Insurance and the Inflation Reduction Act of 2022

President Joseph Robinette Biden Jr. signed the Inflation Reduction Act of 2022 into legislation, with ripple effects remaining to be seen across the economy. 

Much of the act has been cussed and discussed for its impact on the tax landscape, inflation, and climate change. However, as we here at AgentSync focus on the insurance industry, this blog will dive into the impact of the new law on this segment of the economy, specifically.

As we’ve covered before, the insurance industry is regulated largely by state regulations. However, federal legislation often impacts insurance tangentially, such as federal mandates regarding cyber reporting for businesses in critical infrastructure, the Department of Labor’s rulemaking on fiduciary standards for insurance professionals who sell annuities, or any number of insurance-adjacent bills proposed over this last congressional session. 

The Inflation Reduction Act is no different, intersecting directly or indirectly with areas of insurance as it meanders through 117,000-plus words. So, if you’re interested in debating whether this bill will actually reduce inflation or the federal deficit as promised, this ain’t it. If, however, you want to know how this bill might touch the insurance industry, welcome! Read on.

IRA 2022 and Affordable Care Act Marketplace tax credit extensions

Since the inception of the Affordable Care Act (ACA) and its federal insurance marketplace, those who obtain insurance from their federal or state-run exchange qualify for subsidizing tax credits to offset the cost of healthcare premiums as long as their household income is below 400 percent of the federal poverty level. This comes out to about $52,000 for a single person, or $106,000 for a family of four.

In 2021, the American Rescue Plan (ARP) expanded these benefits for everyone purchasing ACA-qualified insurance plans from the exchanges if their insurance premiums exceeded 8.5 percent of their income. A Center for Medicare and Medicaid Service blog points out the ARP benefit mostly impacted families and individuals who depend on small business owners and self-employed individuals, as well as those in retired but-not-yet-Medicare-eligible populations.

The ARP tax credit expansion was set to expire in 2023, and the IRA 2022 now extends it through tax year 2025. States have grappled with adequately pricing health insurance on their health insurance exchange sites as they speculated whether the credit expansion would expire.

So, if you’re a carrier in a state that requires authorization for insurance premium hikes, whether your allowed pricing factors in subsidies was determined, at least for this year, by whether your state commissioner assumed the ARP expansion would remain in effect.

The Inflation Reduction Act and changes to Medicare and drug price negotiating

By far the most extensive effects to the insurance industry may be in regard to those insurers offering health insurance benefits through Medicare Advantage programs and Medicare Supplement programs. (If you missed our Medicare Mondays series, now’s a great time to review your Medicare knowledge, from Medicare 101 to digital disruptions specific to Medicare to how Medicare Advantage affects Original Medicare’s solvency.)

Prescription drug prices have been a longstanding handcuff for Medicare. While traditional health insurers can negotiate the cost per unit with pharmaceutical companies, Medicare has been prohibited under law for the last 19 years from negotiating the cost of prescription drugs.

Moving forward, the IRA 2022 seeks to reduce out-of-pocket costs to consumers and the overall cost of Medicare coverage provisions by:

• Allowing Medicare to negotiate prescription costs
• Capping Medicare Part D out-of-pocket costs at $2,000 per year
• Capping insulin costs at $35 for a month’s supply

To facilitate these changes, the new law references requirements for co-insurance, co-pays, or any other insurance arrangements where the consumer is responsible in whole or in part for paying prescription drug costs. 

Inflation Reduction Act’s potential down-market effects of P&C insurance

Much of the lengthy bill concerns subsidies and incentives to shift America’s energy grid from heavy reliance on coal and fossil fuels to renewable energy solutions. It’s a bit of a stretch to pose this as an insurance-adjacent piece of the legislation, but here we are.

As the P&C industry suffers from trying to price coverage for homeowners insurance, business insurance, etc., with mounting loss events linked to climate change, we’re willing to hear the argument that policies aimed to reduce these risks in the long run fit in an insurance-tangential realm.

Many of the subsidies are aimed at household-level considerations, such as rebating insulation projects, window sealing, and energy-efficient appliances. These likely won’t have any direct effect on insurance companies. But, with more states requiring climate risk data from insurers, these projects and general compliance with best-practice recommendations for energy consumption may become an indirect factor in insurance companies’ Climate Risk Disclosure filings.

IRA 2022 and auto insurance

Overall, climate-based policies take aim at reducing energy costs by subsidizing more energy-efficient appliances and decreasing carbon emissions by subsidizing American-made electric vehicles. No doubt auto insurers will see the effects of EV adoption, and may look to account for changes from this emerging technology in policy underwriting.

Federal and state regulations are always in flux, one of the factors that makes this industry challenging and satisfying for compliance wonks. If you’d like to keep your producers compliant regardless of changing administrations at various levels of government, check out AgentSync’s solutions.