Plans May Exclude Drug Coupons from Annual Cost Sharing Limits

September 4, 2019

On August 26, 2019, the DOL, HHS, and Treasury (the “agencies”) jointly issued an FAQ to address group health plan concerns regarding the application of drug coupons towards annual cost-sharing limits under the ACA. The FAQ recognized potential conflicts in prior agency guidance and provided temporary enforcement relief to plans and issuers pending further clarifying regulations.

Under the ACA, cost sharing by enrollees in non-grandfathered group health plans cannot exceed specified annual limits. The agencies have reached different conclusions as to whether coupons issued by drug manufacturers to offset the cost of patient prescriptions can be applied towards the applicable annual limits.

The HHS final Notice of Benefit and Payment Parameters for 2020 (2020 NBPP Final Rule) states that plans can exclude the value of manufacturer’s drug coupons from satisfaction of the cost sharing limits, provided that a generic equivalent is available for the prescribed drug. This rule was intended to encourage the use of generic drugs and promote cost savings. However, plans were left unclear as to whether drug coupons should be counted towards the annual limits if the prescribed drug did not have a generic equivalent.

The 2020 NBPP Final Rule also appeared to conflict with previous IRS guidance regarding the application of drug coupons by HDHPs designed for compatibility with HSAs. HDHPs must meet specific federal requirements with respect to annual deductibles and out of pocket expenses. With the exception of preventive care, HDHPs generally cannot provide coverage below the annual deductible amount. In Notice 2004-50, the IRS specified that an HDHP must disregard drug discounts and only apply the amount actually paid by the employee in determining if the annual deductible has been satisfied. So, although the 2020 NBPP Final Rule could be interpreted to allow the coupon amount to be applied towards the deductible when a generic equivalent is not available, the IRS notice requires the exclusion of the amount in order for an individual to maintain HSA eligibility.

The agencies plan to address these inconsistencies in upcoming regulations in 2021. In the interim, the agencies will not take any enforcement actions against plans or insurers for excluding the drug coupon amounts from the cost sharing limits.

For group health plan sponsors, the FAQ is an acknowledgement of the ambiguous and potentially conflicting agency guidance previously provided. Until the 2021 regulations are released, group health plans can continue to exclude drug coupon amounts from the annual cost-sharing limits, regardless of whether a generic equivalent is available. Once the new guidance is issued, employers and issuers will need to review their plan designs and policies with respect to drug coupons and make any necessary updates.

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