The model notice comes in three different forms: one for federally subsidized drug treatment centers, one for other health care providers, and one for health plans. Health care providers and health plan sponsors that have not already amended their notices may wish to use this model to meet their obligations.

New Requirements

Reforming the PBM industry has been a frequent talking point for the past decade. State legislatures were the first to take concrete steps toward PBM industry regulation, with states like Arkansas and Florida passing statutes demanding pass-through rebate payments, an end to spread pricing, and more expansive access to independent pharmacies, measures that have raised significant Employee Retirement Income Security Act of 1974 (ERISA) preemption issues. 

On a federal level, federal agencies issued transparency regulations in 2020, but the requirements applicable to prescription drugs in those regulations were put on hold. In 2023, the House of Representatives approved, by an overwhelming majority, a bill titled the Lower Cost, More Transparency Act. This bill would have imposed substantial disclosure requirements on PBMs, but it never advanced through the Senate.

Last year, the Trump administration announced its intent to enact PBM reforms. In an executive order titled “Lowering Drug Prices By Once Again Putting Americans First,” the administration solicited input from federal agencies for recommendations “on how best to promote a more competitive, efficient, transparent, and resilient pharmaceutical value chain that delivers lower drug prices for Americans.”

On January 30, 2026, the Department of Labor (DOL) published proposed regulations imposing substantial transparency requirements at the federal level. The regulations amend ERISA’s prohibited transaction rules to require PBMs to provide periodic disclosures of certain key elements of their fee structure, including all direct and indirect revenues they (and certain related entities) may receive, including revenues from manufacturer rebates and spread pricing. The regulations also grant sponsors the right to audit their PBMs to ensure compliance with these requirements. This right to audit must be free of various restrictions that PBMs often seek to place on the choice of auditors or the information available for review.

Less than a week later, Congress passed the Consolidated Appropriations Act, 2026 (CAA, 2026), which includes Section 6701, “Oversight of Pharmacy Benefit Management Service.” Section 6701 amends ERISA, the Internal Revenue Code, and the Public Health Service Act to prohibit group health plans from entering into service agreements that do not include certain mandatory reporting from PBMs. Like the proposed DOL regulations, Section 6701 requires PBMs to issue periodic reports to plan sponsors that disclose key aspects of their compensation structure. 

Further, Section 6701 requires PBMs to provide a document that summarizes significant information about the PBM’s compensation, design, and operations that plans must make available to plan participants and beneficiaries on request. 

The CAA, 2026 (in Section 6702) also amends ERISA’s prohibited transaction rules to require PBMs to pass through 100 percent of rebates, fees, and other forms of manufacturer payments, including amounts received by any relevant group purchasing organization or rebate aggregator.

Effective Dates of the New Federal Requirements

The proposed DOL regulations appear to be on a fast track. Comments are due by March 31, 2026, and the regulations will become effective 60 days after they are finalized. Once finalized, they are to apply to plans in plan years beginning on or after July 1, 2026.

For calendar year plans, this means that a new or extended contract that goes into effect on January 1, 2029, will need to comply with the new rules. Regulations under CAA, 2026 are due by August 3, 2027. 

Next Steps for Plan Sponsors

While the new federal guidelines are aimed at reforming the PBM industry, they include significant new obligations for sponsors of employee benefit plans. On a basic level, plans need to consider the basic measures that they must take to comply with the new requirements, including amending PBM Agreements and requesting appropriate disclosures. More deeply, plan sponsors must reckon with the significant volume of data being provided by their PBMs. For example, plan sponsors will need to take the PBM’s compensation disclosures into account when negotiating their PBM service agreements. Plans will also receive significant data about amounts that PBMs pay to brokers and consultants and should consider this information with regard to any broker or consultant that they engage to assist with the selection and contracting with a PBM.

Plans subject to ERISA should work now to review their internal practices to ensure that they have a prudent process in place to obtain and handle these new disclosures from the PBMs. The plans should consider their fiduciary obligations in this process, as well as its business implications. For example, if they have not done so already, plans should consider creating health and welfare committees to monitor their PBM’s compliance and to analyze the disclosures they provide from a fiduciary perspective, as well as its cost and other implications for the plan sponsor. Properly implemented, this practice may help shield plans from class action litigation, which has already targeted certain plans in their engagement of PBMs.

