Impact of the Inflation Reduction Act

August 19, 2022

On Aug. 16, 2022, President Joe Biden signed the Inflation Reduction Act (IRA) into law. While this law is primarily aimed at fighting inflation and reducing carbon emissions, it also contains a number of reforms that will impact health coverage. The health reforms included in the law have staggered effective dates and will be implemented over the next several years. Good news for employers and insurers is that this Act has very little immediate impact on employers. Here are the main things to be aware of:

ACA Subsidies

The American Rescue Plan Act of 2021 (ARPA) expanded Affordable Care Act (ACA) subsidies through 2022. The IRA extends these subsidies for three more years, through the end of 2025.

As a result of these higher subsidies, employers who fail to offer affordable health care plans may see an increase in ACA utilization by their employees, thus potentially leading to a higher frequency of receiving penalty notices form the Internal Revenue Service.

It is expected these subsidies could be made permanent at a later date. This could lead to an increasing number of Americans choosing to sign up for health care coverage under the ACA, which in turn may have an impact on health care plan costs in the future. It may also lead to new types of allowable health care plans and reimbursement strategies.

Prescription Costs

The IRA will reduce the cost of prescription drugs under Medicare Part D by allowing the Centers of Medicare and Medicaid Services (CMS) to work with pharmaceutical providers on pricing. It will also place a cap on insulin costs under Medicare Part B.

There is speculation that the costs for these medications could be passed along indirectly to employer groups via cross-subsidization strategies. The Transparency in Coverage (TiC) regulations may prevent or mitigate some portion of this increase. However, the portions of TiC related to prescription drugs have been challenged by the pharmaceutical industry in court. No final determination has been made on any of those challenges as yet.

Internal Revenue Service

The IRA allocates $80 billion to the Internal Revenue Service for hiring additional staffing, with $45.6 billion specifically allocated to enforcement activities. While this increase will clearly lead to more auditing activities (private individuals and families, as well as corporations), over half of the IRS’ current workforce is expected to reach retirement age in the next ten years.

The hiring that will be done as a result of the IRA allocation will temporarily swell the IRS workforce. As the projected IRS workforce retirements come into place, this hiring bubble will gradually subside. Until then, however, during the bubble period, it is reasonable to expect that auditing will increase.

For more understanding

Both corporations and individuals should become familiar with the health reforms that are included in the Inflation Reduction Act (IRA) to determine how health care coverage, costs, and current strategies may be affected.

For a copy of the IRA overview, click here:

Impact of the Inflation Reduction Act

If you have any questions on the contents of the IRA or other benefits-related legislation, please contact us at 714.716.4060 or mike@my-EBP.com, or provide info here .