Federal Health & Welfare Updates
Latest Federal Health & Welfare Updates
On August 12, 2025, in Erban v. Tufts Medical Center Physicians Organization, et al., a Massachusetts district court found that the fiduciaries of an ERISA group life insurance plan breached their fiduciary duties to provide accurate and complete information to a terminally ill participant and his spouse regarding coverage continuation options. The ruling provides helpful insights for ERISA plan fiduciaries regarding their disclosure obligations to participants and beneficiaries, particularly those impacted by serious illnesses or impairments.
Background
Dr. John Erban worked as an oncologist for over 30 years at Tufts Medical Center. In August 2019, he was diagnosed with terminal brain cancer that left him cognitively impaired. While on medical leave, Dr. Erban and his family sought guidance from Tufts, and specifically their HR director, Nicolas Martin, about how to preserve his life insurance benefits, which totaled $800,000. Dr. Erban’s employment ended in February 2020, and he passed away in September 2020.
When Dr. Erban’s widow, plaintiff Lisa Erban, applied for life insurance benefits as the beneficiary of his policies, her claim was denied by the carrier, the Hartford, because the coverage had lapsed. The denial letter explained that premiums stopped being paid when Dr. Erban's employment ended, thereby terminating the group life insurance coverage. Additionally, the Hartford had not timely received a conversion form to convert the terminated group coverage to an individual policy.
After an unsuccessful appeal, Lisa Erban sued Tufts, in their capacity as her husband’s former employer and the group life plan administrator, and Tufts' HR Director, Martin, for surcharge damages equal to the lost policy benefits. She claimed the defendants breached their ERISA fiduciary duties, which resulted in the Hartford’s benefit denial, and that she detrimentally relied on Martin’s material omissions and misrepresentations in his communications regarding her husband’s life insurance continuation and conversion options. The court denied the defendants’ motions to dismiss these claims; please see our February 14, 2023, article on the court’s prior ruling. Both parties then motioned for summary judgment.
The Court’s Analysis
The court began its analysis by explaining that ERISA plan fiduciaries may have an affirmative duty to convey material plan information to participants and beneficiaries if they know that silence could be harmful. A breach may occur if a participant or beneficiary seeks benefit information and the fiduciary responds with misleading or inaccurate information. To prevail on a fiduciary breach claim, a plaintiff must show that the defendants 1) were acting as plan fiduciaries and 2) breached their ERISA fiduciary duties.
Here, the court found that both Tufts and Martin were plan fiduciaries. Tufts was the designated plan administrator and a named fiduciary in the plan documents. In the court’s view, HR Director Martin was a functional fiduciary because he was aware of Dr. Erban’s illness and had affirmatively assumed the role as the Erbans’ point of contact for benefits preservation advice. He invited the Erbans to direct questions to him, responded to their detailed inquiries regarding the plan terms and made representations about the coverage, such that the Erbans reasonably relied upon him for accurate guidance.
Moreover, the court ruled the defendants had breached fiduciary duties in their communications with the plaintiff regarding the plan’s coverage continuation and conversion options. First, the court observed that defendant Martin failed to explain that Dr. Erban’s basic and supplemental life insurance coverage could be continued for twelve months after he stopped working due to illness, if the premiums were timely paid. Because Martin never informed the Erbans of this continuation option, including when Lisa Erban specifically asked if she could “just private pay” their current life insurance plan, the court found the defendants breached their fiduciary duty to provide accurate and complete benefit information.
Second, the court found the defendants breached their fiduciary duties to disclose to Lisa Erban the existence of supplemental life insurance and the option to convert that policy to an individual policy. In the court’s view, defendant Martin had an affirmative duty to provide information about the supplemental policy given his knowledge of the circumstances and his role in assisting the Erbans with their coverage conversion questions.
However, the court determined that Martin had adequately notified the couple of their right to convert the basic life insurance policy and had provided a conversion form, which conveyed the conversion deadline in three places. The court noted that while it might have been helpful if Martin had reminded Lisa Erban in person of the conversion deadline, the written materials with accurate information were sufficient.
Therefore, the court granted the plaintiff’s motions for summary judgment on the life insurance continuation claim and the supplemental life insurance conversion claim, and the defendants’ motion for summary judgment regarding the basic life insurance conversion claim.
Employer Takeaway
The case underscores the risk imposed when employers, as ERISA plan fiduciaries, fail to accurately and completely provide information to participants and beneficiaries regarding life insurance coverage. Avoiding material omissions is particularly crucial when assisting participants diagnosed with serious illnesses who are inquiring about continuation and conversion options. Accordingly, employers should carefully review life insurance plans and policies to ensure they understand all the options available to participants whose group coverage will otherwise end (e.g., due to illness or termination of employment), and their obligations to timely furnish adequate information and the appropriate forms and materials. Human resources staff who will be assisting participants with benefits preservation questions should be properly trained regarding their disclosure obligations.