The Upshot

The regulations require changes to the Notice of Privacy Practices for information regarding certain substance use disorder treatment information and reproductive health information. Health plan sponsors and health care participants will want to consider:

• The measures they need to take to comply with the new notice requirements for protected health information originating at certain treatment centers for substance use disorders.
• Whether to make changes regarding reproductive health information, given that those regulations have been vacated by a federal district court.
• The extent to which other HIPAA-related documents should be amended.

The Bottom Line

The February 16 deadline is approaching, and employers should evaluate how they will respond and take appropriate action.

As a long-standing Health Insurance Portability and Accountability Act (HIPAA) deadline to amend the Notice of Privacy Practices draws near, health plan sponsors and health care providers will need to consider the measures they will take to comply.

Changes to the HIPAA regulations require health plans and most health care providers to amend their Notices of Privacy Practices by February 16, 2026, to address rules governing the confidentiality of certain information about care provided at a federally assisted treatment center for substance use disorders (SUD information). 

Substance Use Disorder Information. The new changes to the HIPAA Notice of Privacy Practices arise from a separate set of regulations governing the disclosure of substance use disorder information by certain federally-assisted entities (such as opioid treatment centers or residential facilities). These entities are required to obtain consent from patients prior to disclosing substance use disorder records, and these consents may include restrictions on how that information can be used. 

The HIPAA regulations now require the Notice of Privacy Practices to specifically address the use and disclosure of SUD information received pursuant to one of these patient consents. For example, the HIPAA-covered entity may not be permitted to use this information for the full range of treatment, payment, and health care operations if the patient’s consent limits the disclosure of the substance use information. Additionally, the Notice of Privacy Practices must describe applicable limits on the use and disclosure of SUD information for matters such as criminal or civil proceedings against an individual (uses and disclosures that might otherwise deter individuals from seeking treatment).

Providers must make the revised notice available to patients by the February 16, 2026, deadline. Similarly, health plan sponsors will need to post the revised Notice on the website where plan information may be found by the same deadline. If posted on time, plan sponsors may delay individualized delivery of the revised Notice until the next annual mailing to plan participants. Instead of providing the full Notice, plan sponsors could provide a description of the changes and instructions on how to obtain the full notice. For insured health plans, the insurance carrier will generally bear the responsibility for preparing and providing the Notice.

A significant question arises as to whether the revised Notice must be delivered on paper or whether it can be provided by email. The HIPAA regulations generally require an individual to agree to receive an emailed Notice, but health plans and health care providers may consider whether that requirement strictly applies to the revised Notice.

Plan sponsors and providers may also consider whether changes to other HIPAA-related documents are appropriate, including changes to their:

• Internal HIPAA privacy policies and procedures
• Business associate agreements with applicable vendors
• HIPAA training materials.

Reproductive Health Information. Until recently, substance use disorder information was not the only regulatory change driving edits to the Notice of Privacy Practices. As many covered entities are aware, regulations issued under the Biden administration put strict limits on the use and disclosure of information related to an individual’s reproductive health. However, the reproductive health regulations were recently vacated by a federal district court, which means these edits to the Notice of Privacy Practices do not appear to be necessary at this time.

Some health plan sponsors and health care providers may have already amended certain documents to account for the reproductive health information regulations. Recognizing the volatility of the issue, they have often qualified those amendments to apply only to the extent that the reproductive health regulations are actually in effect, which again would mean that no changes are needed. 

The handling of reproductive health information remains a highly sensitive and politicized topic. Much of the activity seeking such information and shielding the information from those who seek it is likely to occur at a state level. Health plan sponsors and health care providers may consider in advance how they would respond to a request for reproductive health information and continue to watch for developments in this arena.

Ballard Spahr lawyers continue to follow these and other HIPAA developments and are available to help you respond to these new rules.

The Upshot

The guidance addresses:

• The retroactive extension of the provisions that allow telehealth services to be provided to an HSA-eligible individual prior to the individual’s satisfaction of the deductible under a high deductible health plan.
• The treatment of bronze-level and catastrophic health plans purchased through an exchange as high deductible health plans (with an extension to similar plans in the individual market), allowing participants in those plans to make and receive HSA contributions.
• The allowance for HSA-eligible individuals to participate in direct primary care services arrangements.

The Bottom Line

The guidance generally addresses narrow points affecting the HSA changes in the legislation. Comments to the guidance are due March 6, 2026.

