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Impact of the Inflation Reduction Act on Employers

On Tuesday, August 16, 2022, President Biden signed the Inflation Reduction Act into law. The $750 billion health care, tax and climate bill includes many items specifically reducing the cost of prescription drugs under Medicare Part D. This legislation will allow the Centers for Medicare and Medicaid Services to negotiate lower costs with pharmaceutical companies among other Medicare items.

The bill also provides an extension through 2024 of the 2021 American Rescue Plan Act’s expanded access to federal subsidies for people who buy health insurance on the ACA marketplace through or a state-based exchange.

This Act has very little immediate impact on employer groups, but below are a few 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 leading to a higher frequency of receiving penalty notices from 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 or reimbursement strategies.

Prescription Costs

The IRA will reduce the cost of prescription drugs under Medicare Part D by allowing the Centers for 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. However, as retirements come into place, this hiring bubble will gradually subside. During the bubble period, it is reasonable to expect that auditing will increase. Households with annualized incomes of less than $400,000 are not expected to experience increased auditing levels.


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