Publication
2025 End-of-Year Plan Sponsor “To Do” List (Part 1) Health and Welfare
We are pleased to present our annual End-of-Year Plan Sponsor “To Do” Lists. This year, we present our “To Do” Lists in four separate SW Benefits Updates. This Part 1 covers year-end health and welfare plan issues. Parts 2, 3, and 4 will cover executive compensation issues, qualified plan issues, and cost-of-living increases, but not necessarily in that order. We expect to publish the other Parts later this year. Each Employee Benefits Update provides a checklist of items to consider before the end of 2025 or in early 2026. We hope these “To Do” Lists help focus your efforts heading into 2026.
Although we identify many action items below, through the end of 2025 and in 2026, we expect employers will focus their compliance efforts on: (1) potentially implementing design changes under the One Big Beautiful Bill Act (“OBBBA”); (2) potentially offering an excepted benefit that includes fertility benefits; (3) solidifying fiduciary and cybersecurity practices for health and welfare plans to reduce litigation risk; and (4) ensuring compliance with the recently scaled back requirements under the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”) and Health Insurance Portability and Accountability Act of 1996 (“HIPAA”).
Part 1 – Health and Welfare Plans “To Do” List
Consider Plan Design Changes Allowed Under OBBBA: On July 4, 2025, President Trump signed into law OBBBA, which among other things, gives employers discretion to implement certain changes to their health and welfare benefits including the following:
- Permanent Telehealth Relief: The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) temporarily allowed high deductible health plans (“HDHPs”) to provide telehealth and other remote care services on a pre-deductible basis, without impacting an individual’s ability to contribute to a health savings account (“HSA”). This relief was extended twice until January 1, 2025. OBBBA made this relief permanent and effective retroactive to January 1, 2025. Importantly, this relief is optional. Regardless of whether an employer takes advantage of the telehealth relief, the employer should clearly communicate whether it provides telehealth and other remote care services on a pre-deductible basis. This may require a plan amendment, revised summary plan description (“SPD”), or summary of material modifications (“SMM”). Employers should also consider whether to make coverage retroactive to January 1, 2025. For more information, see our SW Benefits Blog, “The One Big Beautiful Bill Act Brings Beautiful Relief for Telehealth Coverage.”
- Direct Primary Care Service Arrangements (“DPCS Arrangements”) Relief: Generally, individuals cannot have health coverage other than HDHP coverage in order to make or receive HSA contributions. These exceptions include permitted insurance (e.g., insurance for a specified disease or illness and hospital indemnity insurance), permitted coverage (e.g., coverage for accidents, disability, dental care, vision care, long-term care, or telehealth and other remote care), and pursuant to OBBBA, effective January 1, 2026, DPCS Arrangements. Very generally, a DPCS Arrangement is one in which an individual receives primary care services from primary care practitioners for a fixed periodic fee. Importantly, primary care services cannot include procedures that require general anesthesia, prescription drugs (other than vaccines), or laboratory services not typically administered in an ambulatory primary care setting; and the fixed periodic fee cannot exceed $150 per month (or $300 per month if the arrangement covers more than one individual) indexed for inflation.
Generally, individuals cannot use HSAs to purchase health insurance coverage. Pursuant to OBBBA, effective January 1, 2026, individuals may use their HSAs to pay for DPCS Arrangement fees.
- Increased Dependent Care Assistance Program (“DCAP”) Limits: Effective January 1, 2026, OBBBA increased the maximum amount that can be contributed to DCAPs from $5,000 to $7,500 and from $2,500 to $3,750 for married couples filing separately. Employers contemplating the increased limit should first confirm that the increase would not cause the DCAP to fail applicable nondiscrimination testing under Internal Revenue Code (“Code”) Section 129. Once that is confirmed, employers should coordinate their change with their DCAP administrator, amend their cafeteria plan document before the beginning of the 2026 plan year, and notify employees of the change during open enrollment.
- Permanent Student Loan Repayment Benefit: Under the CARES Act, employers are permitted to contribute up to $5,250 per year against student loan repayments. These payments can be excluded from taxable income and are not subject to payroll tax. The student loan repayment benefit was set to expire until Congress eliminated the provision’s sunset date and made the benefit permanent under OBBBA. To take advantage of this benefit, employers must adopt a written policy (or amend an existing policy) and otherwise comply with the formal requirements of Code Section 127, which governs qualified educational assistance programs. OBBBA also requires that the contribution limit be adjusted for inflation for years after 2026.
- Evaluate Contributions to Trump Accounts: OBBBA created a new tax-advantaged vehicle called a “Trump Account,” which is intended to encourage children to start saving and investing at an early age. Effective as of July 4, 2026, employers may contribute to the Trump Accounts held by qualifying employees and/or their dependents. Up to $2,500 of an employer’s contribution may be excluded from an employee’s gross income if it is made pursuant to a written program. For more information, see our SW Benefits Blog, “Trump Accounts: Four Things Employers Should Know.”
Consider Offering Fertility Benefits as an Excepted Benefit: In response to Executive Order 14216: Expanding Access to In Vitro Fertilization, Departments of Labor (“DOL”), Health and Human Services (“HHS”), and Treasury (collectively, the “Departments”) have clarified in Affordable Care Act (“ACA”) FAQs Part 72 that employers can offer fertility benefits as an excepted benefit in various ways.
- Independent Noncoordinated Excepted Benefit: An employer may offer fertility benefits as an independent, noncoordinated excepted benefit if: (1) the benefits are provided under a separate policy, certificate, or contract of insurance (i.e., are not self-funded); (2) the benefits are not coordinated with any group health plan from the same plan sponsor; and (3) the benefits are paid without regard to whether other health coverage applies. For example, an employer could offer a specified disease or illness policy that covers infertility benefits.
