Episode 47 – State and Federal Benefits Legislation Under a New Administration

Mike Stull (0:09)

Hey everyone and happy new year. Thanks for joining us for the first HR Benecast of 2025, your source for expert commentary and insights on current health benefits related news and strategies. This is your host, Mike Stull.

At Employers Health, we always strive to provide useful content and resources you and your colleagues can use to stay informed on the latest in employee and pharmacy benefits. For the next few months, we’ll be hosting one of our most popular webinar series, our three-part sightline series. These webinars are great to attend if you’re looking to familiarize yourself with PBM fundamentals, contracting, and costly specialty management strategies.

You can see more and register on our website at employershealthco.com/events.

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You can read more about this exciting two-day event and register on our website at employershealthco.com/ABF25. Again, employershealthco.com/ABF25. Let’s get started.

Today’s guest is my colleague, Madison Connor. Madison is our Senior Vice President of Regulatory Compliance and External Affairs here at Employers Health. She is responsible for monitoring and updating employers and consultants on state and federal legislative and regulatory developments that may impact or will impact, I should say, employer-sponsored health plans.

Welcome, Madison. Happy to have you back as a repeat guest on the podcast. And to kick things off, maybe tell the audience a little bit about yourself and your background.

Madison Connor (2:20)

Hi there, Mike. I’m honored to be invited back on the HR Benecast. I am an attorney.

I went to the University of Toledo for undergrad and the University of Akron for law school, so a proud product of the MAC conference. I’ve been at Employers Health coming up on six years. And I serve as a legislative and regulatory resources for our internal team, for clients, as well as the consultant advisors, really just keeping up on everything that’s going on at the state and federal level, as well as any benefits litigation or agency rulemaking that may, and as you correctly pointed out, often do impact employer-sponsored health plans.

Mike Stull (3:04)

Excellent. So you keep track of what’s going on, and we know there is a lot of things going on at both the state and federal level. And so I thought for our conversation today, we’ll start with state level.

That’s probably where we see the most activity. And so maybe give the audience a little bit around what we’re seeing from a state legislative and regulatory effort perspective.

Madison Connor (3:32)

Absolutely.

So 2025, as we ramp up the 2025 legislative session, it’s going to be very, very busy this year. All 50 states will meet for a legislative session, and as we speak, 40 are actively meeting already. And there’s already been PBM legislation introduced at the level, and it’s really a continuation of what we saw in 2024.

And by this point, most of the states have introduced some type of targeted PBM legislation that will have some type of impact on employer plan design. And the most prominent ones that we see continue to be anti-steering legislation. And there are a couple of different flavors of that, but really these are bills that purport to give patients their own choice of the pharmacy that they go to to get their prescriptions.

And they’ll have provisions in the bill that say that PBMs can’t direct them to preferred pharmacy networks. And beyond that, PBMs and plans are unable to have tiered cost sharing or lower co-pays to fill at a mail versus a retail pharmacy. And even some of the bills get specific enough that they say that planned communications have to be worded a certain way so that participants are not directed to specific pharmacies.

You also have reimbursement bills being filed at the state level. So lots of these mandate reimbursement at a government-set level, such as NADAC, the National Average Drug Acquisition Cost, plus a minimum dispensing fee. And we continue to see the minimum dispensing fees set at Medicaid levels between $10 and $14.

And we’ve talked a lot about this, but I think it’s worth pointing out that that minimum dispensing fee is something that’s paid by the participant in the pre-deductible phase and then will be shifted to the plan after an individual has met his or her deductible.

Mike Stull (5:42)

So I think it’s important for the audience to recognize that a lot of generic drugs that are dispensed under the plan are pretty cheap. And so if you think about what traditionally had been a $4 generic, a lot of those are now going to cost at least $10 to $14 plus whatever the cost of the drug actually is.

So it can be a pretty big cost increase for plans and for participants, particularly participants that may be on multiple medications.

Madison Connor (6:17)

Absolutely. And I think what I see at a state level, usually in hearings about this type of legislation, they’re saying, oh, this is something that the PBMs will pay.

This is something that insurance companies will pay. And that’s not necessarily how it works. And we’ve seen that as this type of legislation has been implemented in five or six states now.