In a recent notice, the Internal Revenue Service (IRS) has provided guidance on modifications that the One Big Beautiful Bill (OB3) made to the rules governing health savings accounts (HSAs). 

Exception for Telehealth Services. The new guidance addresses three issues affecting when telehealth (and other remote health care) services may be covered under a high deductible health plan without causing an individual to lose eligibility for HSA contributions:

• It confirms the retroactive effect of the OB3 provision that extended the exception for telehealth services, so the exception, which had expired on December 31, 2024, now applies without a break on and after January 1, 2025.  
• It defines telehealth services that qualify for the exception by reference to rules that govern when Medicare benefits will be paid for remote services.
• It requires the deductible to apply to any in-person services, medical equipment, or drugs that are provided in connection with telehealth services.  

Treatment of Bronze and Catastrophic Plans. OB3 provides that bronze-level and catastrophic plans purchased through a health insurance exchange established under the Affordable Care Act will be treated as a high deductible health plan, allowing a participant in one of those plans to make and receive HSA contributions. The new guidance provides, among other things, that these rules apply:

• Even if the bronze or catastrophic plan does not meet the standards for minimum deductibles and maximum out-of-pocket limits otherwise applicable to high deductible health plans.
• Within certain parameters, even if an individual coverage health reimbursement arrangement or qualified small employer health reimbursement arrangement reimburses some or part of the cost of the bronze or catastrophic plan.
• To bronze and catastrophic plans offered on the individual market outside of an exchange if the same coverage is offered through an exchange. The rules apply even if the same coverage is not offered through an exchange; provided that the individual purchasing the coverage has no reason to believe that the exchange does not make the coverage available.
• Only to individual coverage. Specifically, the rules do not apply to coverage offered through the Small Business Health Options Program (SHOP) because that is group coverage. However, a SHOP plan could, itself, be designed as a high deductible health plan.

Exception for Direct Primary Care Services. Under OB3, coverage under certain arrangements that provide only primary care for a limited fixed fee will not cause an individual to lose eligibility for HSA contributions. The guidance includes some clarifications, including:

• Providers in a direct primary care services arrangement can offer health care items and services beyond primary care to members if they bill members for those items and services, and if the providers also offer the items and services to (and bill) non-members.
• An individual will not remain eligible for HSA contributions if the individual is enrolled in a high deductible health plan that pays the fees for a direct primary care services arrangement, or if the high deductible health plan counts fees paid by the employee toward the employee’s deductible.
• An HSA may reimburse an individual for the fees to participate in a direct primary care services arrangement, but not if the individual’s employer pays those fees, even if those payments trace back to employee contributions to a cafeteria plan.

The IRS has requested comments on this guidance by March 6, 2026.

The Upshot

• IRS guidance permits employers to post a website notice of availability of Forms 1095-B and 1095-C (Notice of Availability or Notice) with respect to those ACA forms rather than distribute the forms to every individual.
• But some states now have their own reporting requirements that may still require the ACA forms or similar state-issued forms to be automatically provided to individuals.

The Bottom Line

Health plan sponsors can save time and money by posting a Notice of Availability with respect to Forms 1095-B and 1095-C, but keep in mind that some states have their own requirements.

As employers gear up for another round of Affordable Care Act (Forms 1094 and 1095) reporting, they should consider guidance that may have been issued too late in the last reporting cycle for them to take into account but could provide partial relief for this annual headache this time around. The guidance makes it permissible for employers to post a website notice of availability of Forms 1095-B and 1095-C (Notice of Availability or Notice) with respect to the ACA forms rather than distributing the forms to every individual. This posting can be a useful cost-saving tool, but keep in mind that some states now have their own reporting requirements that may still require the ACA forms or similar state-issued forms to be automatically provided to individuals.

Notice of Availability: The Paperwork Burden Reduction Act, which was passed in December 2024, offers employers the choice to post a Notice of Availability rather than deliver a form to each individual. The Internal Revenue Service (IRS) issued guidance regarding this Notice option in February 2025. Because of this timing, some employers were not able to take advantage of the relief in connection with 2024 reporting. However, as the due date for reporting on 2025 approaches, employers should review this relief and determine whether they want to – and can — take advantage of the opportunity this year. 