- Excepted Benefit Health Reimbursement Arrangement (“HRA”): Alternatively, an employer may offer fertility benefits as a limited excepted benefit HRA if: (1) the HRA is not an integral part of the plan (e.g., a major medical plan is separately offered); (2) the HRA’s benefits are limited in amount (e.g., do not exceed $2,200 for plan years beginning in 2026); (3) the HRA must not reimburse premiums for individual health insurance coverage, group health plan coverage (other than the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) coverage), or Medicare, except that the HRA may reimburse premiums for such coverage that consists solely of excepted benefits; and (4) the HRA is made available under the same terms to all similarly situated individuals, regardless of any health factor. For example, an employer may offer an excepted benefit HRA that reimburses an employee’s out-of-pocket costs with respect to fertility benefits.
- Limited Excepted Benefit Employee Assistance Program (“EAP”): Finally, an employer may offer coaching and navigator services to help individuals understand their fertility options under an EAP. For more information regarding when an EAP qualifies as an excepted benefit, see our SW Benefits Blog, “What is Telemedicine? A Cool Benefit or a Hot Mess?”
Increased Fiduciary Litigation Risk: The concept of fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”) is not new. However, until recently, the focus has been on retirement plans. There are four main ERISA fiduciary duties: (1) the duty to act solely in the interest of plan participants and beneficiaries (Duty of Loyalty/Exclusive Benefit Rule); (2) the duty to carry out responsibilities prudently (Duty of Prudence); (3) the duty to diversify assets of the plan (Duty of Diversification); and (4) the duty to comply with the provisions of the plan (Duty to Follow Plan Documents). The Consolidated Appropriations Act, 2021 (“CAA”) and the Transparency in Coverage Rules give group health plans access to an unprecedented amount of new information which serves as a double-edged sword. That information may be used by plans to reduce health plan costs and by plaintiffs’ lawyers to sue plans and other parties (e.g., insurers and third party administrators (“TPAs”)). In this year’s newsletter, we reiterate that risk.
- Lawsuit Trends: There have been various lawsuits where plaintiffs allege that the employer and its pharmacy benefit manager (“PBM”) mismanaged the plan’s prescription drug benefits causing millions of dollars of harm to employees and their dependents in the form of higher payments for prescription drugs, premiums, deductibles, coinsurance, copays, lower wages, and limited wage growth. Although health plan participants have generally not been successful in these lawsuits, because we expect plaintiffs’ lawyers will refine their arguments and continue their efforts, plan fiduciaries should understand what their PBM contract entails and undertake an analysis of whether the fees the plan pays are “reasonable.” In our SW Benefits Blog, “Perplexed and the Fiduciary Committee – PBM Edition” we identify various factors a plan fiduciary may want to use when engaging in the process of selecting and monitoring a PBM.
- Fiduciary Governance Best Practices: Ultimately, the best defense against a breach of fiduciary duty is for a plan to implement prudent processes (e.g., when selecting and monitoring service providers) and to formally establish a welfare plan fiduciary committee to oversee group health plan administration. If a plan does not identify a fiduciary committee, the board of directors of the employer is the fiduciary. However, because the board of directors does not manage day-to-day benefit plans, in the event of a lawsuit it could be hard to demonstrate their fulfillment of ERISA’s fiduciary duties. See our fiduciary checklist designed to help health and welfare plan fiduciaries comply with their ERISA fiduciary responsibilities.
Employee Benefits Security Administration (“EBSA”) Cybersecurity Guidance: In 2021, EBSA issued cybersecurity guidance to help plan sponsors, fiduciaries, service providers, and participants in employee benefit plans safeguard plan data, personal information, and plan assets. It included: (1) Tips for Hiring a Service Provider; (2) Cybersecurity Program Best Practices; and (3) Online Security Tips. In Compliance Assistance Release No. 2024-01, EBSA clarified the guidance applies to all types of ERISA plans, including health and welfare plans and all employee pension benefit plans. Even if health plans are HIPAA compliant, plan sponsors and fiduciaries must take additional steps to comply because the scope of EBSA’s cybersecurity guidance is broader than HIPAA.
- Internal Action Items: Plan sponsors and fiduciaries should review their internal cybersecurity policies, update them as needed, and educate participants and beneficiaries about online security, for example, by distributing EBSA’s Online Security Tips.
- Service Provider Action Items: Plan sponsors and fiduciaries should evaluate existing agreements with all plan service providers and have discussions with them to confirm that they have a formal, well-documented cybersecurity program. DOL suggests that service provider contracts include provisions that: (1) require the service provider’s ongoing compliance with cybersecurity and information security standards; (2) require the service provider to annually obtain a third party audit to determine compliance with information security policies and procedures; (3) address the use and sharing of information and confidentiality; (4) include notification requirements for cybersecurity breaches; (5) specify the service provider’s obligations to comply with record retention and destruction, privacy and information security laws; and (6) require insurance coverage that covers cybersecurity breaches and incidents involving the plan (e.g., professional liability and errors and omissions liability insurance, cyber liability and privacy breach insurance, and/or fidelity bond/blanket crime coverage).
Comply with Mental Health Parity Requirements: In general, the mental health parity rules require group health plans to ensure that financial requirements (e.g., co-pays, deductibles, and coinsurance), quantitative treatment limitations (e.g., visit limits and day limits), and nonquantitative treatment limitations (“NQTLs”) (e.g., prior authorization requirements, step therapy, and standards related to network composition) applicable to mental health or substance use disorder (“MH/SUD”) benefits are no more restrictive than the predominant requirements or limitations that apply to substantially all medical/surgical (“M/S”) benefits.
- Mental Health NQTL Comparative Analysis: Effective February 10, 2021, the CAA required group health plans that offer M/S benefits and MH/SUD benefits and impose NQTLs on the MH/SUD benefits to perform and document a comparative analysis of the design and application of the NQTLs. It also required group health plans to make the analysis available upon request to applicable state or federal authorities, participants, beneficiaries, or enrollees. DOL has indicated that mental health parity is one of its highest priorities. Accordingly, employers who have not prepared this analysis may want to refer to DOL’s MHPAEA Self-Compliance Tool and 2024 MHPAEA Report to Congress and coordinate with their TPAs and PBMs to do so as soon as possible. Employers will have only 10 business days to produce the analysis if requested by DOL and 30 days to respond to an ERISA request for documents from a plan participant. Notably, this requirement remains in place despite: (1) the lawsuit filed by the ERISA Industry Committee (“ERIC”) asking the court to hold various key provisions of the final rules as invalid; (2) the D.C. Circuit granting the Departments request for abeyance; and (3) the May 15, 2025 statement that the Departments will not enforce the 2024 Final Rule or otherwise pursue enforcement actions based on a failure to comply that occurs prior to the final decision in the ERIC litigation, plus an additional 18 months.
