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Insurance and Inflation Reduction Act of 2022



This post is part of a series sponsored by AgentSync.

Image of the US Capital - Insurance and the Inflation Reduction Act of 2022

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

Much of the law has been questioned and debated for its impact on the tax landscape, inflation and climate change. However, since we here at AgentSync focus on the insurance industry, this blog will dive into the new law’s impact on this segment of the economy, specifically.

As we have covered before, the insurance industry is largely regulated by government regulations. However, federal legislation often affects insurance tangentially, such as federal mandates regarding cyber reporting for critical infrastructure companies, the Department of Labor’s rulemaking on fiduciary standards for insurance professionals selling annuities, or any number of insurance-related bills proposed in the last Congress. session.

The Inflation Reduction Act is no different, it directly or indirectly intersects with areas of insurance as it winds its way 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, it won’t. If, however, you want to know how this bill may affect 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 exchange qualify for subsidized tax credits to offset the cost of health care 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) extended these benefits to anyone buying ACA-eligible 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 that the ARP benefit most affected families and individuals dependent on small and self-employed workers, as well as those in retired but not yet Medicare-eligible populations.

The ARP tax credit expansion was set to expire in 2023, and IRA 2022 now extends it through tax year 2025. States have struggled to adequately price health insurance on their health insurance exchanges as they speculated about whether the credit expansion would expire.

So if you’re a carrier in a state that requires a permit for insurance premium increases, if your allowable pricing factors in subsidies were 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 negotiations

By far the most extensive effects for the insurance industry may be the insurance companies that offer health insurance benefits through Medicare Advantage programs and Medicare Supplement programs. (If you missed our Medicare Mondays series, now is a good time to review your Medicare knowledge, from Medicare 101 to digital disruption specific to Medicare to how Medicare Advantage affects Original Medicare’s solvency.)

Prescription drug prices have been a longtime handcuff for Medicare. While traditional health insurance companies can negotiate unit cost with drug companies, Medicare has been prohibited by law for the past 19 years from negotiating the cost of prescription drugs.

Going forward, the 2022 IRA seeks to reduce costs to consumers and the overall cost of Medicare coverage by:

  • Allows Medicare to negotiate prescription costs
  • A Medicare Part D cap is $2,000 per year
  • An insulin cap costs $35 for a month’s supply

To facilitate these changes, the new law refers to requirements for co-insurance, co-pays or other insurance arrangements where the consumer is fully or partially responsible for paying prescription drug costs.

The potential down-market effects of the Inflation Reduction Act on non-life 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 pain to present this as an insurance-related piece of legislation, but here we are.

As the P&C industry suffers from trying to price coverage for homeowners insurance, business insurance, etc., with increasing loss events linked to climate change, we are willing to hear the argument that policies aimed at reducing these risks over the long term fit into an underwriting field.

Many of the subsidies target household-level considerations, such as discounted insulation projects, window sealing and energy-efficient appliances. These are unlikely to have any direct effect on the insurance companies. But with more states requiring climate risk data from insurers, these projects and general compliance with best practice recommendations for energy consumption could become an indirect factor in insurers’ climate risk filings.

IRA 2022 and car insurance

Overall, climate-based policies aim to reduce energy costs by subsidizing more energy-efficient appliances and reduce carbon emissions by subsidizing American-made electric vehicles. Undoubtedly, car insurance companies will see the impact of the introduction of electric cars and may look to factor changes from this emerging technology into the policy guarantees.

Federal and state regulations are always changing, one of the factors that make this industry challenging and rewarding for compliance issues. If you want to keep your producers compatible regardless of changing administrations at different levels of authority, check out AgentSync’s solutions.

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