Inflation Reduction Act Extends Changes to ACA Subsidies | Practical Law

Inflation Reduction Act Extends Changes to ACA Subsidies | Practical Law

Congress has passed and the President has signed federal legislation—the Inflation Reduction Act (Act)—that includes drug pricing, climate, and tax-related provisions. The Act also contains provisions affecting employee benefits, including extensions of certain provisions regarding the availability of premium tax credits under the Affordable Care Act (ACA) (which were initially enacted as part of COVID-19 relief legislation in March 2021).

Inflation Reduction Act Extends Changes to ACA Subsidies

Practical Law Legal Update w-036-5717 (Approx. 4 pages)

Inflation Reduction Act Extends Changes to ACA Subsidies

by Practical Law Employee Benefits & Executive Compensation
Published on 16 Aug 2022 • USA (National/Federal)
Congress has passed and the President has signed federal legislation—the Inflation Reduction Act (Act)—that includes drug pricing, climate, and tax-related provisions. The Act also contains provisions affecting employee benefits, including extensions of certain provisions regarding the availability of premium tax credits under the Affordable Care Act (ACA) (which were initially enacted as part of COVID-19 relief legislation in March 2021).
Congress has passed and the President has signed federal legislation—the Inflation Reduction Act (Act)—that includes drug pricing, climate, and tax-related provisions. The Act also includes provisions affecting employee benefits, for example, an extension of provisions governing the availability of premium tax credits (PTCs) under the Affordable Care Act (ACA) that were enacted as part of COVID-19 relief legislation in March 2021 (Pub. L. No. 117-169; see Practice Note, Affordable Care Act (ACA) Overview: Premium Tax Credit Under Health Insurance Exchanges).

Health & Welfare Provisions

The Act includes two key changes in the health and welfare plans context.

HSAs and Insulin

The Act amends the rules governing health savings accounts (HSAs) under the Internal Revenue Code (Code) to provide a safe harbor for high-deductible health plans (HDHPs) that do not contain a deductible for insulin products (see Practice Note, Defined Contribution Health Plans: Definition of High Deductible Health Plan (HDHP)). Under the safe harbor, a plan that does not require a deductible for specified insulin products would not fail to be treated as an HDHP.
Specified insulin products under the Act would mean any dosage form (for example, vial, pump, or inhaler dosage forms) of any different type of insulin, for example:
  • Rapid-acting and short-acting.
  • Intermediate-acting.
  • Long-acting or ultra long-acting.
  • Premixed.
The Act generally defines insulin as insulin that:
This insulin-related rule would apply for plan years beginning after December 31, 2022.

Extension of ARPA-21 Premium Tax Credits Provisions

Under the ACA, individuals and families with incomes between 100% and 400% of the federal poverty level may receive PTCs for health insurance purchased on an ACA health exchange (see Practice Note, Affordable Care Act (ACA) Overview: Premium Tax Credit Under Health Insurance Exchanges). The PTC amount is based on a percentage of income ranging from 100% to 400% of the federal poverty line.
COVID-19 relief legislation enacted in March 2021—the American Rescue Plan Act of 2021 (ARPA-21)—made important changes to the ACA's PTC provisions (Pub. L. No. 117-2, § 9661 (2021); see Legal Update, $1.9 Trillion COVID-19 Stimulus Legislation Includes COBRA Premium Assistance and Retirement Plan Funding Relief). First, ARPA-21 removed the upper end of the credit's income qualifier, thereby expanding the range of households that were eligible for PTCs. The Act extends ARPA-21's removal of the upper end of the credit's income qualifier through the end of 2025 (26 U.S.C. § 36B(c)(1)(E)).
In addition, under the Code's PTC rules, the percentage of income that households must contribute for premiums generally increases with income. However, ARPA-21 reduced those percentages—relative to the pre-ARPA-21 percentages—for income bands up to 400% of the federal poverty line for 2021 and 2022. Households with income that is 400% of the poverty line and higher were required to contribute 8.5% of their income toward the coverage. The Act also extends this ARPA-21 change by making it applicable through December 31, 2025.

Practical Impact

Absent from the enacted version of the Act is a provision that would have amended ERISA, the Code, and the PHSA to generally require group health plans to cover certain insulin products with narrow cost-sharing limits and without applying any deductibles.
Other provisions in the Act may impact employer-sponsored health plans down the road. For example, because the Act's prescription drug pricing reforms apply in the Medicare context (but not to group health plans) there is some concern that employer-sponsored plans may ultimately face higher drug prices to offset the Act's Medicare-related provisions. In addition, the more permissive limits for PTCs (under the Act's ARPA-21 extension) could—because individuals' receipt of such subsidies can indicate employer noncompliance with the ACA's employer mandate—result in the IRS imposing employer mandate penalties more frequently going forward (see Practice Note, Employer Mandate Under the ACA: Penalties and Enforcement).