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IRS Regulations Fix the ACA’s Family Glitch as of 2023

With the new IRS rule, some families will be newly eligible for premium subsidies.

The “family glitch” refers to a 2013 ACA implementation rule that based eligibility for a family’s premium subsidies on whether available employer-sponsored insurance is affordable for the employee only, even if it’s not actually affordable for the whole family.

In 2022, the Biden administration proposed a rule change to address the family glitch, and the IRS finalized it prior to the open enrollment period for 2023 coverage.

Large employers have to offer coverage to dependents, but they don’t have to pay for that coverage.

Many kids who would otherwise have been caught by the family glitch are eligible for CHIP. But that didn’t help spouses, and there were still about 2.8 million kids caught by the glitch and ineligible for Medicaid or CHIP.

The glitch was not an accident – basing affordability on the whole family’s premiums would have increased federal costs significantly. But the rules are changing as of 2023 to ensure that affordability is based on family premiums when applicable.

Proposed legislation to fix the family glitch never succeeded. But administrative changes ended up being a viable solution. Fixing the family glitch by making the spouse and/or kids eligible for subsidies doesn’t help everyone, and neither will employers dropping spousal coverage.

More to come on this new legislation!

Health Plan Prescription Drug Reporting Mandate (RxDC)

The Consolidated Appropriations Act (CAA) requires self-funded group health plans and fully insured health plans to report specific data about prescription drug pricing (including prescription drug rebates) and healthcare spending to the federal government starting on December 27, 2022.

The federal government is seeking to collect and track information about:

  • Premiums and Life Years – Premiums include all money paid for plan coverage, whether by employees, dependents, or the employer. This amount includes fees or any other contributions associated with the coverage.
  • Spending by Category – This reporting requirement primarily relates to medical benefits, not prescription drugs offered under the prescription drug portion of the plan.
  • Top 50 Most Frequent Brand Drugs – This requires mandated reporting about the brand name drugs most frequently dispensed during the reporting year.
  • Top 50 Most Costly Drugs – These should be tracked and measured for the reporting year.
  • Top 50 Drugs by Spending Increase – This reporting category highlights apples-to-apples RX spending compared to the prior year.
  • Rx Totals – These are comprehensive gross payments under the plan or policy for the year.
  • Rx Rebates by Therapeutic Class
  • Rx Rebates for the Top 25 Drugs – This reporting element spotlights the 25 drugs with the highest rebate amounts.

Fully insured and self-funded group health plans, including governmental plans and church plans, must complete the RxDC filings. Filings are not required for account-based plans (such as health reimbursement arrangements) or excepted benefit plans (like stand-alone dental/vision plans or short-term limited-duration insurance).

The insurance carriers are legally responsible for the filings for their fully insured plans.

Fully-insured employers may contract with their insurance carriers to provide prescription drug reporting on their behalf. Contracting should be straightforward and likely does not present a special challenge apart from the need to explicitly contract with the carrier. For self-funded plans, plan sponsors must ensure the filings are completed by the appropriate plan vendors.

Organizations that sponsor self-funded health insurance plans can submit the necessary data themselves or work with their plan third-party administrator (TPA) or another third party such as a Pharmacy Benefit Manager (PBM) to report the required data. If an organization decides to work with the TPA, PBM or another third party, there should be a written agreement with the TPA, third party or PBM that should detail the information being reported. For example, a self-funded organization may work with both a TPA and a PBM, both of which have some of the required data, but not all. It will be important to know who is reporting what information to make certain all the required data is submitted.

Additionally, self-funded organizations may have data that the entities reporting on their behalf do not have access to. These organizations will need to ensure they are providing the reporting entity with any required information. Organizations that work with more than one third party to administer their health insurance should ensure that all the required data is being reported.

Unlike fully insured entities, organizations that sponsor self-funded health insurance are liable for any failures to report data, even if a third party was supposed to report the data on their behalf.

The deadline to submit 2020 and 2021 data is December 27, 2022. Thereafter, the data must be submitted annually every June 1. The data will be formatted on a “reference year” or calendar year basis. For example, June 1, 2023, is the deadline for submitting 2022 data while June 1, 2024, is the deadline for submitting 2023 data.

Inflation Reduction Act to be Signed into Law, Includes Multiple Medicare Drug Pricing Reforms

On Aug. 12, the Inflation Reduction Act of 2022 (IRA) passed the U.S. House by a vote of 220-207, and President Biden is expected to sign it into law today. First passed by the U.S. Senate on Aug. 7, the $740 billion budget reconciliation package includes policies on Medicare drug pricing, Affordable Care Act (ACA) subsidies, energy, climate, and taxes. This update provides high-level details on the notable health care-related provisions in the IRA.

Allowing Medicare to Negotiate Drug Prices

With the goal of improving affordability for high-priced drugs in Medicare Parts B and D, the IRA directs the Department of Health and Human Services (HHS) to establish a drug price negotiation program for certain high-priced, single-source drugs and biological products. Under this program, the HHS Secretary will publish a list of selected drugs that meet certain criteria, then negotiate (and renegotiate as needed) maximum fair prices with manufacturers of those drugs. Drugs eligible for negotiation include the 50 Part B and 50 Part D single-source drugs with the highest total expenditures during the most recent 12-month period; however, negotiation is limited to Part D drugs for 2026 and 2027. Negotiated prices must take effect for 10 eligible drugs in 2026, increasing to 20 drugs in 2029. For 2026, the expenditure period to be reviewed is June 1, 2022 through May 31, 2023, and the selected drug list publication date will be Sept. 1, 2023.

