Many Americans use prescription drugs on a daily basis to control or prevent a wide variety of illnesses. However, the increasing costs of prescription drugs make it hard for many Americans to obtain the medications they require. One way to combat this is through the use of manufacturer coupons. The process is simple. A manufacturer sells a high-priced prescription drug and pairs it with a coupon to allow an individual to obtain the drug at an affordable price. Pretty simple, right? Well, for plan administrators of self-insured group health plans, it may not be so simple. Plan administrators must determine whether the total cost of the drug counts toward the individual’s annual out-of-pocket maximum or just the amount actually paid out-of-pocket by the individual.

For example, let’s say the annual cost of a prescription drug is $10,000 and a plan participant purchases a yearly supply with a $9,500 coupon and $500 of his or her own money. Should the plan administrator credit $10,000 or $500 towards the annual out-of-pocket maximum?

Recent Guidance Is Here to Help!

In order to help answer this question, the Centers for Medicare & Medicaid Services (“CMS”) released the Health and Human Services Notice of Benefit and Payment Parameters for 2020 on April 25, 2019 (“the Notice”). The Notice provides that for plan years beginning on or after January 1, 2020, any amounts paid using direct support offered by drug manufacturers to eliminate or reduce out-of-pocket costs (coupons) of a brand-name prescription drug are not required to be counted toward the annual out-of-pocket maximum when there is a therapeutically equivalent generic drug available. In these situations, plan administrators may, but are not required to, ignore the value of the manufacturer coupons when calculating the plan participant’s annual out-of-pocket maximum.

But what happens when there is no therapeutically equivalent generic drug available? Although not explicitly stated, the language of the Notice (which is supported by the preamble to the Notice) suggests that the value of a brand-name drug coupon must be counted towards the out-of-pocket maximum where there is no therapeutically equivalent generic drug available.

Wait, We Forgot to Consult the Tax People

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). These rules provide that a HDHP cannot pay claims (other than claims for preventive care services) until the annual deductible has been satisfied.

Way back in 2004, the IRS released Notice 2004-50. Addressing the issue of manufacturer coupons, Q&A-9 requires a HDHP to disregard manufacturer discounts when calculating whether the minimum annual deductible has been satisfied. The rationale for this Q&A is that a HDHP should not begin to pay claims (other than claims for preventive care services) until a plan participant has paid the high deductible in full out-of-pocket. Otherwise, allowing for coupon amounts to be credited towards the deductible would allow a plan participant to circumvent the HDHP rules. Using the example from above, if all $10,000 is credited towards the plan participant’s deductible, the HDHP will begin paying claims when the plan participant has only paid $500 out-of-pocket (assuming the deductible is $10,000 or less).

These conflicting rules could be read to require a plan administrator to credit coupons for brand-name drugs without a therapeutically equivalent generic drug available as required by HHS while simultaneously requiring a plan administrator not to credit coupons for brand-name drugs without a therapeutically equivalent generic available as required by the IRS.

A Possible Solution?

Responding to this possible conflict, the Departments of Labor, Health and Human Services, and Treasury (collectively, the Departments) released FAQs About Affordable Care Act Implementation Part 40. These FAQs provide that the Departments intend to undertake rulemaking regarding the Notice and its possible implications for 2021. In the interim, the Departments will not initiate any enforcement action if a group health plan excludes the value of drug manufacturers’ coupons from the annual out-of-pocket maximum, even in situations where there is no therapeutically equivalent generic drug available.

Where To Go From Here?

While we await further guidance, plan sponsors should determine how their plans will credit coupons in 2020 and whether any changes to plan language are required. Should your group health plan include or exclude the value of manufacturer coupons in the annual out-of-pocket maximum for 2020? For HDHPs, it seems clear that the value of manufacturer coupons should be excluded from the annual out-of-pocket maximum. For all other group health plans, plan sponsors can determine to include or exclude the value of all or some coupons from the annual out-of-pocket maximum. For 2021, who knows?