To avoid sending forms to all individual recipients, employers must:

• Post a Notice of Availability that is clear and conspicuous, in a location on the company’s website that is reasonably accessible to anyone who should receive a form. The Notice must use a font size large enough to call a viewer’s attention to the information. For example, a statement on the main page or a link on the main page could read “Tax Information.” The page with the actual instructions could include a statement in all capital letters, “IMPORTANT HEALTH COVERAGE TAX DOCUMENTS.”
• Include in the Notice of Availability:

1. A statement that the individual may obtain a paper copy of the Forms 1095-B and 1095-C upon request;
2. An email address or physical address to which a request for a paper statement can be sent; and
3. A telephone number that the individual can use for questions.

Deadlines: Employers who choose to publish the Notice of Availability in lieu of delivery to their employees must post a compliant Notice no later than March 2, 2026, with respect to 2025 coverage. The posting must remain on the website until at least October 15, 2026.

Reporting to the IRS Remains in Place: Remember, the Notice of Availability applies only to forms that are required to be sent to employees. Employers must continue to submit ACA forms to the IRS by the requisite deadline.

State Law Requirements: Several states, including California, New Jersey, Rhode Island, Massachusetts, and Washington, D.C., have separate reporting and filing requirements with respect to employer health coverage. Employers seeking to comply with these state laws should keep in mind that they may vary from the federal rules with regard to timing and other requirements.

The Upshot

• Two universities have been accused in lawsuits of breaching their fiduciary duties in offering a health benefit option that is always or almost always unfavorable from a financial perspective when compared with another health plan option.
• A court has vacated provisions in the regulations under Section 1557 of the Affordable Care Act that treat discrimination based on gender identity as sex discrimination.
• New FAQs allow employers to provide fertility benefits under a separate plan that stands apart from any other group health plan.

The Bottom Line

The two lawsuits and the administrative guidance, along with factors affecting the cost of health coverage, bear watching as each of these matters is likely to lead to further developments in 2026.

While Congress Slept: Health Benefit Developments During the Shutdown

As all eyes were focused on the looming and eventual federal government shutdown this fall, actions affecting health benefit plans continued in the courts and some administrative agencies. Plan sponsors may wish to consider how these changes will affect their benefits in the coming year.

Plan Sponsor Responses to New Plan Design Litigation

In the wake of two novel cases, some plan sponsors spent the shutdown taking a closer look at the choices offered through their medical plans.

In cases filed this year against Northwestern University and the University of Rochester, plan participants have alleged that the coverage options offered through their respective medical plans breached ERISA’s fiduciary duties. Their complaints are founded on a new and unprecedented allegation; the plaintiffs claim that, in nearly all fact settings, the PPO option elected by the plaintiffs resulted in higher total expenditures (accounting for participant contributions and cost-sharing expenses, like deductibles and copayments) than they would have incurred if they had elected the high-deductible option offered under the plan. The plaintiffs argue that it was a fiduciary breach (1) to offer such skewed options, and (2) to fail to notify participants that one option is financially superior to another.

The merits of both cases are being tested in the courts. In October, Northwestern filed a motion to dismiss, arguing, in part, that the plaintiffs incurred no harm and, in fact, received the benefits offered to them at the cost they were told. Nevertheless, in view of the allegations, some plan sponsors have chosen to analyze their own coverage options to see whether one option (such as a high premium PPO option) results in higher total costs for participants, regardless of their medical claims, when compared to other options (such as a low premium high deductible option) covering the same expenses. If this proves to be the result for their designs, plan administrators may want to consider whether it would be sensible to enhance their messaging to participants to further address the relative financial merits of their medical plan options.

Court Vacates ACA Nondiscrimination Regulations on Gender Identity

A federal district court in Mississippi has issued an order that universally vacates provisions in the regulations under Section 1557 of the Affordable Care Act (ACA) that treat discrimination based on gender identity as sex discrimination. Under this ruling, various provisions in the Section 1557 regulations would no longer apply. Some of these vacated provisions relate specifically to matters of gender identity, including those that prohibit limits on health services based on gender identity and limits on coverage for health services related to gender transition. Other parts of the order extend more broadly. For example, by its terms, the order vacates the procedural requirements for health plans and health care providers to maintain nondiscrimination policies and issue nondiscrimination notices because those requirements refer to a definition of sex discrimination that includes gender identity. The order does not simply restrict those policies and notices from applying to gender identity; rather the requirement to maintain these policies and produce these notices has been vacated entirely. The order takes a similar approach to certain requirements affecting Medicaid programs.