- Below are some plan design and plan administration issues employers may want to consider:
Issue
Action Items to Consider
Mental Health Conditions
Confirm that the plan treats eating disorders, autism spectrum disorder, and gender dysphoria as mental health conditions and that any limitations on such conditions comply with MHPAEA.
Plan Definitions
Review definitions of M/S benefits, mental health benefits, and SUD benefits.
Confirm that these terms are “consistent with generally recognized independent standards of current medical practice,” which means that they should be consistent with the most current version of the International Classification of Diseases (“ICD”) or the Diagnostic and Statistical Manual of Mental Disorders (“DSM”). These terms should not rely on “State guidelines.”
Administrative Services Agreements
Confirm that administrative services agreement(s) with the plan’s TPA(s) requires the TPA(s) to help the plan timely and accurately respond to a government and/or participant request for an NQTL comparative analysis and make available to the government and/or named fiduciary a written list of all NQTLs imposed under the plan.
NQTL Comparative Analysis Requirements
Request the plan’s NQTL comparative analysis and ensure that it addresses all the plan’s current NQTLs and contains, at a minimum, the following six elements:
1. a description of the NQTL;
2. the identification and definition of the factors used to design or apply the NQTL;
3. a description of how factors are used in the design or application of the NQTL;
4. a demonstration of comparability and stringency, as written;
5. a demonstration of comparability and stringency, in operation; and
6. findings and conclusions.
Be Proactive with HIPAA Privacy and Security Compliance: Similar to plan document maintenance, employers should continually review their HIPAA practices to keep up with new guidance and evolving risks. This year, employers may want to focus on the following:
- Consider Unwinding Reproductive Health Care Rule Requirements: On June 18, 2025, the Northern District of Texas largely vacated the HIPAA Reproductive Health Care Rule. This rule limited when a group health plan could disclose reproductive health care protected health information (“PHI”) to a third party for non-healthcare purposes (i.e., investigating, imposing liability, and identifying individuals who seek, obtain, provide, or facilitate reproductive healthcare) and generally required group health plans to obtain an attestation from a requesting third party for certain uses or disclosures of reproductive health care PHI. Group health plans that previously amended their HIPAA privacy policies and procedures, training materials, and business associate agreements, may want to consider unwinding those enhanced protections.
- Update HIPAA Notice of Privacy Practices: Notwithstanding the above, effective February 26, 2026, a group health plan still must update its Notice of Privacy Practices to address confidentiality of substance use disorder patient records as required under the CARES Act.
- Ensure Compliance with the HIPAA Security Rule: As noted in the HHS Office for Civil Rights (“OCR”) cybersecurity newsletter, with the rise of cyberattacks (e.g., phishing and smishing, baiting, deepfakes, ransomware, and hacking) breaching patient privacy, HIPAA is more relevant than ever. Among other things, the HIPAA Security Rule requires covered entities to: (1) conduct an accurate and thorough risk analysis to determine the potential risks and vulnerabilities to the confidentiality, integrity, and availability of their electronic PHI (“ePHI”); (2) implement a risk management plan to address and mitigate security risks and vulnerabilities identified in their risk analysis; (3) review and develop, maintain, and revise, as necessary its written policies and procedures to comply with the HIPAA Rules; (4) train their workforce on their HIPAA policies and procedures; and (5) review vendor relationships to ensure that business associate agreements are in place.
- Group health plans may want to refer to OCR’s recently updated Security Risk Assessment Tool to help them conduct a security risk assessment, in addition to the National Institute of Standards and Technology revised Cybersecurity Resource Guide and supplemental resources when developing compliance strategies to safeguard ePHI.
- Take Steps to Limit Liability Under HIPAA Security: In addition to minimizing the increased risk of cyberattacks, group health plans should maintain security practices to minimize potential liability. Pub. L. 116-321 amended the Health Information Technology for Economic and Clinical Health Act to require HHS to consider whether a covered entity or business associate has had recognized security practices in place for at least 12 months when determining fines, audits, and other remedies related to HIPAA security violations.
Continue to Implement Changes under the CAA: On December 27, 2020, the CAA was signed into law. The CAA includes numerous provisions that impact employer-sponsored group health plans. Since its enactment, the Departments have been issuing regulations and guidance addressing CAA requirements. To the extent the Departments have not yet issued regulations or guidance, plans must implement the CAA’s requirements using a good faith, reasonable interpretation of the statute. Accordingly, employers should continually evaluate their CAA compliance obligations. See our CAA chart for more information regarding the principal requirements under the CAA that apply to employer-sponsored group health plans.
- ERISA Section 408(b)(2) Disclosure Requirements for Covered Service Providers: The CAA amended ERISA Section 408(b)(2) to require “covered service providers” to group health plans to disclose specified information to a responsible plan fiduciary about the direct and indirect compensation that the covered service provider expects to receive in connection with its services to the plan. A covered service provider includes a person who provides “brokerage services” or “consulting” to ERISA-covered group health plans and reasonably expects to receive $1,000 or more in direct or indirect compensation in connection with providing those services. Because many covered service providers are still not complying (e.g., by failing to produce a disclosure or failing to produce a sufficient disclosure), group health plans should proactively seek such disclosures. Failure to comply with the disclosure requirements means that the service arrangement is not reasonable and is therefore a prohibited transaction.
- Medical and Drug Cost Reporting (“RxDC Reports”): Group health plans must report certain information related to plan medical costs and prescription drug spending to the Departments in accordance with the Prescription Drug Data Collection (RxDC) Reporting Instructions. RxDC Reports are due no later than June 1 of every year. Because a self-funded group health plan has the legal obligation to file the RxDC Report, it should confirm, in writing, what information its TPA(s), PBM(s), and other vendors will submit to the Centers for Medicare and Medicaid Services (“CMS”) and, to the extent necessary, coordinate amongst the third parties to ensure that the plan satisfies its reporting obligations. Additionally, because most RxDC Reports will aggregate data from multiple plans, employers should also consider requesting plan-level data to help the employer understand, and then try to control, its health plan’s spending.