For further information regarding group life insurance benefits and ERISA fiduciary obligations, please ask your broker or consultant for a copy of our NFP publications Group Term Life Insurance: A Guide for Employers and ERISA Fiduciary Governance: A Guide for Employers.
Read the full case Erban v. Tufts Medical Center Physicians Organization, Inc., et al.
On August 13, 2025, the District Court of the Eastern District of Pennsylvania vacated federal rules that provided exemptions for contraceptive coverage requirements imposed by the ACA. The court determined that those rules violated the federal Administrative Procedure Act (APA).
Background
The ACA requires health insurance plans to cover women’s preventive services, including contraceptive services. However, due to rulemaking and several court cases, exemptions were allowed for religious organizations and other employers with religious objections to contraception if those organizations self-certified to their insurers or to the federal government that they objected to that requirement.
Several religious and nonreligious employers filed lawsuits challenging the requirement, as well as the exemptions. Essentially, they argued that the requirement to certify their objections to the requirement was too burdensome. In response, the first Trump administration issued final interim rules allowing both religious and nonreligious employers to opt out of the requirement for both religious and moral reasons without certifying their objections.
Pennsylvania and New Jersey filed a lawsuit challenging these rules, stating that they violated the APA because the federal government did not follow the process laid out in the statute for promulgating rules and that the federal government acted in an “arbitrary and capricious” manner when it developed the rules. The case went up to the Supreme Court, which did not agree that the process for promulgating the rules violated the APA. However, the Supreme Court did not weigh in on whether the government acted in an “arbitrary and capricious” manner in violation of the APA, and the case continued in the district court.
The Court’s Analysis
The district court concluded that the government failed to establish a rational connection between the problem of providing exemptions for religious organizations and the rules. The court found that the rules expanded the exemption to include any employer who has a religious or moral objection. In addition, the rules do not require those employers to certify the basis for their objection. The court determined that these changes did not just address the issue of exemptions for religious organizations but also provided the exemption for others who are unlikely to have a religious objection. The court also found that the federal government did not consider other alternatives and did not adequately justify its rules. Accordingly, the district court ruled that the government acted in an “arbitrary and capricious” manner in violation of the APA and vacated the rules.
Employer Takeaway
The district court’s action is the latest in a series of lawsuits and federal rulemaking efforts to define the scope of the ACA’s contraceptive coverage mandate. This highlights the uncertainty surrounding this issue. Since the district court’s decision may be appealed, the decision does not end the matter. Employers should monitor developments and consult with an attorney if they wish to exempt themselves from this mandate.
On July 28, 2025, in Express Scripts, Inc. et al v. Richmond et al, the United States District Court for the Eastern District of Arkansas granted the plaintiffs’ motion for a preliminary injunction to prevent enforcement of Arkansas Act 624, which restricts pharmacy benefit managers (PBMs) from owning and operating pharmacies in the state. The court agreed with the plaintiffs, several PBMs and an industry trade group, that Act 624 likely violates the Commerce Clause of the U.S. Constitution and is preempted by TRICARE.
Background
PBMs act as intermediaries between prescription drug plans and the pharmacies that patients use. Some PBMs own their own pharmacies and view such vertical integration as a way to increase operational efficiencies and deliver drugs to patients at lower costs.
In contrast, some state legislatures believe vertical integration promotes anti-competitive practices by PBMs that can force independent local pharmacies out of business, thus narrowing patient choices and increasing drug prices at PBM-owned pharmacies. To address these concerns, the Arkansas legislature enacted numerous PBM regulations in recent years.
Act 624, which was signed into law on April 16, 2025, is the first of its kind and is viewed as disruptive to the industry. Act 624 prohibits PBMs from obtaining or holding, directly or indirectly, permits for the retail sale of drugs or medicines in the state, including permits for mail-order pharmacies. The law was scheduled to take effect, on January 1, 2026.
In response, major PBMs, including Express Scripts, Inc., Optum, Inc., and Caremark Rx, LLC, which own affiliated pharmacies in Arkansas, and other industry stakeholders, sued the state pharmacy board to prevent Act 624’s enforcement. These cases were eventually combined into Express Scripts, Inc. et al v. Richmond et al. The plaintiffs collectively asserted eight claims, including allegations that Act 624 violates the U.S. Constitution’s Commerce Clause and the Supremacy Clause (because it is preempted by federal laws such as TRICARE and ERISA). The plaintiffs motioned for a preliminary injunction to stop the law from taking effect until a final court decision was reached.
The Court’s Analysis
The court granted the plaintiffs’ motion for a preliminary injunction, finding they were likely to prevail on their Commerce Clause and TRICARE preemption claims (although not on their other claims) and would suffer irreparable harm absent such relief.