The decision proceeds in the same direction charted by the Trump administration on gender identity and gender transition issues. Additionally, the broad application to procedural requirements in Section 1557 aligns with the course followed in regulations issued during the first Trump administration. Future regulations may follow suit.

In issuing its decision, the court declined to apply the Supreme Court’s ruling in Bostock v. Clayton County, which held that sex discrimination under Title VII of the Civil Rights Act included discrimination based on gender identity. The prohibition against sex discrimination in Section 1557 is grounded in Title IX (not Title VII). Citing to the Supreme Court’s recent decision on gender affirming care for minors in United States v. Skrmetti, the court found that Congress did not intend that Title IX encompass discrimination based on gender identity. However, the ruling stands in contrast to some rulings, issued in the wake of the Bostock decision, that found that the scope of Title IX is informed by the scope of Title VII.

Health plan sponsors and health care providers should continue to follow this, and other litigation relating to the scope of Section 1557. For example, the Ninth Circuit has recently remanded a case to a federal district court to re-examine its analysis of sex discrimination under Section 1557 in view of Skrmetti). Plan sponsors and providers should also stay attuned for any updated regulatory guidance that the Trump administration issues under Section 1557.

FAQs Address Fertility Benefits

While an increasing number of employers have been enhancing the fertility benefits offered through their medical plans, the Departments of Labor, Health and Human Services, and the Treasury have issued a new set of FAQs permitting employers to offer fertility benefits as a stand-alone option. The guidance treats certain stand-alone fertility benefit arrangements as “excepted benefits,” which are exempt from a range of otherwise applicable rules. In particular, excepted benefits do not have to meet the Affordable Care Act requirement to provide 100% coverage for certain preventive care expenses, which a plan providing only fertility benefits would fail to meet. In addition, excepted benefits do not need to meet the prohibition against annual and lifetime dollar caps on essential health benefits. Thus, even if fertility benefits are deemed to be essential health benefits (generally determined state-by-state), a qualifying stand-alone fertility plan may establish dollar limits on the benefits it provides. In short, this means that certain fertility benefits may be provided to participants who are not enrolled in the employer’s medical plan (similar to the eligibility rules for many employee assistance programs).

To be regarded as an excepted benefit, the new guidance requires stand-alone fertility benefit plans to meet certain requirements. Most significantly, group health plan sponsors will need to make sure that their stand-alone fertility benefit plans are either insured or provide limited benefits and that they do not coordinate in specified ways with the benefit coverage of any plan that the plan sponsor maintains. 

The publication of these FAQs coincided with the administration’s announcement of an arrangement with a pharmaceutical manufacturer to make certain fertility drugs available at a reduced cost through the government discount program known as TrumpRx.  

Shutdown Resolution

The government shutdown did not result in the changes that Democrats in Congress sought: to reverse cuts in Medicaid benefits and restore certain subsidies available for coverage under the public health insurance exchanges established by the Affordable Care Act. As a result, it is expected that the number of uninsured and underinsured individuals will increase, with a downstream effect on the cost of employer-provided group health benefits. The affordability of health coverage continues to be a hot-button issue as the enhanced subsidies will soon expire, and as Congress approaches the end of the year with a new budget deadline awaiting in January.

Ballard Spahr lawyers continue to follow these, and other legal developments affecting employer-sponsored health benefit plans and are prepared to answer your questions about this ever-evolving legal environment.

The court’s ruling and its reasoning raise significant concerns for plan sponsors and could require group health plans to meet a patchwork of state reporting requirements. Indeed, Florida and several other states have already enacted their own PBM reporting requirements or are considering their implementation. For these reasons, we expect the ruling to be appealed and closely scrutinized under ERISA’s preemption provisions.

The Upshot

• The Federal District Court of Connecticut ruled that an implied private right of action to enforce arbitration decisions exists under the No Surprises Rules.
• The Fifth Circuit ruled that no implied private right of action to enforce arbitration decisions exists under the No Surprises Rules.