- Surprise Medical Bills: The No Surprises Act, which took effect on January 1, 2022, and implementing regulations do not completely eliminate surprise billing, but they provide relief from some of the more common scenarios in which an individual may experience unexpected medical costs, including: (1) emergency services; (2) non-emergency services performed by nonparticipating providers at participating healthcare facilities; and (3) air ambulance services. Employers should consider working with their TPAs to update their plan documents and SPDs and confirm that their plans are administered in accordance with this law. For more information about the No Surprises Act and its impact on employer-sponsored group health plans, see our SW Benefits Update, “Not All Surprises Are Good – Phase I of the Surprise Billing Rules.”
- Continue to Comply with Transparency in Coverage Rules: In November 2020, the Departments issued Transparency in Coverage Final Rules, which require group health plans and issuers to: (1) disclose to participants, beneficiaries, or enrollees upon request, through an internet self-service tool, cost sharing information for a covered item or service from a particular provider or providers, and make such information available in paper form upon request effective January 1, 2023 (500 items and services) and January 1, 2024 (all covered items and services); and (2) disclose pricing information to the public through three machine readable files regarding payment rates negotiated between plans or issuers and providers for all covered items and services (the “In-Network File”), the unique allowed amounts a plan or issuer used, as well as associated billed charges, for covered items or services furnished by out-of-network providers during a specified time period (the “Out-of-Network File”), and pricing information for prescription drugs (the “Prescription Drug File”). Although the Departments deferred enforcement of the requirement to disclose the Prescription Drug File under FAQs About ACA and CAA Implementation Part 49, they rescinded this relief in FAQs About ACA Implementation Part 61 and indicated that they intend to develop technical requirements and an implementation timeline in future guidance. The Transparency in Coverage requirements are extensive, and plan sponsors should work with their TPAs to ensure compliance.
On February 25, 2025, President Trump issued Executive Order 14221: Making America Healthy Again by Empowering Patients With Clear, Accurate, and Actionable Healthcare Pricing Information and accompanying Fact Sheet. It instructs the Departments, within 90 days, to: (1) require the disclosure of the actual prices of items and services, not estimates; (2) issue updated guidance or proposed regulatory action ensuring pricing information is standardized and easily comparable across hospitals and health plans; and (3) issue guidance or proposed regulatory action updating enforcement policies designed to ensure compliance with the transparent reporting of complete, accurate, and meaningful data. Although Executive Order 14221 does not change existing law, it suggests that transparency is a priority of the administration and there may be increased enforcement.
Reconsider Abortion and Contraceptive Benefits:
- Abortion & Abortion Travel Benefits: As reported in our SW Benefits Blog, “Rethinking Reproductive Healthcare Benefits After Roe: Three Initial Benefits Questions for Employers to Consider,” the Supreme Court’s Dobbs v. Jackson Women’s Health Organization decision overturned previous Supreme Court decisions protecting abortion. As a result, various state civil and criminal laws restricting or prohibiting abortion services took effect, including certain laws that states could potentially enforce against employers that sponsor group health plans covering abortion services. To address this risk, employers may want to consider: (1) identifying applicable state abortion laws and analyzing whether ERISA preempts such laws; (2) reviewing their plans to understand whether and how their plans cover abortion services and abortifacient drugs, or travel for purposes of obtaining legally provided abortions and other reproductive care services; (3) identifying appropriate parties that need to be involved in the decision-making process (e.g., executives, directors, fiduciary committee, etc.); and (4) amending their plans, if necessary, to clarify the plan’s abortion-related coverage and/or exclusions.
- Contraceptive Coverage: Although the requirement to cover certain contraceptives without cost sharing under ACA is not new, in 2022, the Departments flagged that there is widespread noncompliance. As a result, employers may want to consider: (1) reviewing their plan documents to confirm plan language is consistent with the latest contraceptive coverage requirements, including updated Health Resources and Services Administration (“HRSA”) guidelines that took effect in 2023; (2) confirming any TPAs and PBMs are operating the plan in compliance with such coverage requirements and that any medical management techniques are reasonable; and (3) confirming the plan maintains an accessible, transparent, and expedient exceptions process that is not unduly burdensome and enables participants and providers to request other medically necessary female-controlled contraceptive items approved by the Food and Drug Administration (the “FDA”).
- Over-the-Counter (“OTC”) Contraceptives: Recent changes enable employers to cover certain OTC contraceptives that are available for purchase without a prescription. In July 2023, the FDA approved the first OTC oral contraceptive. In Notice 2024-71, the Internal Revenue Service (“IRS”) provided a safe harbor, under which IRS will treat amounts paid for condoms as amounts paid for medical care under Code Section 213(d), meaning HSAs, Archer medical savings accounts, health flexible spending accounts (“Health FSAs”), and HRAs may reimburse for condoms. Further, in Notice 2024-75, IRS in part clarified that HDHPs may cover OTC oral contraceptives (including emergency contraceptives) and male condoms (with or without a prescription) without a deductible or with a deductible below the applicable minimum deductible for the HDHP. Although group health plans are not required to cover nonprescription contraceptives, employers may want to consider voluntarily covering the OTC oral contraceptives or condoms.
Consider Health and Welfare COVID-19 Issues: The COVID-19 pandemic and the federal government’s response transformed the 2020-2023 employee benefits landscape. While some of these changes are permanent, many ended during the 2023 plan year due to the end of the COVID-19 Public Health Emergency and the COVID-19 National Emergency. As noted in more detail below, employers that make changes to their health and welfare plans, whether required by law or voluntarily, must remember to adopt appropriate plan amendments and provide participants with SMMs explaining changes.