Regarding the Commerce Clause, the court was inclined to agree with the plaintiffs that Act 624 overtly discriminates against them as out-of-state companies and that the state failed to show it has no other means to advance local interests. The court noted that Arkansas has existing laws that minimize potential conflicts of interest in PBM-affiliated pharmacies (e.g., by requiring PBMs to reimburse local pharmacies at rates paid to PBM affiliates and by prohibiting PBMs from unfairly excluding in-state pharmacies from PBM networks). Accordingly, the court concluded that Act 624 imposed burdens on interstate commerce that were clearly excessive in relation to any supposed additional local benefits.
Furthermore, the court found that Act 624 was likely preempted by TRICARE because it interfered with the federal government’s ability to contract with PBM-owned pharmacies. The court did not believe the plaintiffs would prevail on their ERISA preemption claim since Act 624 regulated pharmacy licensing requirements and not PBMs as plan administrators but acknowledged the law would have an indirect economic impact on ERISA plans.
Employer Takeaway
Over the past decade, individual states have enacted numerous laws that seek to impose wide‑ranging reforms on PBMs and regulate PBM business practices. All 50 states have some type of PBM regulation in effect. Generally, these laws are designed to increase transparency in the market, lower prescription drug prices for state residents, and protect local pharmacies.
Arkansas’s Act 624 stands out from the rest and has gained national attention as a first-of-its-kind PBM law in terms of its broad and explicit prohibition on PBM ownership. Other states will be watching to see if Act 624 can ultimately withstand the many legal challenges.
The law essentially requires PBMs to divest or close their pharmacy businesses in Arkansas and suffer the related financial consequences. For plans and participants, the potential closures of some of the largest pharmacies in the state raise serious prescription drug access concerns, particularly for participants who regularly fill their prescriptions at CVS and other PBM-affiliated retail chains.
The district court’s recent ruling temporarily prevents Act 624 from taking effect and serves as an important reminder to state legislatures that their authority to regulate PBM activities within their states or affecting their residents is not unchecked. Rather, their efforts to protect local interests must be conducted within the confines of our federalist system.
However, it is important to recognize that the court’s opinion is just a preliminary assessment, and the Arkansas pharmacy board has already filed an appeal. Furthermore, the final outcome of the case may differ, after both sides have a chance to fully present their legal arguments.
Employers that sponsor prescription drug plans should be aware of these recent developments. Our team will continue to monitor Act 624 and other significant pharmacy benefits legislation and report relevant updates in Compliance Corner.
For further details on this court ruling, please review the order granting a preliminary injunction in Express Scripts, Inc. et al v. Richmond et al.
On August 6, 2025, the IRS issued a reminder that principal and interest charges on employees’ qualified education loans are eligible expenses under educational assistance programs. Employers can either reimburse the employee or pay the lender directly for qualified education loan expenses up to the $5,250 annual limit. Note that other eligible expenses include items such as current tuition, fees, books, and supplies.
To qualify as a Section 127 educational assistance program, the employer plan must be written and meet certain other requirements, including that it cannot discriminate in favor of highly compensated employees regarding eligibility for benefits. For further information, please see our July 2, 2024, article, summarizing IRS FAQs on educational assistance programs.
Employers who sponsor or are considering sponsoring educational assistance programs should be aware that student loan repayment expenses are currently qualified. This provision was set to expire December 31, 2025. However, the OBBBA made it permanent and indexed it to inflation for tax years starting January 1, 2026.
Employer Takeaway
Educational assistance programs can provide a valuable benefit to employees facing student loan expenses. Fortunately, employers can continue to offer this benefit to their employees after December 31, 2025, and can expect to see the annual permitted maximum benefit amount increase over time as a result of inflation-indexing under the OBBBA.
On August 4, 2025, the Ninth Circuit Court of Appeals held that an employer cannot unilaterally impose arbitration provisions on plan participants through plan amendments. Specifically, the court held that employers cannot bind participants to arbitrate ERISA claims without their express consent and that the plaintiff in the case had not agreed to arbitrate ERISA claims as required under the Federal Arbitration Act (FAA).
Background
The plaintiff in the case, Robert Platt, brought an ERISA class action lawsuit against his employer, Sodexo, regarding a monthly tobacco surcharge imposed on employee health insurance premiums. Specifically, the plaintiff brought claims on behalf of himself and other plan participants to recover losses under ERISA Section 502(a)(1)(B), to enforce the terms of the plan, and to seek equitable relief under Section 502(a)(3) based on the surcharge’s alleged noncompliance with wellness program regulations. The plaintiff also asserted a breach of fiduciary duty claim for losses under ERISA Section 502(a)(2).
However, the defendant employer sought to compel arbitration based on an arbitration provision it had unilaterally added to the plan. The U.S. District Court for the Central District of California denied the defendant’s motion to compel arbitration, holding the arbitration clause was unenforceable because the defendant had unilaterally modified the plan to include the arbitration provision without the plaintiff’s consent. The defendant subsequently appealed the district court’s decision to the Ninth Circuit Court of Appeals.
