Overview of the Inflation Reduction Act and How It Impacts SMBs

Quick look: The recent passage of the Inflation Reduction Act feels like significant progress in making healthcare affordable for more Americans. However, though it offers cost savings in several areas, brokers must consider how this legislation specifically applies to their clients as they determine optimal solutions to meet evolving workforce needs.

In August 2022, the U.S. administration passed the Inflation Reduction Act (IRA) to “lower costs for families, combat the climate crisis, reduce the deficit, and finally ask the largest corporations to pay their fair share.” Of the $485 billion in spending, $98 billion is designated exclusively for healthcare programs. The spending is focused primarily on the government subsidy expansion for those part of Affordable Care Act (ACA) individual plans, as well as other provisions which support greater health insurance coverage and Medicare prescription drug cost regulations.

As professional employer organization (PEO) brokers, working with a team of HR experts is beneficial when navigating the impact these changes have on clients. Health insurance coverage remains a top recruiting and retention factor, and the IRA presents cost-saving opportunities to support implementing optimal solutions. However, brokers must keep in mind other areas where clients can continue offering benefits at a rate everyone can afford. Here’s a quick overview of what the IRA provisions entail and other ways to provide benefits value.

Extends American Rescue Plan subsidies

The IRA is designed to aid small- and medium-sized businesses (SMBs), in particular, by extending the 2022 American Rescue Plan (ARP) and alleviating rising healthcare costs plaguing so many. The ARP was enacted to subsidize economic setbacks during the pandemic by providing emergency grants and lending for SMBs as part of retention and rehiring recovery.

With the subsidies of the ARP set to expire in 2022, an estimated three million individuals would have lost health insurance. Instead, the IRA extension averts premium increases to keep individuals insured and create more manageable healthcare costs. Under the IRA, 13 million Americans will continue to save an average of $800 per year on health insurance premiums.

Additionally, the IRA preserves ACA plan tax credits by extending them through 2025. Over 2.5 million SMB owners and self-employed individuals rely on ACA Marketplace as a source of health insurance coverage, making up 25% of Marketplace enrollment. This provision is focused on continuing to generate job creation and reduce the risk of being uninsured.

Mitigates rising prescription drug costs for seniors

The legislation also includes reforms intended to reduce Medicare drug costs starting in 2023. Drug manufacturers imposing price increases exceeding general inflation will be penalized in the form of government rebates. Through the IRA, Medicare beneficiaries may experience:

• Reduced prescription drug costs as Medicare can now negotiate prescription drug costs
• Pharmacy costs capped at $2,000 per year, directly benefiting approximately 1.4 million beneficiaries each year
• Guaranteed caps on insulin costs at $35 for a month’s supply for diabetes beneficiaries

Also, beginning in 2025, the IRA will set an annual cap on out-of-pocket costs at $2,000 for Medicare patients enrolled in drug plans. The policy is projected to save billions of dollars over the next decade with the goal being to prevent health inequities due to cost. These changes not only impact those currently insured but affordable coverage necessary for those in the future who may experience fluctuations in income.

Interlinking accessible healthcare solutions for SMBs

With today’s workforce encompassing four generations of employees, each with varying healthcare needs and concerns, creating healthcare equity is essential. However, the (lack of) affordability has deterred many from being able to offer or participate in healthcare plans. Furthermore, many employees fail to use the extent of their healthcare benefits due to unexpected costs and/or inconvenience of service offerings.

Fortunately, in addition to taking advantage of new IRA provisions, there are other ways SMBs can create better healthcare outcomes. A good place to start is with health insurance plans offering diverse provider networks, preventative care services, and other coverage options which meet the needs of the modern workplace.

Diverse provider networks

There’s a wider range of provider options which makes it easier for employees to receive the care they need. It’s important to look at networks offering multi-lingual services, attuned to cultural and ethnic sensitives and healthcare concerns, and promoting convenient virtual support for a dispersed workforce. This type of personalized support provides an inclusive healthcare experience and increases the value of the benefit for employees.

Preventative care services

Health insurance coverage offering primary care for screenings, immunizations, and mental health services can deter critical health conditions. This can reduce the number of emergency room visits, hospital stays, and high-costs treatments, potentially saving as much as $45 billion per year. Additionally, preventative care promotes a healthy workplace, helping to reduce absenteeism and increase productivity.

Deliver continuous client value with a PEO solution

Quality of health insurance coverage remains one of the top deciding factors for job candidates. Therefore, SMB leaders must maintain the delicate balance between addressing industry demand and maintaining affordability for all. Diversifying provider networks and providing preventative care services represent only two of the many areas to consider when optimizing healthcare costs. As SMBs explore their options, PEO brokers who work with ExtensisHR can provide guidance on which changes will have the greatest impact.

In addition to changes to federal legislation, it’s important to know how states are individually affected as well. A PEO solution through ExtensisHR delivers quality insights and expertise so companies can feel like they are working with the most up-to-date information to make the best possible decisions. With cost-effective services, including HR, payroll, benefits, and risk management, brokers grant their clients access to a comprehensive plan tailored to their business.

There are multiple factors to consider when choosing which benefits provide the most value. We customize and administer HR solutions based on your SMB client’s unique and changing needs, helping to strengthen your long-term business relationships. Contact the experts at ExtensisHR today.