- The End of the COVID-19 Public Health Emergency: Effective after May 11, 2023, group health plans no longer must cover: (1) COVID-19 testing and affiliated services without cost sharing; (2) COVID-19 OTC tests; and (3) COVID-19 vaccines provided by out-of-network providers. Additionally, in IRS Notice 2023-37, IRS clarified that effective for plan years that begin on or after January 1, 2025, to the extent a group health plan that is a HDHP continues to cover COVID-19 testing and/or treatment, it must do so on a post-deductible basis or risk losing HDHP status.
- COVID-19 Vaccines: On September 19, 2025, the Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices (“ACIP”) formally recommended that vaccination for COVID-19 be determined by individual decision-making. Under the revised recommendations, COVID-19 vaccines remain on ACIP’s schedules for children and adults, meaning plans must continue to cover COVID-19 vaccines provided by in-network doctors on a pre-deductible basis for most individuals age six months and older.
Reconsider Fixed Indemnity Notice Requirements: Fixed indemnity insurance policies provide cash payments during periods of hospitalization or illness. These payments do not vary based on the amount billed or the services provided. On March 28, 2024, the Departments issued final regulations, which, among other things, required employers and insurers offering hospital or other fixed indemnity insurance policies to comply with new notice requirements for plan years beginning on or after January 1, 2025. However, because of the U.S. District Court for the Eastern District of Texas’s December 2024 decision in ManhattanLife & Annuity Co. v. HHS, the notice requirement only applies for individual coverage.
Be Wary of Employee Retention Credit Pitfalls: The CARES Act provided for an employee retention tax credit (“ERTC”) designed to encourage employers to retain workers during the pandemic. The requirements of the ERTC program are complex, and IRS has identified many employers that claimed credits without meeting the applicable eligibility criteria. Accordingly, enforcement actions are on the rise and pending applications remain under significant scrutiny. Recognizing the widespread errors in the ERTC program, IRS established a withdrawal program for certain credits in process. Given IRS’s sustained focus on ERTC compliance, employers might consider whether their filings were properly made and whether affirmative corrective action is warranted.
Consider Amending Cafeteria Plan Due to “Family Glitch” Fix: In October 2022, IRS issued regulations that fix the “family glitch,” which generally prevented family members of an employee from obtaining a premium tax credit for Exchange coverage if the employee had access to an “affordable” employer-sponsored group health plan. As a result of this fix, IRS issued additional guidance, IRS Notice 2022-41 and IRS Announcement 2022-22, allowing employers to amend their cafeteria plans to allow prospective mid-year election changes from family coverage to employee-only coverage (or family coverage including one or more already-covered individuals) if: (1) one or more related individuals are eligible for a special enrollment period to enroll in a qualified health plan (“QHP”), or one or more already-covered related individuals seek to enroll in a QHP during the Exchange’s annual open enrollment period; and (2) the election change corresponds to the intended QHP enrollment for new coverage effective beginning no later than the day immediately following the last day of the revoked coverage. Employers looking to allow such mid-year election changes must adopt an amendment on or before the last day of the plan year in which the changes are first allowed and the amendment may be effective retroactive to the first day of that plan year if the plan operates in accordance with the guidance and informs participants of the amendment.
Consider Preventive Care Updates: As a reminder, under Code Section 223, an HDHP may cover preventive care on pre-deductible basis. Preventive care means: (1) preventive care under the IRS safe harbor which includes, but is not limited to periodic health evaluations (e.g., annual physicals), routine prenatal and well-child care, immunizations for adults and children, tobacco cessation and obesity weight-loss programs, and specified screening services identified in IRS Notice 2004-23; (2) treatments that are incidental or for chronic conditions; (3) preventive services as required by ACA; and (4) certain insulin-related products under Code Section 223.
Furthermore, under ACA, a non-grandfathered group health plan must provide the following preventive services without any cost sharing: (1) evidence-based items or services with an A or B rating in the current recommendations of the United States Preventive Services Task Force (USPSTF) (“USPSTF recommended preventive services”); (2) immunizations for routine use in children, adolescents, or adults that have, in effect, a recommendation from ACIP; (3) evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by HRSA for infants, children, and adolescents; and (4) other evidence-informed preventive care and screenings provided for in comprehensive guidelines supported by HRSA for women.
- Ensure Plan Complies with HRSA Updates: On December 20, 2024, HRSA updated its preventive services guidelines for women, requiring non-grandfathered group health plans to cover: (1) screening and counseling for intimate partner and domestic violence; (2) breast cancer screening for women of average risk; and (3) patient navigation services for breast and cervical cancer screening (e.g., person-centered assessment, referrals to support services, and patient education). Plans generally must cover newly recommended services in plan years beginning one year after the guideline is issued, meaning these services must be covered without cost sharing for plan years beginning on or after December 20, 2025.
- Monitor Litigation Challenging Preventive Services Required Under ACA: ACA’s requirement to cover preventive services without cost sharing continues to face challenges in court. Although the Supreme Court, in Kennedy v. Braidwood Management Inc., held that USPSTF members operate under proper constitutional authority and therefore can identify preventive services that must be covered under ACA without cost sharing, the lower courts are currently considering the issue of whether ACIP and HRSA also have proper authority to issue preventive health service recommendations. In the meantime, non-grandfathered group health plans must continue to provide all USPSTF, ACIP, and HRSA recommended preventive services without cost sharing.
- Consider Implications of Contraceptive Coverage Exemptions: Under ACA’s preventive services rules, non-grandfathered group health plans generally must cover contraceptive services and products without cost sharing. Notwithstanding this rule, there are exemptions for: (1) qualifying religious employers; (2) certain other religious employers who engage in an accommodation process; and (3) individuals and entities based on sincerely held religious beliefs or sincerely held moral exemptions. Notably, the third category is in flux after the August 13, 2025, Pa. v. Trump decision where the U.S. District Court for the Eastern District of Pennsylvania vacated applicable regulations on the grounds that they are arbitrary and capricious under the Administrative Procedures Act, despite the Supreme Court’s previous approval of the regulations. Employers looking to claim religious or moral exemptions should monitor this issue.