The Court’s Analysis
The Ninth Circuit affirmed the district court’s denial of the defendant's motion to compel arbitration, holding that arbitration under the FAA requires mutual consent. While the defendant had asserted it provided the plaintiff(s) with adequate notice regarding the binding arbitration in the form of a summary of material modification (SMM) and an email with a link to an updated summary plan description (SPD), the court held that the notice was insufficient and did not constitute mutual assent under California contract law. Furthermore, the court held that ERISA does not provide employers with the power to create binding arbitration agreements with plan participants without their express or implied consent.
The court concluded there was no enforceable arbitration agreement between Platt and Sodexo for claims under Section 502(a)(1)(B) and Section 502(a)(3) but reversed in part the district court’s ruling on the fiduciary claim under Section 502(a)(2). The court remanded the case to the district court for further proceedings consistent with the opinion.
Employer Takeaway
The use of arbitration provisions in employer-sponsored health plans has remained a contentious issue, as courts have demonstrated reticence in applying them to ERISA fiduciary claims. However, the case here highlights the importance of carefully evaluating the inclusion of any such provision in health plans and the degree to which participants must affirmatively consent to arbitration. Employers should always proceed cautiously when considering these types of provisions and should review them with legal counsel before incorporating them into any ERISA-governed benefit plans.
Review the opinion in Platt v. Sodexo, S.A., et al.
On July 18, 2025, the IRS published Revenue Procedure 2025-25, which announces the ACA affordability percentage (termed the required contribution percentage) for medical plan years beginning in 2026.
Under the ACA employer-shared responsibility rules (also known as the employer mandate), an applicable large employer (ALE) must provide affordable, minimum-value coverage to its full-time employees or risk being subject to penalties (An ALE is an employer that employed at least 50 full-time employees, including full-time equivalent employees, on average during the prior calendar year). The required contribution percentage is used to determine whether an employer-sponsored health plan offers affordable coverage. This affordability percentage is adjusted for inflation each year.
In 2026, the ACA's affordability percentage will increase from 9.02% to 9.96%. For the employer mandate and affordability, this means that an employee’s required premium contribution toward single-only coverage under an employer-sponsored group health plan can be no more than 9.96% of the federal poverty line (FPL) or of an employee’s W-2 income or rate of pay (depending on which of the three affordability safe harbors the employer is relying upon). If an employer offers multiple healthcare coverage plan options, the affordability test applies to the lowest-cost option that also meets minimum value. For calendar year plans, the maximum employee cost-share for the lowest-cost self-only coverage that will satisfy the FPL affordability safe harbor will increase from $113.20 to $129.89/month (mainland U.S.) for plan years that begin in 2026. Higher monthly cost-share amounts may be available under the rate of pay and Form W-2 safe harbors, which rely on actual earnings.
If the employer offers a non-calendar year plan, the employer will use the affordability contribution percentage in effect at the beginning of the non-calendar year plan. For example, if a plan year begins on November 1, 2025, the applicable affordability percentage for that entire plan year is 9.02%. The employer will begin to use 9.96% on November 1, 2026, for the following non-calendar plan year. The maximum cost-share to satisfy the FPL affordability safe harbor may differ for certain non-calendar-year plans that use the 2026 FPL (typically released in January or February) to calculate this amount.
The guidance also includes the 2026 premium tax credit (PTC) table used to determine an individual’s eligibility for a PTC, and if eligible, the maximum amount the individual must pay for their premiums, with the remainder covered by the PTC. Employees who are offered affordable minimum value coverage by their employers are not eligible for a PTC.
Employer Takeaway
Employers should be aware of the 2026 affordability percentage increase, which they will need to factor into their determination of full-time employee premium contribution rates for the plan year beginning in 2026. ALEs that fail to satisfy the new affordability threshold may be subject to potential employer-shared responsibility penalties. For the updated penalty amounts, please see the article, IRS Releases 2026 ACA Employer Mandate Penalty Amounts, in this edition of Compliance Corner. For further information on the affordability requirements, please ask your broker or consultant for a copy of the NFP publications ACA: Employer Mandate Penalties and Affordability and Cost-Share Contribution Models: A Guide for Employers.
A copy of the Revenue Procedure is available at IRS Rev. Proc. 2025-25.
On July 22, 2025, the IRS released Revenue Procedure 2025-26, which in part provides indexing adjustments for penalties under the ACA employer mandate. The ACA requires applicable large employers (ALEs), those with 50 or more full-time employees and full-time equivalent employees, to offer affordable minimum value (MV) coverage to all full-time employees and their dependents or risk a penalty.
