Drug Coupons and Employer Group Health Plans

An annual Health & Human Service (HHS) final rule issued earlier this year created confusion around the circumstances under which group health plans can exclude drug coupon savings from counting toward the annual out-of-pocket (OOP) cost limits. Citing a possible conflict with existing health savings account (HSA) guidance, the agencies have announced in a new FAQ that they will not enforce the final rule for purposes of non-grandfathered plan years beginning in 2020. Instead, the agencies intend to address this in guidance to be issued for 2021.

Final HHS rule requires a plan administrator to credit coupons for brand-name drugs without an equivalent generic drug available. The final rule provided important guidance related to various Affordable Care Act (ACA) provisions, including guidance on the calculation of the annual cost-sharing limits for the 2020 benefit plan year for health plan participants who receive financial assistance from drug manufacturers. The guidance addressed situations where plan administrators must determine whether the total annual cost of a drug (e.g., $5,000) counts toward the individual’s annual OOP maximum or just the amount actually paid OOP by the individual (e.g., $500 paid by participant after purchasing a yearly supply with a $4,500 coupon). Per the final rule, after January 1, 2020, plans are permitted to exclude the value of drug manufacturer’s coupons from counting toward the annual OOP maximum when a medically appropriate generic equivalent is available. This is intended to discourage providers and patients from choosing expensive brand-name drugs when less expensive (generic) equivalents are available. The final rule and the preamble also suggests that the value of a brand-name drug coupon must be credited towards the OOP maximum where there is no equivalent generic drug available. However, such a reading conflicts with the rules relating to high deductible health plans (HDHPs) and could interfere with an individual’s ability to contribute to a health savings account (HSA).

IRS Notice requires a plan administrator not to credit coupons for brand-name drugs without an equivalent generic available. Guidance in IRS Notice 2004-50 also addresses the issue of manufacturer coupons. Q&A-9 requires a HDHP to exclude drug and other manufacturer and provider discounts when calculating whether the minimum annual deductible has been satisfied. This is because a qualified HDHP for HSA purposes cannot pay claims (other than claims for preventive care services) until the participant has satisfied the annual deductible. But in the example above, following the final rule, if $5,000 is credited towards a participant’s $5,000 deductible, the HDHP should begin paying claims when the participant has only paid $500 out of pocket. This would interfere with an individual’s ability to contribute to an HSA. So for HDHPs, it seems clear that the value of all manufacturer coupons should continue to be excluded from the annual OOP maximum.

Final HHS rule and IRS Notice create conflict. In a new ACA FAQ, the agencies have announced a delay of enforcement of the final HHS rule, and acknowledging the ambiguity, promised to issue further guidance on the final HHS rule for the 2021 year. Specifically, the agencies will “not initiate an enforcement action if an issuer of a group or individual health insurance coverage or a group health plan excludes the value of drug manufacturers’ coupons from the annual limitation on cost-sharing, including in circumstances in which there is no medically appropriate generic equivalent available.”

Plan sponsors should review how their plans will credit coupons in 2020 and determine whether any changes to plan language are required. While we await further guidance, the value of manufacturer coupons should continue to be excluded from the annual OOP maximum for HDHPs, and for all other group health plans, plan sponsors can determine to include or exclude the value of all or some coupons from the annual OOP maximum. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.

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