Background

The No Surprises Rules Act under the Consolidated Appropriations Act, 2021, prohibits health care providers from billing patients for “surprise” out-of-pocket costs to patients for out-of-network care in specified circumstances where the patient does not have a meaningful choice in service providers. In particular, these circumstances arise when a patient requires emergency care, seeks care at an in-network facility that uses out-of-network service providers, or requires air ambulance services. Under the No Surprises Rules, patients in these situations pay only the cost-sharing amounts (i.e., coinsurance, copayments, and deductible amounts) that they would be required to pay in-network for the services provided. They cannot be billed for any other amounts, including any balance that the plan does not cover. The plan pays what is due under the terms of the plan; however, the service provider and plan may disagree about the amount that should be paid. If they cannot resolve their differences through negotiation, either party may submit the dispute to “baseball style” arbitration. In this arbitration, each party submits an offer with a proposed payment amount (and support for that amount), and an independent arbitrator selects one of the two offers as the amount owed to the service provider. The No Surprises Rules provide that such arbitration awards must be paid within thirty days of the arbitrator’s determination. However, if a plan does not pay within thirty days, a question arises as to how service providers can enforce their arbitration award. This question has been the subject of recent litigation, and currently courts are split as to whether service providers have a private right of action to enforce such arbitration awards.

Case Ruling that there is a Private Right of Action to Enforce Surprise Billing Awards:

In Guardian Flight, L.L.C. v. Aetna Life Insurance Company, the Connecticut District Court held that service providers who are not paid within thirty days may sue under the No Surprises Rules for enforcement of the arbitration award. The court noted that although the No Surprises Rules do not contain explicit language creating a private right of action to enforce arbitration awards, they contain “strong, mandatory language” that supports the conclusion that Congress intended there to be an implicit private right of action. The court reasoned that without the ability for judicial enforcement, the arbitration awards would be “meaningless” and held that the judiciary can intervene to enforce arbitration decisions.

Case Ruling that there is No Private Right of Action to Enforce Surprise Billing Awards:

In Guardian Flight, L.L.C. v. Health Care Service Corporation, the Fifth Circuit came to the opposite conclusion and held that the No Surprises Rules do not create a private right of action to enforce arbitration awards. Instead, service providers must file a complaint with the Department of Health and Human Services (HHS), which may assess penalties against the plan (the insurer in this case). The court emphasized the No Surprises Rule’s plain language that states arbitration awards “shall not be subject to judicial review” outside of narrow, explicit grounds outlined in the Federal Arbitration Act (FAA). The court noted that, while Congress included the ability to confirm or deny arbitration awards in the FAA, similar language does not appear in the No Surprises Rules. The court thus concluded that Congress intended HHS to be the sole avenue for complaints regarding a failure to comply with an arbitration award and that service providers cannot use the courts to seek enforcement of arbitration decisions.

Takeaway:

The issue is currently settled in states within the Fifth Circuit (Mississippi, Louisiana, and Texas). Outside of those states, it is possible that courts will enforce an arbitration award under the No Surprises Rules.  Continued litigation on this issue might produce a more uniform resolution in the future. For now, ironically, the No Surprises Rules, which aim to provide an efficient, alternative means of resolving disputes, continue themselves to spawn litigation battles to be resolved in the courts. Ballard Spahr’s Employee Benefits and Executive Compensation Group and Health Care Team will continue to monitor for developments and new guidance related to the implementation and enforcement of the No Surprises Rules.

The authors appreciate Summer Associate Connor Stoker’s assistance in the drafting of this advisory.

The Upshot

The new budget law’s changes to health and welfare benefits include:

• Beginning in 2026, the amount that employees may contribute to their dependent care flexible spending accounts will increase to $7,500 ($3,750 for married individuals filing separately).
• Telehealth services may again be covered under a health plan without affecting an individual’s ability to make or receive contributions to a health savings account. This extension of an expired provision in the Internal Revenue Code (Code) is permanent and retroactive, so it is as if it never went away.
• The OBBBA makes clear that, beginning in 2026, individuals are not precluded from contributing to an HSA simply because they participate in a primary care service arrangement.
• Employers may also continue to pay or reimburse employees tax-free for up to $5,250 each year for student loans (and other qualifying education expenses) under a Code Section 127 educational assistance program. Beginning in 2027, the dollar cap on Code Section 127 educational assistance programs will be indexed for inflation.

Beginning with tax years starting after 2026, the OBBBA also changed the method used to determine the amount of compensation paid to certain employees of publicly traded companies (known as “covered employees”) for purposes of applying the deductibility limit under Section 162 of the Code. Under the new rule, compensation paid by the members of the employer’s controlled group must be included when determining how much compensation paid to an employee can be deducted by the employer and its affiliates.