Redesigning the Medicare Part D Program, Including Capping Annual Out-of-Pocket Costs for Beneficiaries

The IRA significantly reforms the Medicare Part D benefit design, including capping maximum out-of-pocket (OOP) costs at $2,000 annually, with a copay smoothing component; capping annual premium growth at 6%; and expanding eligibility in the Low-Income Subsidy (LIS) program.

• Beneficiary Cost-Sharing Changes:
– Beginning in 2024, beneficiaries will be responsible for $0 in the catastrophic benefit phase. There are no changes to the initial coverage phase or coverage gap phase.
– Beginning in 2025, the coverage gap phase will be eliminated, and a new $2,000 OOP cap will be applicable with the option to spread OOP payments out over the course of the year. The initial coverage phase remains unchanged.
• Part D Benefit Design: The bill restructures plan, manufacturer, and federal government liabilities for the different benefit phases beginning in 2025:

Initial Phase Catastrophic Phase
– Beneficiary: 25%
– Plan: 65% for brands, 75% for generics
– Manufacturer: 10% for brands, 0% for generics
– Beneficiary: 0%
– Plan: 60%
– Manufacturer: 20% for brands, 0% for generics
– Federal Government: 20% for brands, 40% for generics

• Premium Stabilization: For 2024 through 2029, any increase in the Part D base beneficiary premium is limited to the lesser of a 6% increase from the previous year or the premium that would have been applied if the stabilization program was not established. In 2030 and subsequent years, the HHS Secretary is authorized to make adjustments necessary to the base Part D premium to ensure that premium is increased by the lesser of 6% or what the premium would have been if the stabilization program was not established.
• Expanded LIS Eligibility: The bill expands eligibility for the Part D LIS program from 135% of the federal poverty level to 150% beginning in 2024.

Capping Insulin Cost-Sharing in Medicare

For 2023 through 2025, the bill caps beneficiary cost-sharing at $35 a month for Medicare Part D or Medicare Advantage Prescription Drug Plan (MA-PD) covered insulin products. In 2026 and beyond, it caps cost-sharing at the lesser of $35 or 25% of the maximum fair price or 25% of the plan’s negotiated price. The cost-sharing is capped regardless of where the beneficiary is in the benefit phase, and Part D and MA-PD plans are eligible for a retroactive subsidy in 2023 equal to the aggregate reduction in cost-sharing and deductible due to implementing this provision.

Implementing Drug Manufacturer Inflationary Rebates in Medicare

The legislation requires drug manufacturers to pay rebates to the government if drug prices in Medicare Part B and Part D rise faster than inflation, with rebates equaling the rate at which the price of the drug exceeds inflation. This rebate provision goes into effect Jan. 1, 2023 for Part B rebatable drugs and Oct. 1, 2022 for Part D rebatable drugs. Drugs with an average cost of less than $100 are excluded. Additionally, HHS is instructed to reduce or waive the rebate amount for a Part D rebatable drug if it is on the drug shortage list, per the Federal Food, Drug, and Cosmetic Act.

Requiring Vaccine Coverage in Medicare Part D

Beginning in 2023, Part D plans are required to cover all adult vaccines recommended by the Advisory Committee on Immunization Practices, without cost-sharing or the application of a deductible (other than vaccines covered under Part B). Part D and MA-PD plans are eligible for a retroactive subsidy in 2023 equal to the aggregate reduction in cost-sharing and deductible due to implementing this provision.

Extended Delay of the Medicare Part D Rebate Rule

The legislation includes an additional five-year delay of the implementation of a rule that would prohibit manufacturer rebates in Part D, to Jan. 1, 2032.

Extending Enhanced ACA Subsidies Through 2025

Originally set to expire at the end of this year, the IRA extends the enhanced American Rescue Plan Act (ARPA) ACA premium tax credit subsidies through 2025.

 

Updates on Contraception Coverage Under The Affordable Care Act

The Departments of Health and Human Services (HHS), the Treasury and Labor (collectively, the Departments) issued new guidance clarifying birth control protections created under the Affordable Care Act (ACA). Regulators had previously warned insurers about complying with the law to ensure birth control is accessible nationwide with no additional costs involved.

The ACA requires most private plans to offer birth control and family planning counseling at no additional cost to beneficiaries. Other services required to be offered at no additional charge include:

  • Sterilization procedures
  • Implanted devices such as intrauterine devices and diaphragms

There are strict limitations that apply to medical management. Medical management is only permitted within a specific category of contraception. Plans must automatically cover at least one option within a given category. Medical management may then be used for other options in that category provided:

  • The techniques used are reasonable.
  • The exceptions process discussed below is followed.

On July 28, the Departments issued updated FAQs which lay out which services are included in the definition of contraception and must be covered without cost sharing:

  • Items and services necessary to furnish a recommended preventive service, such as anesthesia for a tubal ligation procedure or pregnancy tests needed before the provision of an intrauterine device
  • Clinical services, including patient education and counseling needed to provide any covered contraceptive product or service
  • Counseling and education about fertility awareness-based methods, including lactation amenorrhea
  • Over-the-counter emergency contraception when prescribed by a treating physician, even when such products are prescribed before the need for their use arises
  • Plans are also permitted to cover such OTC products without a prescription. If an individual’s plan does not cover OTC emergency contraception, an HSA, health FSA or HRA may be used to cover such expenses.

The guidance clarifies the fact that the federal mandate will control if there is a conflict between the federal contraception mandate and a state law. For example, if a state were to ban emergency contraception (commonly referred to as the morning after pill), such a ban would be invalid under federal law. The guidance goes on to specify that in such a case, the Department of Health and Human Services will take direct action to enforce these federal rules. For more information, please reach out to our office or contact your insurance carrier directly.