- Consider Providing Free Preventive Care for Chronic Conditions or Other Free Preventive Care Items: As reported in our SW Benefits Blog, “Preventive Care Can Now Be Covered for Specified Chronic Conditions Before HDHP Deductible,” in July 2019, IRS released Notice 2019-45, which allows health plans to provide free preventive care before a deductible is met for certain chronic conditions, such as asthma, diabetes, and heart disease, without jeopardizing a plan’s status as an HDHP. The Appendix to Notice 2019-45 contains an exhaustive list of the medical services and drugs that are deemed to be preventive care for the treatment of the specified chronic conditions. Recently in Notice 2024-75, IRS clarified that HDHPs may cover the following benefits without a deductible or with a deductible below the applicable minimum deductible for the HDHP: (1) OTC oral contraceptives (including emergency contraceptives) and male condoms; (2) all types of breast cancer screening for individuals who have not been diagnosed with breast cancer (e.g., mammograms, MRIs, ultrasounds, and similar breast cancer screening services); (3) continuous glucose monitors for individuals diagnosed with diabetes; and (4) selected insulin products. Employers interested in providing this free preventive care should consider contacting their insurers and TPAs to confirm that they can implement the coverage and that they will limit it only to those services and drugs listed in the Appendix.
Comply with Large Employer Shared Responsibility Rules or Face Penalties: IRS continues to aggressively enforce large employer shared responsibility penalties under Code Section 4980H. Large employers can be subject to penalties if any full-time employee receives a premium tax credit and either: (1) the employer fails to offer minimum essential coverage (“MEC”) to 95% of its full-time employees and their dependents; or (2) the coverage is either not affordable or does not provide minimum value. Missing the 95% test even slightly (e.g., coming in at 94%) will require the employer to pay a penalty for each full-time employee (minus the first 30 full-time employees). Important penalties, percentages, and premiums under Code Section 4980H can be found in our 2025 Cost of Living Adjustment Newsletter. In addition, more detailed information can be found in our “Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers.”
- Confirm Large Employer Status: Much of Code Section 4980H turns on whether an employer is considered an “Applicable Large Employer” (an “ALE”). This is a technical determination based on the average number of full-time and full-time equivalent employees. Employers – especially growing businesses – should analyze their ALE status each year to ensure compliance. More detailed information about the ALE analysis can be found in our “Primer on Affordable Care Act Compliance for Growing Businesses.”
- Consider Amendments to Align Plan with Code Section 4980H Full-Time Employee Determinations: Some employers make eligibility determinations under their health plans align with full-time employee status under Code Section 4980H. Employers who want to do so may need to amend their health plans to reflect these complicated eligibility rules.
Complete Code Sections 6055 and 6056 Reporting:
- All Employers with Self-Insured Health Plans are Required to Report MEC: Code Section 6055 requires all entities providing MEC to submit information concerning each covered individual for the calendar year to IRS and to certain individuals. Reporting is again required in early 2026 for coverage offered in 2025. In general, entities reporting under Code Section 6055 are required to use Form 1094-B and Form 1095-B. Large employers that sponsor self-insured health plans may use combined reporting to comply with both Code Section 6055 and Section 6056 by completing a Form 1095-C in lieu of Forms 1094-B and 1095-B.
- Large Employers are Required to Report on Health Coverage Offered to Full-Time Employees: Code Section 6056 requires ALEs to report to IRS and to certain individuals information regarding health coverage offered to full-time employees for each calendar year. Reporting is again required in early 2026 for coverage offered in calendar year 2025. In general, employers are required to use Form 1094-C and Form 1095-C to complete this reporting.
- New Alternative Distribution Methods: Under the Paperwork Burden Reduction Act, employers may make Forms 1095-C available to employees by request, provided that certain advance notice requirements are met. In addition, the Employer Reporting Improvement Act allows Forms 1095-C to be delivered electronically with employee consent. Neither of these laws impacts the long-standing requirement to file corresponding Forms 1095-C with IRS. Employers may wish to consult with their reporting vendors and counsel before changing their ACA reporting practices.
- Penalty Assessments for Coverage Failures: IRS continues to issue Letters 226J to ALEs that failed to offer compliant healthcare coverage under Code Section 4980H. Employers that receive a Letter 226J are required to respond or request an extension within 30 days (or 90 days for assessments proposed in tax years beginning after December 23, 2024). More information can be found in our SW Benefits Blog, “Three Facts Every Employer Should Know About Code Section 4980H Penalties.”
- Penalty Assessments for Late or Incorrect Filings: In addition to penalty assessments for coverage failures under Code Sections 4980H(a) and 4980H(b), IRS assesses penalties against ALEs that failed to file or filed incomplete or inaccurate information returns. These penalties can be significant.
- Statute of Limitations: A new six-year statute of limitations applies with respect to returns due after December 31, 2024, but IRS continues to take the position that no such limit applies to penalties attributable to returns due before that date.
- Record Retention: Employers may want to give careful consideration to all potential records they might need to defend against penalty assessments in the Code Section 4980H context. For more information, including a list of documents to consider keeping, see our SW Benefits Blog, “IRS Letters 226J: Having the Right Section 4980H Records Can Be Worth a Small Fortune.”
Follow State Individual Mandate Laws and Associated Reporting: Despite the repeal of the individual mandate under ACA, California, the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont have implemented their own statewide individual mandates. Employers with operations in these states, or other states that adopt individual mandates, should be prepared to comply with these mandates and also should monitor any associated reporting requirements.
Consider Whether to Count Drug Discounts Toward Maximum Out-of-Pocket Limits (“MOOP”): The Departments previously clarified that group health plans are not required to count coupons against deductibles or MOOP until they issue further guidance regarding the impact of this requirement on HDHPs. HHS also clarified, in its May 2020 NBPP for 2021 Rules, that amounts paid toward reducing the cost sharing incurred by an enrollee using any form of direct support offered by drug manufacturers for specific prescription drugs may be, but are not required to be, counted toward the annual limitation on cost sharing. However, additional guidance may be forthcoming due to the district court decision, HIV and Hepatitis Policy Inst. v. HHS, which vacated this provision of the rules and remanded the regulation to HHS to further clarify whether ACA’s definition of “cost sharing” includes drug manufacturer assistance.