Notably, the employer mandate penalty amounts for 2026 are increased from the 2025 penalty amounts. For plan years beginning on or after January 1, 2026, the annual penalties are calculated as follows:
- Penalty A (failure to offer minimum essential coverage to 95% of all full-time employees and their dependents and at least one full-time employee purchases exchange coverage and receives a premium tax credit):
- (Total number of full-time employees - 30*) x $3,340 (for 2025: $2,900).
- Penalty B (failure to offer affordable coverage that meets MV standards):
- (Number of full-time employees who receive a premium tax credit) x $5,010 (for 2025: $4,350).
Both penalties, although commonly expressed as annual amounts, are assessed monthly.
Employer Takeaway
The 2026 penalty increases are significant; ALEs should review their ACA compliance practices to reduce any potential ACA penalty exposure. ALEs should regularly verify that employees who generally work at least 30 hours per week are offered affordable MV coverage to avoid ACA employer mandate penalties.
Additionally, ALEs should ensure they accurately and timely report all required information on the Forms 1094-C and 1095-C. The IRS uses Letter 226-J to inform employers of their potential liability for such penalties. Employers should promptly review and respond to any IRS Letter 226-J they receive and consult with counsel as necessary.
For further information regarding the ACA employer mandate and penalties, please ask your broker or consultant for a copy of the NFP publication ACA: Employer Mandate Penalties and Affordability.
On June 20, 2025, CMS issued the “Patient Protection and Affordable Care Act; Marketplace Integrity and Affordability Final Rule.” The rule makes several changes to annual cost-sharing limits and the definition of essential health benefits.
The rule updates the methodology for calculating the “premium adjustment percentage,” which results in a revision of the previously announced maximum annual limit on cost-sharing for 2026 (which we originally reported on in an article in the October 22, 2024, edition of Compliance Corner). The maximum annual limit is now $10,600 for self-only coverage and $21,200 for other than self-only coverage (an increase from $10,150 for self-only coverage and $20,300 for family coverage).
The rule also prohibits coverage of certain sex-trait modification procedures as an essential health benefit (EHB). Effective beginning in plan year 2026, issuers subject to EHB requirements (that is, non-grandfathered individual and small group market plans) may not cover specified sex-trait modification procedures as an EHB. Specifically, the term “specified sex-trait modification procedure” means any pharmaceutical or surgical intervention that is provided for the purpose of attempting to align an individual's physical appearance or body with an asserted identity that differs from the individual's sex either by 1) intentionally disrupting or suppressing the normal development of natural biological functions, including primary or secondary sex-based traits, or 2) intentionally altering an individual's physical appearance or body, including amputating, minimizing, or destroying primary or secondary sex-based traits such as the sexual and reproductive organs. Such a term does not include procedures undertaken 1) to treat a person with a medically verifiable disorder of sexual development or 2) for purposes other than attempting to align an individual's physical appearance or body with an asserted identity that differs from the individual's sex. This revision allows issuers of coverage subject to EHB requirements to voluntarily cover specified sex-trait modification procedures, and states will not be prohibited from requiring coverage of such services.
Additionally, the rule made changes to how the exchanges are administered, including making DACA recipients (i.e., eligible young adults brought to the U.S. as children) ineligible to enroll in Marketplace plans and receive premium tax credits. The rule also made changes to minimize improper enrollments and the improper flow of federal funds that the agency believes were the result of the temporary expansion of subsidies in response to the COVID-19 crisis.
Employer Takeaway
Although this rule primarily focuses on changes to the Exchange, employers should take note of the revised maximum annual limit on cost-sharing, as well as the revisions to what the federal government considers to be an EHB.
On June 16, 2025, in J.H. et al v. United Behavioral Health et al, the United States District Court for Utah ruled that the defendant insurer’s decision to deny residential treatment benefits for an ERISA plan participant was arbitrary and capricious. The court granted summary judgment to the plaintiffs and remanded the case back to the insurer for reconsideration of the denied claims.
Background
In this case, the plaintiffs are parents of a daughter who was treated in a residential treatment facility for various mental health and substance use disorders during part of 2020 and 2021. They sought reimbursement for their daughter’s treatment through United Behavioral Health (UBH), which insured and administered the father’s ERISA group health plan. UBH denied many of their claims during the plan’s two-level internal appeals process. The parents were dissatisfied with UBH’s coverage decisions and frustrated by the denial letters, which failed to adequately explain the basis for their determinations. As a result, the parents sued UBH, arguing their denial of benefits was arbitrary and capricious, and asked the court to award benefits outright for the 2020 claims. UBH countered that it reasonably evaluated the claims, and its decisions should stand.
ERISA Requirements
An ERISA plan administrator must follow specific procedures to deny a claim for benefits. Importantly, the administrator must provide adequate notice in writing specifying the reasons for the denial, written in a manner calculated to be understood by the participant. The notice must reference the specific plan provisions on which the denial is based and a description of any additional material or information needed to perfect the claim. Essentially, ERISA requires a “full and fair review” of benefit denials, including a meaningful dialogue between the administrator and participant.