The Bottom Line

Employers and plan participants will generally favor the changes to their health and welfare benefits, although employers may also need to consider the indirect impact of certain other OBBBA changes, in particular, cuts to the Medicaid program. Publicly traded employers will need to apply the new rules on deduction of compensation paid to employees who are “covered employees” under Section 162 of the Code.

H.R.1—the One Big Beautiful Bill Act (OBBBA)—signed into law by President Trump on July 4, 2025, contains several provisions directly affecting employer-provided benefits. Most of these changes pertain to individual account plans, including dependent care flexible spending accounts (dependent care FSAs) and health savings accounts (HSAs).

Health- and Welfare-Related Spending Accounts

Dependent Care FSAs

Dependent care FSAs permit employees to pay for certain dependent care expenses with pre-tax dollars.Effective January 1, 2026, the annual contribution limit for dependent care FSAs will increase from $5,000 to $7,500 ($2,500 to $3,750 for married individuals filing separately). As with the original limitations, these new limits are not subject to a cost-of-living adjustment, so they will remain fixed until changed again by Congress.

HSAs

Background

Like dependent care FSAs, HSAs permit employees to pay certain expenses with pre-tax dollars. HSA dollars are used to pay for health care expenses. For employees to make or receive pre-tax HSA contributions, they must generally participate in a high deductible health plan (HDHP) and no other health plan. An HDHP generally provides coverage for medical care expenses only after an individual meets a required deductible, with an exception for certain recognized preventative care expenses.

Telehealth Coverage

Tax-favored contributions to an HSA are once again permitted for individuals who have coverage for telehealth services prior to satisfying the deductible under their HDHP.

Legislation passed during the pandemic let HDHPs provide first-dollar coverage for telehealth services even if the reason for the medical service was not preventative. However, Congress allowed this temporary exception to lapse at the end of 2024. The OBBBA makes the telehealth exception permanent.

This change is retroactive to January 1, 2025, so there is no gap in application of the telehealth exception.

Direct Primary Care Coverage

Effective January 1, 2026, the OBBBA makes clear that individuals can contribute to an HSA even if they participate in a direct primary care service arrangement (DPC).

DPCs are health care arrangements where an individual pays a monthly (or other periodic) fee in exchange for primary care services that are not limited to preventative care. For example, an individual may pay a monthly fee of $150 for services offered by a primary care physician. The services covered by a DPC are limited and cannot include general anesthesia, prescription drugs (other than vaccines), and certain lab services. The monthly fee may not exceed $150 for an individual and $300 for a family. These limits will be adjusted for inflation. 

Other Welfare Benefit Programs

Education-Related Expenses

Employers may continue to pay for or reimburse an employee’s student loans on a tax-free basis each year through an education assistance program pursuant to Section 127 of the Internal Revenue Code (Code). Reimbursement for these loans was set to expire at the end of 2025. The total amount of educational assistance, including student loans, is limited to $5,250 per year, but under the OBBBA, this amount will increase with inflation, beginning with tax years after December 31, 2026.

Bicycle Commuting Reimbursement Permanently Repealed

The OBBBA permanently repealed the $20 per month tax-free bicycle commuting reimbursement benefit.

The bicycle commuting reimbursement benefit was added by legislation in 2009. Other legislation temporarily repealed the law from 2018 through 2025. Absent legislation, the bicycle commuting reimbursement benefit would have spun back into effect in 2026. However, the OBBBA ensured this benefit is permanently parked and out of commission.

Executive Compensation

Background

Section 162(m) of the Code limits the amount of compensation paid to certain employees, known as “covered employees,” which public companies can deduct up to $1 million. Recent legislation modified the definition of “covered employees” starting with tax years beginning in 2027 to include the chief executive officer (CEO), chief financial officer (CFO), and the next eight highly paid employees (for years before 2027, covered employees only included the CEO, CFO, and the next three highly paid employees). The same legislation added a rule that, once an employee is determined to be a covered employee, the individual will forever remain a covered employee, even after death.

Expansion of Disallowed Deduction

The OBBBA clarifies that, beginning in 2026, for purposes of calculating compensation paid to a covered employee, all compensation paid to the individual by members of the employer’s controlled group, including members of the controlled group that are not publicly traded, must be taken into account. The controlled group is determined in accordance with the same rules that apply to qualified retirement plans. The deduction limit on the amount of aggregated compensation that exceeds $1 million dollars is applied to each member of the controlled group in proportion to its percentage of the employee’s total compensation.

