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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.

Affordable Care Act (ACA) Benchmark Decreases in 2023

The Affordable Care Act (ACA) benchmark for determining the affordability of employer-sponsored health coverage will significantly decrease to 9.12% of an employee’s household income for the 2023 plan year. This is a significant decrease from the 2022 level of 9.61%. This affordability percentage affects an individual’s eligibility for federally subsidized coverage from a marketplace exchange. It also can potentially affect the employer’s liability for shared-responsibility assessments.

Under the ACA, employer-sponsored minimum essential coverage (MEC) is affordable if an employee’s required contribution for the lowest-cost, self-only option with minimum value does not exceed an annually indexed percentage of the employee’s household income. Employees and their family members eligible for minimum-value employer-sponsored MEC that meets the affordability standard cannot receive premium tax credits or cost-sharing reductions for public exchange coverage.

To determine liability for play-or-pay assessments, there are three employer-safe harbors that can replace household income in the affordability calculation. They are:

  • Form W-2 wages
  • Rate of pay
  • Federal Poverty Level (FPL)

Employers should review the required employee contribution for 2023 coverage if they plan to meet the ACA’s affordability limit under the applicable safe harbor. If the employer plans to use the Federal Poverty Level (FPL) for the 2023 calendar-year plans, the required employee contribution cannot exceed 9.12% of the FPL for a particular area which is $13,590 for mainland U.S. or $103.28 per month.

Non-calendar year plans will continue to use 9.61% to determine affordability in 2023 until their new plan year starts. Non-calendar-year plans won’t be able to calculate the FPL safe harbor contribution limit for plan years beginning after January 1, 2023, until the Department of Health and Human Services issues the 2023 FPL guidelines in January or February 2023.

A copy of the Revenue Procedure is available here: RP-2022-34 (irs.gov).

The Senate Passed the Inflation Reduction Act

On Sunday, August 7, 2022, the United States Senate passed The Inflation Reduction Act, a $700 billion package, which includes some major healthcare changes. This scaled-down version of the Build Back Better Act includes:

  • Extending the Affordable Care Act health insurance subsidies until 2025
  • Allowing Medicare to negotiate lower prescription drug prices of certain costly medications administered in doctors’ offices or purchased at the pharmacy. The Health and Human Services secretary would negotiate the prices of 10 drugs in 2026, another 15 drugs in 2027, and again in 2028. The number would rise to 20 drugs a year for 2029 and beyond.
  • Capping out-of-pocket costs at $2,000 per year for Medicare beneficiaries starting in 2025.
  • Introducing a new 15% minimum tax on income that corporations report to their shareholders (known as “book income”). This will generally apply to companies with a billion dollars or more in profit.

The measure to cap insulin at $35 per month under private insurance was stripped from the bill because it did not comply with the reconciliation process. That meant that it would need 60 votes to pass as opposed to a simple majority. It failed at 57-43.

The bill now goes to the House of Representatives where it is expected to pass.

Colorado Paid Leave Obligations Continue for Employers

In addition to the new Paid Sick Leave Law that went into effect in January 2022, all employers in Colorado have also been obligated to provide public health emergency leave since January 1, 2021. Under state law, all Colorado employers must provide this leave if there is a federal, state, or local declaration of emergency. Even though the state declaration of an emergency has been lifted, the federal public health emergency is still in place and therefore so is the obligation to provide leave.

Recently, Health and Human Services (HHS) Secretary Xavier Becerra extended the public health emergency declaration effective July 15, 2022 through at least October 13, 2022. Under Colorado’s Healthy Workplaces and Families Act (HFWA), paid leave for COVID-19 circumstances must be provided for the duration of the public health emergency, and for an additional four weeks after the public health emergency expires, unless an employee has already exhausted his public health emergency leave balance.

As a reminder, employees are allowed two weeks (up to 80 hours) total of paid sick leave to care for themselves or family members due to a COVID-related illness. Employees do not have to use it all at once. For example, if they used 40 hours of leave in 2021, they have 40 hours remaining until the end of the public health emergency period.

Employers should make sure they have updated their Paid Leave and COMPS posters and are providing COMPS Order #38 to employees with any handbook updates. The Paid Leave poster and notice provides employees with a written notice of their rights under HFWA. Employers should ensure policies are up to date.

The Colorado Department of Labor and Employment’s HFWA page contains a notice as to whether paid COVID-19 leave remains in effect.