The Court’s Analysis
The court found that UBH’s decision to deny benefits was arbitrary and capricious and that UBH “failed to engage in anything resembling a meaningful dialogue in explaining its decisions,” so that no reasonable participant could have been expected to understand its reasoning or decision-making process from its denial letters. After conducting the level one appeal review, the court noted that UBH issued a cursory letter that indicated benefit coverage was partially available for the daughter’s treatment for the period from June 1, 2020, to December 31, 2020, but that for certain claims, the documentation submitted was insufficient or the services were not covered by the plan’s alternative medical treatment policy. However, as the court observed, the letter provided the parents with no practical way of knowing which reason applied to which claims, so they could try to perfect their claims on second appeal.
The defendants asserted that the parents had the opportunity to contact UBH for clarification and could have easily reviewed their daughter’s medical records and figured out which reason was used to deny coverage for which dates. The court rejected this argument outright, explaining that it “essentially tells the parents to pick up United’s slack” and emphasizing that UBH must satisfy its fiduciary obligations to the parents by including these details in their denial letter; a contrary conclusion would “turn ERISA’s principles upside down.”
Similarly, the court found UBH’s denial letter following the level two appeal review grossly deficient, noting that it failed to address specific issues raised by the parents in their appeal letter. For example, the letter did not respond to the parents’ concerns regarding potential MHPAEA violations and their request for a parity analysis or whether a provider was properly identified as out-of-network.
Based on the lack of reasoning, inconsistencies, and erroneous assumptions in the appeal denial letters, the court concluded that UBH’s decision-making was arbitrary and capricious. The court granted summary judgment to the plaintiffs and remanded the case back to the insurer for reconsideration of the denied claims in accordance with the opinion. However, the court warned that if UBH fails again to engage in meaningful dialogue, the parents may return to court, and the court will award all outstanding benefits claims as a sanction for failing to comply with the court order.
Employer Takeaway
Deficiencies with respect to group health plan denial letters are often cited by reviewing courts in ERISA litigation. This court clearly recognized the glaring shortcomings in the defendant insurer’s denial letters and its failure to engage in any meaningful dialogue with the parents.
Plan sponsors should ensure their claims administrators are exercising their discretionary authority carefully when reviewing claims and appeals and communicating their determinations to participants in a comprehensive and understandable manner. This is particularly important for self-insured plan sponsors, who assume greater financial responsibility and a higher level of fiduciary obligations with respect to plan claims. Denial notices should always include information required by ERISA, tailored to the participant’s particular circumstances, and should specify any additional information necessary to perfect the claim. Appeal denial notices should also address issues raised by a participant in their appeal request.
For further information regarding fiduciary obligations and governance, please ask your broker or consultant for a copy of the NFP publication ERISA Fiduciary Governance: A Guide for Employers.
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. While the final bill omitted several of the benefit provisions included in the initial House legislation, it includes some noteworthy changes for employers as group health and welfare plan sponsors. (We previously provided our initial insights on the OBBBA in an article on July 8, 2025, which is included here with some additional commentary.)
Extended Telehealth Provisions Relating to HSA Eligibility
First, the new law permanently extends the telehealth relief provisions, which allow telehealth services to be offered to HDHP participants before the HDHP statutory deductible is met without impacting their HSA eligibility. This optional relief is available for plan years beginning in 2025. (As explained in our January 14, 2025, article, the prior telehealth relief, which began during the COVID-19 pandemic, was no longer available for plan years beginning in 2025.) Plan sponsors considering taking advantage of this optional relief should consult with their carrier (for a fully insured plan) or ASO or TPA (for a self-insured plan) regarding the implementation process.
Direct Primary Care Arrangements and HSA Eligibility
Second, the OBBBA provides that direct primary care (DPC) arrangements with aggregate monthly fees of $150 or less (for an individual) or $300 or less (for a family, meaning covering more than one individual) are not disqualifying insurance coverage for HSA eligibility purposes. Additionally, the fees for such direct primary care arrangements are considered qualified medical expenses that can be paid for or reimbursed from an HSA. This provision is effective after December 31, 2025.
As background, a DPC arrangement is a healthcare model where individuals (or sometimes employers) pay a flat, recurring membership fee directly to a primary care provider in exchange for certain medical care. A DPC can cover services, such as urgent care and chronic disease management, that an HDHP can only cover once the deductible is met. Under OBBBA, direct primary care services will not include 1) procedures that require general anesthesia, 2) prescription drugs (other than vaccines), and 3) lab services not typically administered in an ambulatory primary care setting. The HHS Secretary is expected to issue additional regulations to define the scope of services that can be included in direct primary care arrangements.