HSA Provisions That Are Not in the Final OBBBA

While the OBBBA included a couple of HSA-related provisions, several suggested by the House did not make it to the final version of the Act. These include:

• Allowing seniors on Medicare Part A to continue to qualify for HSA contributions;
• Permitting conversion of unused health reimbursement arrangement (HRA) and FSA funds into HSAs;
• Allowing tax-free HSA reimbursements for fitness and exercise programs costs up to $500 per individual annually ($1,000 per family);
• Increasing HSA contribution limits for individuals, with a phase-out for individuals earning more than $75,000 ($150,000 for families); and
• Permitting individuals with access to limited services through an on-site medical clinic to be HSA-eligible.

These changes may resurface in future legislation.

Provisions With Indirect Consequences

Other provisions in the OBBBA that are not specifically directed toward employer-provided benefits may nevertheless have a significant effect on those benefits. In particular, the cuts in Medicaid could result in transferred costs to employer-sponsored health plans and have other downstream consequences.

Members of our Employee Benefits and Executive Compensation Group are available to discuss the changes introduced by the OBBBA and how they might be integrated into your benefit program.

The Upshot

• In a year-end decision, the Court affirmed the authority of the United States Preventive Services Task Force (USPSTF) to issue recommendations that require health plans to cover the full cost of certain preventive health services and products.
• In a case unrelated to health benefits, the Court ruled that federal district courts lack the authority to issue universal injunctions that apply beyond the parties to the actual litigation.

The Bottom Line

Plans will need to continue to provide 100 percent coverage for preventive health services with an A or B recommendation from the USPSTF. Based on the Court’s ruling, federal district courts will no longer be allowed to issue injunctions against enforcement of the Affordable Care Act that apply on a nationwide basis.

Supreme Court Injunction Rulings Support Affordable Care Act

The U.S. Supreme Court issued two year-end decisions that provide support for provisions of the Affordable Care Act and other federal health legislation. 

Kennedy v. Braidwood Management, Inc.

In Kennedy v. Braidwood Management, Inc., the Supreme Court upheld the authority of the United States Preventive Services Task Force (USPSTF) to issue guidance that requires health plans to cover certain preventive care services at 100 percent. As a result, health plans will continue to be required to provide health coverage without any cost to plan participants for services and products that receive an A or B recommendation from the USPSTF.

Plaintiffs had challenged the authority of the USPSTF to make recommendations having this effect under the Affordable Care Act. They argued that giving the USPSTF this power violated the Appointments Clause of the U.S. Constitution because its members were principal officers who needed to be, but were not, nominated by the President and confirmed by the U.S. Senate. The federal district court agreed and issued a universal injunction, which applied nationwide. The Fifth Circuit Court of Appeals upheld the injunction but narrowed its effect to the plaintiffs in the case. The Supreme Court reversed the determination that the appointment violated the Appointments Clause, finding that the U.S. Secretary of Health and Human Services exercised sufficient control over the USPSTF to render them inferior officers, who did not need to go through the nomination and confirmation process.

Importantly, the Braidwood decision does not curtail defenses available under the Religious Freedom Restoration Act of 1993 (RFRA). The Fifth Circuit granted the Plaintiff’s request for an injunction based on RFRA. This issue was not on appeal to the Supreme Court. 

Trump v. Casa, Inc.

In a separate decision, the Supreme Court addressed one of the key holdings in the Fifth Circuit’s decision in Braidwood: namely, whether courts are permitted to issue injunctive relief on a nationwide basis. In Trump v. Casa, Inc., the U.S. Supreme Court determined that district courts lacked the authority to issue universal injunctions. That case pertained not to health benefits, but to birthright citizenship. However, given the Court’s ruling in a case where constitutional rights were at issue, it seems that similar limitations would apply to district court injunctions in situations where the government seeks to enforce provisions of federal legislation. Accordingly, universal injunctions in cases challenging provisions of the Affordable Care Act (and other health benefits laws) may now be limited in scope to the plaintiffs in the litigation, and future plaintiffs challenging those provisions may now pursue more cumbersome class actions, as plaintiffs in the birthright citizenship cases are now doing.

It will be worth watching how these U.S. Supreme Court rulings affect health benefits guidance in the future. Members of our Employee Benefits and Executive Compensation Group and Health Care Team are following them closely.