I think another trend that we will see at the state level this year, based on a continuation of what happened last year, is legislation that hits at key plan design considerations. So prior authorization, step therapy, there have been state efforts to ban or restrict those types of tools that employers can use. And a classic type of bill that’s been around for a while now is a continuation of our copay accumulator programs allowed and what is the actual definition of cost sharing and can we count manufacturer assistance towards the cost sharing or can that be excluded?

Mike Stull (7:20)

So as you’re thinking about, you know, the few things that employers should think about, you know, at the state level, is it only, well, let me first ask this question.

Is it, should they only be concerned about the state that they, that their company is domiciled in? Or do they need to think about all of the states that they have employees residing in?

Madison Connor (7:49)

That’s a great question. And it truly does depend on the state regulator. So as we see states continue to introduce this legislation, some states are under the impression that, you know, we’re only regulating public entities within the state and where your state is, your plan is domiciled.

Other states to name a few, Tennessee, Florida, Oklahoma, Minnesota, have taken the approach that if a plan has participants living within that state, even if it is an out-of-state plan, they still are under the regulatory authority of that state. So for instance, if you are a Mississippi plan and you happen to have participants in Florida, all of the claims in Florida would need to be filled pursuant to Florida’s network restrictions and also paid on a transparent basis. And it’s really creating this type of, you know, a patchwork of state laws where plans need to be aware of not only where they’re domiciled and not only paying attention to federal law, but what is the specific law based on where they have employees?

Mike Stull (9:01)

We talked a little bit about the network steerage piece.

And if you’re going to do it under the pharmacy benefit where you don’t allow a plan to restrict the network of pharmacies or even incentivize the use of specific pharmacies, how would that play out under the medical benefit where almost all medical networks pick and choose hospitals that are part of the network. You have high performance networks that really limit which providers are reimbursed at certain levels. I mean, it’s really a slippery slope as you try to apply those types of policies, not just the pharmacy, but does it spill into medical as well?

Madison Connor (9:57)

Absolutely.

There’s a lot at stake in the way that these laws are worded because they’re purporting to regulate third party plan service providers. So none of these laws or many do not say plan cannot do X. The law says the PBM cannot do this. And that’s the way that states are trying to get around the concept of a risk of preemption because the argument is that I’m not regulating the plan.

I’m regulating a plan service provider. And this has no bearing on the benefits provided by an ERISA plan.

Mike Stull (10:32)

So you brought up ERISA.

It’s obviously a big deal. As we think about most of our clients being national employers that have participants in a variety of different states, what does the audience need to know about ERISA preemption and the importance of that in being able to deliver a consistent benefit?

Madison Connor (10:59)

Absolutely. And this is really the missing piece of the puzzle right now at the state level.

And we’ll talk a little bit about some litigation that is pending right now that may give us clarity or continue to confuse us at this point. But ERISA was enacted really to encourage employers to provide benefits. And one of the perks in this law or the crown jewel of ERISA was that it provided for strong federal preemption of state law.

And if you think about this, this makes sense, right? We’re talking about employer sponsored plans. These are large employers that have participants in many different states, and we want to encourage them to continue offering great benefits. So we’re subjecting them exclusively to federal law.

So they don’t have to comply with state-specific coverage mandates and state-specific laws that drive up the costs of plan administration. So a uniform scheme. The issue now is that there was a 2020 Supreme Court case called Rutledge versus PCMA.

And in that case, the Supreme Court said that state pharmacy reimbursement laws were not preempted by ERISA. This has been interpreted extremely broadly to basically say that any state law that regulates PBMs is not preempted by ERISA. Therefore, we can’t apply it to these ERISA plan sponsors that operate in a multitude of states.

Recently, there is a 10th Circuit decision considering an Oklahoma Any Willing Pharmacy Law. And the 10th Circuit did say that this law is preempted by ERISA. It’s different than a state minimum reimbursement law because this Any Willing Pharmacy Law says what pharmacies you can have in a network.

It says how a plan can structure its co-pay and cost sharing and essentially forces employers to adopt a single-tiered pharmacy benefit where participants can go anywhere they choose and get the same benefit. So this is something that has been appealed to the U.S. Supreme Court. So the state of Oklahoma asked the Supreme Court to take a look at this decision.