Increased DCAP Tax Exclusion
Third, with respect to dependent care assistance programs (DCAPs — also sometimes referred to as dependent care FSAs), the final version of the bill increases the maximum annual exclusion to $7,500 for single individuals or those married filing jointly or $3,750 for married individuals filing separately. This increase is effective for tax years beginning after December 31, 2025.
Employers will need to work with their dependent care FSA vendors to amend their cafeteria plan documents (and other materials, such as summary benefit materials) to offer the higher limit. Also, employers considering whether to adopt the new $7,500 limit should confirm that they can still satisfy the nondiscrimination testing requirements under Section 129 of the Internal Revenue Code, which are designed to ensure that DCAPs do not favor higher-paid employees.
Employer-Provided Student Loan Repayment Assistance Programs
Fourth, the OBBBA allows employers to continue to provide tax-free student loan repayment assistance through a qualified educational assistance program (QEAP). This provision was originally introduced in the 2020 CARES Act but was set to expire on December 31, 2025. Relatedly, the overall QEAP limit will now be indexed for inflation (currently set at $5,250).
Employer-Provided Tax-Advantaged Accounts for Children
Fifth, the OBBBA allows employers to provide employees or their dependents tax-free contributions to new tax-advantaged accounts for children referred to as “Trump Accounts.” The accounts can be established for children under the age of 18 with contributions of up to $5,000 per year. $2,500 is the maximum employer contribution that an employee may exclude from gross income. These contribution amounts are to be indexed for inflation beginning in 2028. Distributions are generally prohibited until the child turns 18. The accounts are subject to numerous requirements, including investment restrictions.
To make contributions, employers must establish a separate written plan similar to a DCAP, and satisfy nondiscrimination rules against favoring highly compensated employees.
Tax-Free Bicycle Commuter Reimbursement Permanently Repealed
Sixth, the OBBBA permanently repeals the tax-free bicycle commuting employer reimbursement provision, which had been temporarily suspended since 2018. Employers may still reimburse their employees for bicycle commuting expenses, but only on a taxable basis.
Extension and Expansion of PFML Employer Tax Credit
Seventh, the OBBBA includes an expansion and permanent extension of the paid family and medical leave (PFML) employer tax credit. Under Internal Revenue Code Section 45S, employers may qualify for a tax credit if they provide at least two weeks of PFML to all eligible employees annually, have a written policy in effect, and pay at least 50% of normal wages to employees during their leave. The credit was originally effective for wages paid in taxable years beginning after December 31, 2017, and before January 1, 2026.
The new provision modifies the credit to allow it to be claimed for an applicable percentage of premiums paid or incurred by an employer during a taxable year for insurance policies that provide PFML for qualifying employees. The OBBBA also expanded the definition of “qualifying employees” from those who have been employed for at least a year to include employees who have been employed for at least six months and at least 20 hours per week. The OBBBA includes additional revisions to the aggregation rule defining a “single employer” for purposes of receiving the tax credit, and provides an exemption to the requirement to have a written leave policy in order to claim the tax credit. The new law also makes the tax credit available in all states, including those with PFML leave mandates.
No Change to Employer-Provided Health Coverage Tax Exclusions
Finally, and of particular significance for all group health plan sponsors, the OBBBA retains the current income tax exclusions and deductions for employer-provided health coverage. The exclusion of employer-paid premiums for health insurance from federal income and payroll taxes is the single largest tax expenditure, and concerns arose during the budget negotiations that Congress would seek to limit or eliminate the tax exclusion. For further details, please see our March 25, 2025, article.
Medicaid and ACA Market Reforms
The final version of the OBBBA included sweeping changes to Medicaid funding and eligibility, as well as ACA marketplace reforms. Specifically, the bill did not extend the enhanced ACA tax credits established under the American Rescue Plan Act of 2021, which will be expiring at the end of 2025. The bill also included new Medicaid eligibility and enrollment conditions, administrative requirements, and limits to retroactive coverage. The changes are expected to have a considerable effect on the individual markets and the healthcare sector, and may result in a loss of coverage by certain individuals. It’s unclear at this time if and to what extent these reforms may increase enrollment in employer-sponsored coverage, and this will be a development to monitor.
We will continue to monitor developments and guidance related to the OBBBA and report updates in Compliance Corner.
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. While the final bill omitted several of the benefit provisions included in the initial House legislation, it includes some noteworthy changes for employers as group health and welfare plan sponsors.
Extended Telehealth Provisions Relating to HSA Eligibility
First, the new law permanently extends the telehealth relief provisions, which allow telehealth services to be offered to HDHP participants before the HDHP statutory deductible is met without impacting their HSA eligibility. This optional relief is available for plan years beginning in 2025. (As explained in our January 14, 2025, article, the prior telehealth relief, which began during the COVID-19 pandemic, was no longer available for plan years beginning in 2025.) Plan sponsors considering taking advantage of this optional relief should consult with their carrier (for a fully insured plan), or ASO or TPA (for a self-insured plan) regarding the implementation process.
