Bracing for impact: New regulations, record inflation and a possible recession

Employers and benefits consultants have scrambled this year to provide quality health coverage at an affordable cost. But new regulations, record inflation and a possible recession make the outlook for the new year anything but certain.

“As we head into 2023, I believe we are at the tipping point with recent legislation that will truly start to reshape the entire health care landscape,” says Mike Kroupa, director of data analytics for Connor & Gallagher OneSource in Lisle, Illinois. “There is still plenty of room for improvement between the Consolidated Appropriations Act passed in 2020 and the various components of the Transparency Coverage requirements rolling out over the next couple of years. The next five years should be nothing short of momentous.”

Joel Wood, senior vice president, government affairs, for the Council of Insurance Agents & Brokers, agrees that this is a critical time for the industry.

“At the risk of stating the obvious, 2022 was a pretty big year for health care,” he says. ”Some of the largest developments were the changes made to the Medicare program, specifically those that allow the program to negotiate directly with manufacturers on the highest-cost prescription drugs.

“We’re also seeing growing interest on both sides of the aisle to address transparency issues in the pharmacy benefit manager space, specifically how PBMs are paid and the impact that has on prescription drug pricing across the board. There were a few recent legislative attempts to address the issue — most notably in the Lower Healthcare Costs Act and again in the Mental Health Parity bill — but neither made it over the finish line.”

Several additional initiatives promoted greater transparency in the system, Wood says.

“We supported the transparency provisions for brokers in the Consolidated Appropriations Act, and we believe that broker/consultant transparency obligations already apply to PBMs,” he notes. “We’re working with the Department of Labor for more clarification on this. And we’re also looking for more fundamental PBM reforms through legislation. We saw the implementation of the No Surprises Act this year, plus court decisions that impacted the determination of the out-of-network rates when providers and payers can’t agree.”

Read more: Self-funded plans ignore the Consolidated Appropriations Act at their peril

Several high-profile court decisions added to the growing list of changes, according to Jeff Levin-Scherz, population health leader for Willis Towers Watson.

“Legislation and court decisions that have immediate impact on employer-sponsored health insurance include the Dobbs decision, which overturned Roe v. Wade and allowed states to severely restrict or ban abortion services, and the imminent end of federal funding for COVID-19 vaccines and treatment,” he says. “In addition, the judge in Braidwood v. Becerra, which could eliminate the Affordable Care Act requirement to cover many preventive care services without cost sharing, has not yet determined how to implement his ruling, and appeals are likely.”

Finally, the newly enacted Inflation Reduction Act allows the Centers for Medicare & Medicaid Services to negotiate prices with pharmaceutical companies and cap price hikes in the Medicare market.

“That’s great, and I think it will lower costs in the future, but it will take some time for that effect to be felt,” Levin-Scherz says. “And we will have to see how the private insurance market prices are impacted by that change. The IRA also continues ACA subsidies, which could help make individual coverage health reimbursement arrangements more attractive to employers looking to exit the health insurance market.”

Wood also expects the Act will have far-reaching consequences.

“On balance, this administration has taken a stronger interest in mental health parity, but there are outstanding questions as to how businesses can comply with these new policies,” he says. “I would anticipate that we get more clarity on that in the coming year.

Related: IRA means increased drug prices for commercial plans

“The drug negotiation provisions in the Inflation Reduction Act focus on Medicare and don’t apply to the commercial market. But given how new these changes are, we’ll have to wait and see if there are any downstream effects in the commercial benefits space.”

The full impact of many of these policies will not be felt until 2023 and beyond. And when you add in continued high inflation, benefits advisors will likely have their hands full.

“Inflation increases the costs of all goods and services, including health care,” Levin-Scherz says. “Employers are also facing a tight labor market, making it difficult to shift costs to workers and increasing the importance of having best-in-market prices and putting in place evidence-based programs to help control costs.”

Inflation also makes it more difficult for employers to offer robust benefits packages that help them compete in a tight labor market.

“I think you have to look at the recruitment/retention problem as a confluence of factors,” Wood says. “The cost of health care was already high, and now we’ve added record inflation and an insanely competitive labor market to the mix. If any of these factors drop off, it changes the dynamics. If we are in fact headed for a recession, workers will be far less likely to jump around at the frequency we’ve been seeing and retention could become less of a challenge.”

Even as advisors and their clients watch these policies play out, they should also track several other potential developments in the coming year.

“Employers should keep their eyes on regulatory enforcement of health plans and hospital transparency regulations, which could eventually help lower costs,” Levin-Scherz says. “Employers are responsible to make sure their carriers comply with these regulations. Employers should also watch antitrust enforcement, as provider consolidation has led to higher unit prices.

“Finally, some states may seek to curtail interstate travel for abortion services and impose ‘aiding-and-abetting’ penalties on self-insured health plans covering such procedures. If states are successful, this could threaten the ERISA preemption that allows employers to offer unitary health care benefits for all employees across the country.”

Wood also expects to see an uptick in the use of ICHRAs, especially for smaller employers.

“These allow an employer to make pre-tax contributions to HRA accounts, which their employees can use to purchase coverage on the individual markets,” he says. “But approval for these regulations went into effect right before the pandemic, so take-up was limited due to so many other burning priorities. As we enter this ‘new normal’ and especially factoring in inflation, we may see more employers turn to ICHRAs to provide a pre-tax health benefit in a way that limits their cost to whatever fixed amount they want to contribute.”

Read more: ICHRAs: An integral part of benefits strategy

Like Levin-Scherz, Wood believes abortion travel policies could be a significant issue.

“Some state actions restrict employers from providing out-of-state travel benefits for abortion or even impose criminal consequences,” he says. ”So we’ll be tracking any guidance the administration is willing to provide on how employers might offer these travel benefits as part of their overall benefits package, outside of their health plan.”

Kroupa encourages consultants to closely follow how the Consolidated Appropriations Act could impact the fiduciary responsibility of plan sponsors.

“This blueprint will pave the way for future court cases regarding breach of fiduciary duty that will have a domino effect, reshaping how benefits are constructed,” he says. “Broker compensation requirements within the CAA should drastically change the incentive structure in our current system, which currently results in higher and higher costs. Traditional brokers are generally compensated through a percent of premium, so when costs go up, so does their revenue. Given the influence they have on employer plans, if you can realign these incentives, you can start to incentivize brokers to reduce costs.”

Brokers will likely be busy in 2023 helping employers implement new health care policies and track pending legislation and legal actions, all while navigating a possible recession. However, it will also be an opportunity to add value for clients and position themselves as indispensable partners.

“The role of the broker as a trusted advisor is only going to become more crucial in the coming year,” Wood says. “Business leaders continue to face ongoing challenges from the pandemic, as well as inflation and volatility in the labor market. Who knows what 2023 will bring, but we anticipate there will be changes to how drug benefits are structured and priced. The broker/client relationship is so important in helping employers understand what these changes mean for their employees and what they can do to maximize their benefits.”

Whatever the coming year holds, Kroupa encourages brokers to hang on and enjoy the ride.

“If there is one piece of advice I’d give brokers, it’s to remodel your compensation structure,” he says. “Start tying your compensation to how much you save your clients. The entire world of options you show your clients will start to change and the feedback you get from clients and the members utilizing their health plans will shift.

“If you are at all like me, the road this will lead you down will be fun and impactful.”