And it’s something that the Supreme Court is actively considering. So recently in September, I believe, it asked the federal government to weigh in on the case. And that is a really strong indication that the Supreme Court is very interested in this case and hopefully will take up the case.

Obviously, the change in administration from a presidential perspective is probably going to hold up this process as the Trump administration gets up and running and has time to look into this and file its version of that brief. But hopefully, if all goes well, that will be filed by May in time for the Supreme Court to decide whether it will take the case before the summer recess.

Mike Stull (14:04)

You brought up the change in administrations, and we’ll get to that here in a minute to get out our crystal balls and predict the future.

But before we get there, from a federal level, I know there was some PBM-related components of the big omnibus bill that fell apart right before the end of the year during the lame duck session. What do you think we’ll see from the federal level this year as it relates to PBM regulation?

Madison Connor (14:39)

Yes. So at the end of last year, that bill that ultimately the PBM provisions dropped out of, that was spending that was passed through March 14th.

So pretty soon here, we’ll be in the exact same position that we were in at the end of last year. And those bills are a little bit different because we’re talking about the reconciliation process. And the focus there is on the money, not the policy.

So all of those pieces that are included in a reconciliation bill have to be tied to federal spending. So Medicare and Medicaid, it’s always fair game because they’re huge mandatory federal spending programs. So we would expect cuts there that will satisfy the funds that are needed to make or extend the 2017 Trump tax cuts.

That’s why you see the most of the proposals only impact the federal programs, Medicare and Medicaid. So right now, the PBM proposals have not been included on the wish list of healthcare provisions that have circulated at the federal level. But I do think that this is something that will ultimately be brought up and the same types of issues that the federal government has been working on for four months now.

So we could see codification of the transparency and coverage rules, and we could also see a spread pricing ban in the Medicaid market as well. You would probably not see any sweeping PBM reform in a reconciliation bill for the commercial market because as I said, we’re mostly focused on federal spending in this process.

Mike Stull (16:19)

Yeah, and I think a lot of states have already started to move away from spread pricing in their Medicaid programs, just based on some uncoverings from a few years ago.

So it’ll be interesting to see where this goes. Maybe more applicable to the commercial space and the individuals that are listening to our podcast today is the rulemaking process at a federal level. Talk a little bit to us about what we are looking for from a rulemaking perspective.

Madison Connor (16:53)

Absolutely. That is probably the most impactful to plan sponsors as you identified. At the end of the Biden administration, there were a few outstanding rules that we were expecting and ultimately were not proposed.

So this is something that we’ll wait for the Trump administration to take up. The first being rulemaking on ACA cost sharing. So what do we do with manufacturer assistance? There was a case out of a federal DC district court that ultimately invalidated the 2020 rule that allowed plans to choose whether or not they counted manufacturer assistance towards an individual’s deductible.

So they invalidated that rule. But in the meantime, the Biden administration said, we’re not going to enforce this because we know that it’s going to have huge widespread disruption to plans. So in the meantime, they said, and the court directed them to write a rule that clarified, how does cost sharing have to operate under the ACA? Because it’s not permissible for you to give plans that option or they need to write a more clear rule.

So that ultimately didn’t happen and will be left to the Trump administration to take up. And I did want to mention that the Trump administration, that was the administration originally that wrote the rule that allowed plans the deference about what they did with manufacturer cost sharing. Many stakeholders do believe that they will rewrite this rule in favor of plans.

But at this point, I think it’s something that will be heavily dependent on who’s in charge of CMS and HHS at that time. So we have some confirmation hearings that we need to wait to get through before any of that will even be taken up.

Mike Stull (18:48)

I think one of the, I’ll just say one of the things I see around the copay accumulator rules in the media or on social media is, you know, this idea that it’s hurting the patients.

And in most of the PBM related programs, I think it’s important to point out that patients in these programs pay $0 cost sharing. So yes, they don’t get the opportunity to have the amounts that they’re going to pay accumulate towards deductibles or max out of pocket. But at the same time, you know, they’re paying $0 out of pocket.

So it truly is meant to be a win-win for both patient and the plan. And I also think it’s important to know that, you know, if you change the rules around this or these programs go away, then employers are just going to recalculate what they said as their deductibles max out of pockets or premium contributions. So it is one big math problem.

And at the end of the day, as we’ve, I’ve said this twice already today to different audiences, but you’re not, it’s not about you paying less, it’s about paying differently. So as we think about some of the state rules going on, if we think about some of the federal rules going on, even at a plan design level, you know, when you change one thing, it typically has to come out somewhere. And so, because it is a math problem, if you take it away on one side, you’re just going to put it in somewhere else.

So to wrap us up here today, this is where you earn the Joe Rogan podcast money, is predicting what Donald Trump’s going to do. I’ve already said this a couple of times today, that if I, you know, if I could predict what he’s going to do, I would, I would be doing something completely different. We’d have a much bigger, a much bigger show.

But, you know, I think that Trump, Trump won, the first administration obviously wanted to get rid of rebates, talked about it for a good bit of time. The Congressional Budget Office came back, said if you get rid of the safe harbor for rebates, it’s going to cost billions and billions of dollars. And so the administration decided, oh, better not do that.

And Washington is still using the delay of implementing that rule.

Madison Connor (21:27)

Yeah, until 2032, I believe.

Mike Stull (21:31)

Yeah, they keep extending it, the delay, and then using those air quotes savings to pay for some of their new, new spending.

So it’s, it’s always amazing how Washington math works. But talk, talk a little bit about, you know, what, what you see coming in the context of, sometimes they talk about some really radical changes, until you actually see what the impact is going to be. And then it’s like, oh, we can’t do that.

Madison Connor (22:06)

I think that’s the number one reason that it’s been so hard to pass PBM reform at the federal level to date, because the numbers are so, so there’s so much variance in the numbers coming out of the Congressional Budget Office about how these bills actually impact federal spending. And mostly that there’s, there’s no comprehensive study or evidence to show that any of these measures will actually have an impact on the ultimate cost of drugs. So that’s a big piece there as well.

I think at the federal level, healthcare policy is really not emerging as a major agenda item for this administration. So I’m not sure that and, you know, Trump talks about a lot of different things. And some people may remember that a few weeks ago, he was talking about PBMs and said that he wanted to get rid of the middlemen.

But he does say a lot of things, but you know, how would we actually go about getting rid of the middlemen? And what are, you’ve not seen any policy proposals to back that up. I think the most of the change that you will see in the coming year is going to happen through your administrative agencies, your regulatory rulemaking around ACA cost sharing, like we discussed, essential health benefits. There’s a Supreme Court right now, case right now that’s taken up preventive care requirements too.

So what do we have to cover as part of preventive care? So it’s mostly going to be through other avenues that we see this change occur. Also did want to briefly mention, because we saw lots of activity out of the Federal Trade Commission on PBMs last year, did want to mention that this year we do have a new chair of the Federal Trade Commission and his name is Andrew Ferguson. And in many instances this year, when you saw the interim reports on PBM activity and behavior, he would write separately to say that he had concerns about the underlying research in the reports and also criticize the reports, heavy reliance on thousands and thousands of anonymous comments within those studies.

So I think you could see a change at the Federal Trade Commission level as to how PBMs are investigated. And he has stated that he’s more willing to work with the big three to make sure that that data actually makes sense and to try and see what, if anything, can be done about it.

Mike Stull (24:40)

Well, I would just put this out for the producers of the Sunday talk shows that are probably listening to our podcast, that Madison and I are available if you need panel members for your reactionary panels to talk about healthcare predictions.

I know my Sundays are typically pretty free, so I can join at any time.

Madison Connor (25:03)

We will make ourselves available.

Mike Stull (25:08)

Well, I think that’s it for this episode.

So, thank you, Madison, for joining us and sharing. I know there’s even more than what we were able to talk about today going on out there. The last piece of advice that I think I’ll share that we both agree on is whether it’s litigation, which we didn’t really talk about today, but litigation, regulation, proposed legislation is panic does not mean prudence or panicking is never prudent.

So just take a deep breath and we’ll figure out how it is that we need to adjust to make sure that our clients and their plans are compliant with the rules and regulations that are out.

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