Direct Primary Care Arrangements and HSA Eligibility
Second, the OBBBA provides that direct primary care arrangements with aggregate monthly fees of $150 or less (for an individual) or $300 or less (for a family, meaning covering more than one individual) are not disqualifying insurance coverage for HSA eligibility purposes. Additionally, the fees for such direct primary care arrangements are considered qualified medical expenses that can be paid for or reimbursed from an HSA. This provision is effective after December 31, 2025. The HHS Secretary is responsible for issuing additional regulations to define the scope of services that can be included by direct primary care arrangements.
Increased DCAP Tax Exclusion
Third, with respect to dependent care assistance programs (DCAPs — also sometimes referred to as dependent care FSAs), the final version of the bill increases the maximum annual exclusion to $7,500 for single individuals or those married filing jointly or $3,750 for married individuals, filing separately. This increase is effective for tax years beginning after December 31, 2025.
Employer-Provided Student Loan Repayment Assistance Programs
Fourth, the OBBBA allows employers to continue to provide tax-free student loan repayment assistance through a qualified educational assistance program (QEAP). This provision was originally introduced in the 2020 CARES Act but was set to expire on December 31, 2025. Relatedly, the overall QEAP limit will now be indexed for inflation (currently set at $5,250).
Employer-Provided Tax-Advantaged Accounts for Children
Fifth, the OBBBA allows employers to provide employees or their dependents tax-free contributions to new tax-advantaged accounts for children referred to as “Trump Accounts.” The contribution maximum is $2,500 per year per employee (to be indexed beginning in 2028). To make contributions, employers must establish a separate written plan similar to a DCAP, including satisfying nondiscrimination rules against favoring highly compensated employees.
Tax-Free Bicycle Commuter Reimbursement Permanently Repealed
Sixth, the OBBBA permanently repeals the tax-free bicycle commuting employer reimbursement provision, which had been temporarily suspended since 2018. Employers may still reimburse their employees for bicycle commuting expenses, but only on a taxable basis.
Extension and Expansion of PFML Employer Tax Credit
Seventh, the OBBBA includes an extension and expansion of the paid family and medical leave (PFML) employer tax credit. Under Internal Revenue Code Section 45S, employers may qualify for a tax credit if they provide at least two weeks of PFML to all eligible employees annually, have a written policy in effect, and pay at least 50% of normal wages to employees during their leave. The credit was originally effective for wages paid in taxable years beginning after December 31, 2017, and before January 1, 2026. The new provision also modifies the credit to allow it to be claimed for an applicable percentage of premiums paid or incurred by an employer during a taxable year for insurance policies that provide PFML for qualifying employees. It also makes the credit available in all states, including those with PFML leave mandates.
No Change to Employer-Provided Health Coverage Tax Exclusions
Finally, and of particular significance for all group health plan sponsors, the OBBBA retains the current income tax exclusions and deductions for employer-provided health coverage. The exclusion of employer-paid premiums for health insurance from federal income and payroll taxes is the single largest tax expenditure, and concerns arose during the budget negotiations that Congress would seek to limit or eliminate the tax exclusion. For further details, please see our March 25, 2025, article.
Employers should be aware of these important updates impacting employee benefits, particularly as they review their benefits offerings for the upcoming plan year. Follow our biweekly Compliance Corner newsletter where we will report relevant updates in future editions.
On July 1, 2025, the Senate narrowly approved its amended version of the One Big Beautiful Bill Act (OBBBA), clearing the way for a vote in the House of Representatives.
Significantly, for group health and welfare plan sponsors, the Senate measure includes several noteworthy provisions. Specifically, the bill includes a permanent extension of an expired provision giving employers the flexibility to offer telehealth services pre-deductible to employees with an HSA and HDHP, with a retroactive effective date of January 1, 2025. (As explained in our January 14, 2025, article, the prior telehealth relief, which began during the COVID-19 pandemic, was no longer available for plan years beginning in 2025.)
In addition, the Senate bill provides that direct primary care arrangements with monthly premiums of $150 or less will no longer be disqualifying coverage for purposes of HDHPs coupled with HSAs. The bill also increases the federal income tax exclusion for dependent care assistance for taxable years beginning after December 31, 2025.
As with the House version, the Senate amendment retains the current income tax exclusions and deductions for employer-provided health coverage.
The Senate bill is currently under consideration in the House, which may accept the revised bill or make additional changes that would require another Senate vote. While the inclusion of the employee benefits provisions is encouraging, these may not be part of any final legislation sent to the president for signature. We will be monitoring closely and reporting any developments in Compliance Corner.
NFP Corp. and its subsidiaries do not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances.