How the Inflation Reduction Act of 2022 Impacts Medicare Part D and Employer-Sponsored Coverage

The Inflation Reduction Act (“IRA”) of 2022 introduced several changes to Medicare, including significant updates to Medicare Part D, the prescription drug program. While many of these changes are aimed at reducing costs for Medicare beneficiaries, they also have important implications for employers, particularly those offering prescription drug coverage to their employees and retirees.

Understanding these changes is crucial for employers to ensure their coverage remains competitive and compliant with Medicare’s requirements, especially when it comes to creditable coverage.

What’s Changing in Medicare Part D?

The IRA has several key provisions that will reshape the landscape for Medicare Part D enrollees over the next few years:

• Insulin Cap: Beginning in 2023, out-of-pocket costs for insulin are capped at $35 per month for Medicare Part D enrollees.
• Free Vaccines: Recommended adult vaccines, such as the shingles vaccine, are now free for Medicare Part D enrollees with no cost-sharing.
• Out-of-Pocket Maximum: In 2025, a $2,000 annual cap on out-of-pocket spending will be introduced. This is a significant relief for Medicare enrollees who face high prescription drug costs.
• Drug Price Negotiation: Starting in 2026, Medicare will begin negotiating the prices of select high-cost drugs, which could lower the cost of medications for many beneficiaries.
• Part D Premium Growth Caps: The IRA restricts Medicare Part D premium increases to no more than 6% per year through 2029.

What Does This Mean for Employers?

Employers that offer prescription drug coverage to employees, particularly those with Medicare-eligible individuals (such as retirees), need to understand how these changes could affect their plans. Specifically, there are several areas where the IRA’s changes to Medicare Part D intersect with employer responsibilities.

1. Creditable Coverage Assessments: Each year, employers must determine whether the prescription drug coverage they offer is considered “creditable” compared to Medicare Part D. Essentially, creditable coverage means that the employer’s plan provides at least as much value as standard Medicare Part D coverage. With Medicare Part D’s upcoming improvements, such as the $2,000 out-of-pocket maximum and reduced drug costs, employers need to assess whether their coverage still meets or exceeds these enhanced benefits.
2. Notification Requirements: Employers are legally required to notify Medicare-eligible employees and dependents each year as to whether their coverage is creditable or non-creditable. With the IRA’s changes improving Medicare Part D’s benefits, it’s important to reevaluate your plan and update these notices accordingly to avoid any compliance issues.
3. Retiree Drug Coverage: For employers who provide prescription drug benefits to retirees, the enhancements to Medicare Part D might make it a more attractive option for those individuals. As a result, employers may want to reconsider whether offering a retiree drug plan is still the best option, or whether encouraging retirees to transition to Medicare Part D is more beneficial.
4. Plan Coordination with Medicare: Employers offering prescription drug benefits that coordinate with Medicare need to ensure that their cost-sharing structures align with the new Medicare Part D landscape. For example, once Medicare introduces the $2,000 out-of-pocket cap in 2025, it could affect the coordination of benefits and the overall value of employer-sponsored plans.

How Can Employers Stay Compliant?

Employers should take steps now to review and adjust their plans in light of the IRA’s changes to Medicare Part D. Key actions include:

• Conducting a creditable coverage assessment to ensure your plan still provides comparable or better coverage than Medicare Part D.
• Updating employee communications to reflect any changes in coverage and ensure compliance with notification requirements.
• Reviewing retiree drug plans and evaluating whether Medicare Part D might be a better option for retirees, potentially reducing employer costs.

As always, it’s essential to stay proactive and informed about these changes to ensure your employee benefits remain both compliant and competitive.

By reviewing and adjusting their prescription drug benefits, employers can continue offering valuable coverage while staying compliant with Medicare’s evolving requirements.

For more information on how the Inflation Reduction Act may affect your employee benefit plans, feel free to contact our team of experts.