Employers taking advantage of copay accumulator programs now face unexpected administrative complications following a recent federal court decision.

The Upshot

  • The District Court for the District of Columbia’s decision in HIV and Hepatitis Policy Institute v. Department of Health and Human Services impacts a common prescription drug benefit plan feature called a “copay accumulator” program.
  • Copay accumulator programs allowed plans to disregard third-party subsidies for prescription drugs in determining when an individual would reach the out-of-pocket maximum under the plan, delaying the date on which the plan would have to pay for prescription drugs without any participant cost-sharing.
  • The court vacated key regulations that permitted use of these copay accumulator programs.

The Bottom Line

Plan sponsors should consult with their advisers to determine how this recent federal court decision affects their employee prescription drug benefit design. Some employers may not even know that their benefit plan design includes a “copay accumulator” program and should determine if their plan is affected and if action is needed to ensure compliance.

Employers taking advantage of copay accumulator programs now face unexpected administrative complications following a recent federal court decision. In HIV and Hepatitis Policy Institute v. Department of Health and Human Services, the District Court for the District of Columbia vacated guidance issued by the Department of Health and Human Services (HHS) that governs the way insurers and self-funded plans administer copay accumulator programs. Until HHS issues further guidance, plan sponsors must now quickly work with their pharmacy benefit managers to determine how best to adjust their copay accumulator programs to comply with this decision.

Background on Copay Accumulator Programs

The new complexities originate with the Affordable Care Act’s rules regarding out-of-pocket maximums. Under the ACA, plans are required to pay the full cost of most covered in-network services for the remainder of the plan year once a participant’s cost-sharing reaches this annual maximum. The ACA’s definition of “cost-sharing” includes deductibles, coinsurance, copayments, and “any other expenditure required of an insured individual which is a qualified medical expense … with respect to essential health benefits covered under the plan.”

This definition triggered questions for plan sponsors whose participants receive financial assistance from a third party to pay for their share of the cost of benefits—namely, whether such assistance qualifies as participant cost-sharing under the ACA. Third-party financial assistance is particularly common in prescription drug plans, since many prescription drug manufacturers offer coupons and various other forms of financial assistance to help participants afford the cost of their medications. In fact, some plans have specifically designed their prescription drug plans to maximize the availability of manufacturer assistance.

In 2021, the Centers for Medicare & Medicaid Services issued guidance in the form of the Notice of Benefit and Payment Parameters (the 2021 Regulations), which allowed plans to disregard manufacturer assistance payments when calculating a participant’s cost-sharing for purposes of administering the annual out-of-pocket maximum. Prior HHS guidance allowed this result only if a medically appropriate generic equivalent for the drug was available.

This practice of excluding manufacturer assistance from the participant’s out-of-pocket maximum is generally referred to as a “copay accumulator program.” Many plan sponsors welcomed the 2021 Regulations because copay accumulator programs help delay a participant’s progress toward the annual out-of-pocket maximum which, in turns, delays the date that their plans would become responsible for paying the full cost of in-network benefits. For example, under a classic copay accumulator design, if a participant receives $2,000 in manufacturer assistance, that $2,000 would not count toward the participant’s out-of-pocket maximum for that year. The plan would not need to start paying the full cost for medical expenses until the participant spends an additional $2,000 out-of-pocket towards his or her annual maximum limit.

Court Decision

Patient advocacy groups filed a lawsuit seeking to invalidate the 2021 Regulations. Upon review, the court determined that the Affordable Care Act’s use of the term “cost-sharing” was open to multiple different interpretations and that the 2021 Regulations failed to define “cost-sharing” in a way that conclusively resolved this ambiguity. Holding that there are “interpretive depths to this regulation that have yet to be plumbed,” the court vacated the 2021 Regulations and remanded the question to HHS for further review. 

Next Steps

The court’s ruling has immediate and nationwide effect, which means employers can no longer rely on the 2021 Regulations to support their copay accumulator designs. HHS has publicly stated that it intends to issue guidance in response to the court’s decision. Until then, employers face uncertainty—not only as to how the new guidance will affect their plans going forward but also whether they will be required to make retroactive corrections to participants’ out-of-pocket maximums. For example, will plans be required to retroactively re-characterize manufacturer assistance received during the first nine months of 2023 as participant cost-sharing? And, if so, will plans be required to issue refunds if the recalculated amount of 2023 cost-sharing exceeds the current annual out-of-pocket maximums?

The ruling also sets up a possible conflict between a participant’s annual deductible and out-of-pocket maximum. In the preamble to the 2021 Regulations, HHS specifically noted that its final rule was intended to give plans “maximum flexibility” to ensure compliance with other key design obligations (specifically with respect to high-deductible health plans and health savings account). As a result of this decision, plans must now also evaluate the impact that manufacturer assistance has on a participant’s annual deductible progress. For example, if manufacturer assistance causes a participant to meet his or her out-of-pocket maximum before the deductible has been satisfied, the participant may be disqualified from contributing to a health savings account.

Plan sponsors are encouraged to meet with their advisers and pharmacy benefit managers to determine the best course of action until further guidance is issued.