- Considerations for Self-Funded and Insured Plans: Sponsors of both self-funded plans and insured plans may decide the safer approach is to not count drug discounts or coupons towards deductibles or MOOP so they do not risk disqualifying their HDHPs or rendering their HDHP participants HSA-ineligible. However, state insurance laws may not permit insured plans to follow this approach. For example, Arizona has its own rules regarding when drug discounts and coupons count towards MOOP, deductibles, copayments, coinsurance, or other applicable cost sharing requirements. Employers who offer insured health plans in those states need to consider whether these state laws mean their health plans cannot operate as HDHPs, which would also make participants HSA-ineligible. For more information regarding this issue, please see our SW Benefits Blog, “Must Drug Manufacturer Coupons Count Toward Annual Maximum Out-Of-Pocket Limits? Stay Tuned…”
Consider Duty to Monitor TPAs and Insurers for Cross-Plan Offsetting Practices: Cross-plan offsetting occurs when a TPA or insurer overpays a healthcare provider for services provided to a participant under one plan and then recoups the overpayment by underpaying that same healthcare provider for services provided to a participant in a completely different plan. DOL entered into a settlement agreement with EmblemHealth, an insurer and TPA of employer-sponsored group health plans, to resolve its claims that EmblemHealth’s cross-plan offsetting was a breach of fiduciary duty under ERISA because EmblemHealth used assets from one plan to recover a debt owed by a different plan. EmblemHealth agreed to stop cross-plan offsetting with respect to ERISA plans as part of the settlement. The Eighth Circuit Court of Appeals also called the practice into question in Peterson v. UnitedHealth Group. The U.S. District Court for the District of New Jersey held in Lutz Surgical Partners v. Aetna that cross-plan offsetting violates ERISA’s fiduciary rules and results in a prohibited transaction. In light of this case law and DOL’s position on cross-plan offsetting, employers should determine whether their plans permit cross plan offsetting. If plan terms do not permit cross-plan offsetting, employers should confirm that their TPA or insurer is not using cross-plan offsetting with respect to their plans. If plan terms permit cross-plan offsetting, employers should weigh the risks of allowing their TPAs or insurers to use cross-plan offsetting to recoup overpayments. Doing so may expose employers to potential liability for ERISA violations.
Consider Impact of Nondiscrimination Rules: Employers may want to consider the impact of the following nondiscrimination rules in the context of providing health and welfare benefits:
- Title VII of the Civil Rights Act of 1964: Title VII prohibits employers from discriminating against employees with respect to compensation, terms, conditions, or privileges of employment on the basis of race, color, religion, sex, or national origin. The Supreme Court held in Bostock v. Clayton County Georgia that the term “sex” under Title VII includes sexual orientation and gender identity. Although Bostock specifically addressed the hiring and firing of LGBTQ+ employees, the ruling has wide-ranging employee benefit implications. Accordingly, employers should consider assessing whether their employee benefit plans discriminate against their LGBTQ+ employees (e.g., by denying coverage to transgender employees or by providing coverage to opposite-sex but not same-sex spouses). Employers also should monitor the progress of several cases interpreting Bostock, including those arguing for religious exemptions. More information about Title VII and Bostock can be found in our SW Benefits Update, “Supreme Court Holds Employers Cannot Discriminate Against LGBTQ Employees: Are Your Employee Benefit Plans Up to Snuff?”
- ACA Section 1557: ACA Section 1557 prohibits discrimination on the basis of race, color, national origin, age, disability, or sex under any health program or activity that receives federal financial assistance from HHS (which most group health plans do not, unless, for example, they participate in the retiree Medicare Advantage program or retiree Medicare drug subsidy). HHS issued three iterations of Section 1557 regulations in 2016, 2020, and 2024, and subregulatory guidance, all of which had legal challenges, including whether the law defines sex discrimination broad enough to include sexual orientation and gender identity. Most recently, a federal trial court issued a ruling that universally vacates the provisions of the Section 1557 regulations that expanded Title IX’s definition of sex discrimination to include discrimination on the basis of gender-identity on the grounds that this expansion exceeded HHS’s statutory authority. Although the future of ACA Section 1557 remains uncertain, President Trump’s Executive Order 14168: Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government, makes clear that the administration’s position that the term “sex” refers to “an individual’s immutable biological classification as either male or female…and does not include the concept of ‘gender identity.’” Employers should continue to monitor legal developments in this area because it continues to change.
- Other Considerations: In addition to the nondiscrimination rules described above, employers may want to be mindful of other non-legal considerations. In particular, each year, the Human Rights Campaign issues a Corporate Equality Index (“CEI”), which is a national benchmarking tool on employer policies affecting LGBTQ+ employees. To receive a 100% score on the CEI, the CEI criteria in part requires that employers provide: (1) equal coverage for transgender individuals without exclusion for medically necessary care; and (2) domestic partner benefits to both same-sex and opposite-sex couples. Employers who do not already offer such coverage might consider making these changes for 2026.
Identify and Correct COBRA Notice Failures: If applicable, COBRA requires employers to distribute general and election notices. Employers that fail to timely comply with these notice rules are subject to significant excise taxes and must self-report to IRS. An employer may avoid the excise tax penalty and the related filing requirement if the failure was due to reasonable cause and the failure is corrected within 30 days of the date that it was discovered or should have been discovered using reasonable diligence. Employers should consider regularly confirming they are complying with the COBRA notice requirements and, if necessary, correct any failures immediately upon discovery. This vigilance is especially important given the rise of litigation alleging deficient COBRA notices.
Be Mindful of State Mini-COBRA Laws: In general, COBRA applies to employers who have 20 or more employees. Many states have adopted “mini-COBRA” statutes (including Arizona, California, and Nevada), some of which largely mirror the continuation coverage requirements of federal law but for employers with fewer than 20 employees. Small employers should consider the states in which they operate and evaluate their compliance with any applicable mini-COBRA law.
Review Wellness Programs: Depending on the particular benefits a wellness program offers, it may be subject to a unique combination of requirements under statutes such as ERISA, the Code, HIPAA, the Americans with Disabilities Act (“ADA”), Genetic Information Nondiscrimination Act (“GINA”), and COBRA, to name a few. Although employers should consider evaluating all their wellness program components carefully for all compliance risks, currently, the biggest litigation risk appears to be tobacco surcharge programs.
- Tobacco Surcharge Programs: If an employer requires tobacco-users to pay a higher medical plan premium than non-tobacco users, that is a health-contingent wellness program that must satisfy a five-part test including: (1) eligible individuals must have an annual opportunity to qualify for the full reward; (2) the total reward may not exceed 50% of the total cost of coverage; (3) the program must be reasonably designed and provide a reasonable alternative standard to all tobacco-users; (4) the program must be available to all similarly situated individuals; and (5) the employer must disclose the reasonable alternative standard in all plan materials that describe the tobacco surcharge. Generally, tobacco surcharge lawsuits have targeted employers alleging the following:
- The employer failed to offer a reasonable alternative standard (e.g., a smoking cessation program).
- The employer offered a reasonable alternative standard but failed to provide the full reward (e.g., the employer reduced premiums on a prospective basis after the individual completed the smoking cessation mid-year).
- The employer did not sufficiently disclose the reasonable alternative in all plan materials that described the tobacco surcharge (e.g., the notice was missing, or the notice was incomplete or vague).
- The employer’s reasonable alternative standard notice failed to state that the program would accommodate the recommendations of an individual’s personal physician.
Confirm Employees’ Life Insurance Coverage if Deducting Premiums: Many employers that sponsor ERISA life insurance plans use self-billing arrangements to remit employees’ premiums to their life insurance providers. At times, this causes employers to deduct life insurance premiums from their employees’ paychecks prior to the insurers’ receipt of the proof of good health – or evidence of insurability – necessary to issue the life insurance policy. DOL has been investigating life insurance companies’ practice of accepting employees’ premiums without verifying their insurability, which leads employees and their beneficiaries to believe that they have life insurance coverage, and subsequently denying claims because the insurer failed to receive the employees’ evidence of insurability. DOL has reached settlements with multiple life insurance companies that prevent the insurers from denying benefit claims under ERISA life insurance plans solely for lack of evidence of insurability when an employee has paid premiums for 90 days or more. Employers should consider establishing a process pursuant to which they work with their life insurance providers to ensure that the employees for whom they are remitting life insurance premiums have coverage under their life insurance plan.
Continue Complying with ACA Changes: Employers may want to consider ACA compliance issues. See our checklist that provides a more detailed summary of the principal requirements under ACA.
Consider Health Care Exchanges and Notification Requirements: Employers may determine that Health Care Exchanges benefit their employees and former employees. For example, coverage under a Health Care Exchange may sometimes be cheaper than COBRA coverage under the employer’s group health plan. In any event, employers have an obligation to provide each employee with a written notice regarding coverage under the Exchange at the time of hiring. More information on Health Care Exchanges is available here. There are two Model Exchange Notices, one for employers who offer a health plan to some or all of their employees, available here and one for employers who do not offer a health plan to their employees, available here.
Patient-Centered Outcomes Research Institute (“PCORI”) Fees: Health insurance issuers and sponsors of self-insured health plans are required to report and pay PCORI fees on the Form 720 by July 31 following the last day of the plan year. The PCORI fee for a plan or policy year is equal to the average number of lives covered under the plan or policy, multiplied by an applicable dollar amount for the year. The applicable dollar amount for plan years that end on or after October 1, 2025, and before October 1, 2026, is $3.84.
Leave-Sharing Programs: Employers often sponsor leave-sharing programs to allow employees to donate leave on a pre-tax basis to co-workers who are experiencing a medical emergency or who have been adversely affected by a major disaster. Employers should consider close review of applicable rules and best practices when establishing and administering leave-sharing programs in order to avoid unintended tax and other undesirable consequences. For more information, see our SW Benefits Blog, “Design Considerations for Medical Emergency Leave-Sharing Programs.”
Distribute Revised Summary of Benefits and Coverage (“SBC”): ACA requires employers offering group health plan coverage to provide employees with an SBC, which summarizes the health plan or coverage offered by the employer. Information about the SBC requirement, and links to the SBC instructions and template are available on the DOL website. Employers should review their SBCs (or those prepared by their TPAs) to ensure they comply with the SBC rules. Employers may also want to ensure that SBCs are provided at requisite times including open enrollment, initial or special enrollment, upon request, and 60 days in advance of making material modifications to benefits or coverage that take effect mid-plan year. The penalties for failure to issue SBCs can be significant.
Update and Distribute SPD if Needed: Employers are required to update SPDs once every five years if they have materially amended their plans during this period. They are required to update SPDs once every ten years if they have not materially amended their plans during this period. Further, an updated SPD is required to incorporate all material amendments that occurred during the five-year period, even if the changes were communicated in a timely manner through SMMs. In addition to updating SPDs, employers must also distribute updated SPDs to participants and beneficiaries. Posting updated SPDs on intranet sites is not an effective method of distribution.
Distribute Summary Annual Report: Distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report is required to be distributed within two months following the date on which the Form 5500 was due.
Reflect Cost-of-Living Increases: IRS announces cost-of-living adjustments on an annual basis. Our 2025 Cost of Living Adjustment Newsletter will summarize the changes in the health and welfare context.
About Snell & Wilmer
Founded in 1938, Snell & Wilmer is a full-service business law firm with more than 500 attorneys practicing in 17 locations throughout the United States and in Mexico, including Los Angeles, Orange County, Palo Alto and San Diego, California; Phoenix and Tucson, Arizona; Denver, Colorado; Washington, D.C.; Boise, Idaho; Las Vegas and Reno-Tahoe, Nevada; Albuquerque, New Mexico; Portland, Oregon; Dallas, Texas; Salt Lake City, Utah; Seattle, Washington; and Los Cabos, Mexico. The firm represents clients ranging from large, publicly traded corporations to small businesses, individuals and entrepreneurs. For more information, visit swlaw.com.
