The Inflation Reduction Act (IRA) of 2022 makes several changes to Medicare Part D prescription coverage. While the changes don’t directly apply to private employer-sponsored prescription drug plans, the law will tangentially affect employer group health plan sponsors.
Who this applies to:
- Employers offering prescription drug benefits to active employees
- Employers receiving the retiree drug subsidy
Go Deeper:
The IRA provisions impacting Medicare Part D coverage make a number of changes to prescription drug costs, including:
- Capping the cost of insulin to $35 per month beginning in 2023;
- Eliminating the 5% coinsurance for catastrophic coverage beginning in 2024; and
- Decreasing the maximum out-of-pocket cost from $8,000 to $2,000 beginning in 2025.
Although these provisions don’t require employer plan sponsors to change their plans, the decreases in costs imposed on Medicare enrollees could lead to increases in prescription drug costs in the private market.
Additionally, the changes in cost under Medicare Part D will impact whether an employer’s prescription drug offering is ‘creditable’. Remember that employers must determine if their prescription drug coverage is creditable and notify participants of the creditable or non-creditable status.
To be creditable, a plan’s prescription drug offering must pay comparably to or better than Medicare Part D. This is important because participants who have non-creditable coverage must enroll in Medicare Part D when they first become eligible in order to avoid penalties.
Notably, the Centers for Medicare and Medicaid Services (CMS) also recently indicated that the simplified determination they had been allowing plan sponsors to use to prove creditability may no longer be valid beginning in 2025. Although they are currently soliciting comments from the public on this change, it is possible that plans will have to use a different method to actuarially prove their plan’s creditable status.
Since the IRA decreases the costs under the Medicare Part D program, it follows that some plans that have been deemed creditable in the past will no longer be creditable based on the new limits and caps. These employers will have to decide whether to amend their plans to lower drug costs such that the plan remains creditable or to notify participants of the non-creditable status of their plans based on the IRA’s changes. Employers participating in the retiree drug subsidy program must also ensure that their coverage is creditable in order to continue to receive the subsidy.
Conclusion for Employers
Employers – especially those sponsoring self-funded plans – will need to work with their TPA or insurer to determine the plan’s Medicare Part D creditable status. Given the major changes in 2025, employers likely need to start analyzing their plan offering soon so that they can make necessary changes to the plan to keep it creditable (if they so choose). Starting early will also allow them to timely notify employees of the plan’s creditable status (by the annual deadline of October 15).
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