affordable Care Act (ACA) coverage for an additional three years, through 2025.
- Requiring drug manufacturers to offer rebates to Medicare if they raise drug prices faster than the rate of inflation.
On the surface these changes do not seem to have much direct bearing on workers comp, except maybe insofar as extending subsidies for ACA plans could keep people insured and less likely to claim a workplace injury for lack of other means of coverage.
Future Impact of the Changes
Depending on various factors, however, the provisions of HR 5376 could have an impact on workers comp as they affect the price of drugs. Some believe that as Medicare negotiates drug prices lower, those costs will drop for everyone, including employers.
That’s one scenario at least. Writing for National Underwriter magazine, workers comp expert Brian Allen of Mitchell also imagines a more cynical outcome. As Medicare negotiates lower costs for its recipients, drug manufacturers may increase what they charge the rest of the market to make up the difference.
“This would be bad news for workers’ compensation payers,” says Allen. “Health insurance providers and self-insured employers could make adjustments, but it would be harder for the workers compensation industry.
“Commercial health plans can manage some of the increase with strict formulary controls and the ability to direct care to network pharmacies with negotiated rates,” Allen says. “[But] In most states, workers’ compensation insurers and employers don’t have those luxuries, so they will fully bear those increased costs from out-of-network providers. If the employers are allowed to direct care, or if the injured employee voluntarily chooses to obtain pharmacy care from an employer-established pharmacy network, the pharmacy benefits manager can help mitigate some of the potential increase. Those are big ifs.”
Only time will tell how things play out. Scenario one would be the best outcome for the workers comp industry of course, says Allen.
“No matter which scenario comes to fruition, payers need to work closely with their pharmacy benefit managers to encourage use of the managed care pharmacy network to help contain costs. In states where direction of pharmacy care is not allowed for workers’ compensation claims, policymakers should take a hard look at drug spending data and evaluate whether now might be the time to consider a change” noted Allen.
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