Federal Health & Welfare Updates

A recently filed putative class action lawsuit, Barbich et al v. Northwestern University et al, raises concerns that a new wave of ERISA fiduciary breach claims may be on the horizon. In Barbich, the plaintiffs allege that Northwestern University, as the group health plan sponsor, breached its fiduciary duties by failing to prudently select and monitor their medical plan options and by not disclosing material plan information to participants. The case, which was filed in the federal district court in the Northern District of Illinois, is still in its early stages, and the plaintiffs face many hurdles; however, it is a development worth monitoring.

Background

Defendant Northwestern University sponsors an ERISA self-insured group health and welfare benefit plan. Under the plan, the major medical options offered to employees include a preferred provider organization (PPO) with three different tiers: 1) Premier, the low-deductible option; 2) Select, the mid-deductible option; and 3) Value, the high-deductible option. All three tiers provide the same healthcare coverage and network, but differ with respect to the financial terms, including participant premium amounts, coinsurance rates, copayments, maximum out-of-pocket expenses, and eligibility for HSA or FSA accounts.

Lead plaintiffs Natalie Barbich and Bruce Lindvall are former plan participants who were enrolled in the Premier PPO option for several years. They allege the defendants breached their ERISA fiduciary duty of prudence by assembling the PPO options such that the low-deductible Premier option cost more (in terms of the premium) but provided no additional benefit than (i.e., was “dominated” by) the other two higher deductible options. That is, the other two options resulted in lower total out-of-pocket expenses for participants, inclusive of premiums and regardless of the amount of medical care received. Furthermore, the plaintiffs assert that the defendants were aware that the Premier PPO option provided insufficient value actuarially compared to the other options but failed to disclose this information to participants, in breach of their ERISA fiduciary duty of loyalty. Finally, the plaintiffs claim Northwestern University failed to monitor other fiduciaries (including the HR director appointed to manage the plan), who were also named as defendants. On behalf of themselves and the class of current and former Premier PPO plan participants, the plaintiffs seek recovery of “millions of dollars” in purported financial losses, among other forms of relief.

The Complaint

As highlighted above, the complaint generally alleges that Northwestern University breached its ERISA fiduciary duties by mismanaging its group health and welfare plan. However, the specific allegations raise new questions regarding the scope of ERISA fiduciary obligations in the group health plan context.

To illustrate, the complaint asserts that the defendants breached fiduciary duties by failing to prudently structure their medical plan options to prevent any option from being financially dominated by another. Yet, matters of plan design have traditionally been viewed as settlor (i.e., business) decisions, rather than fiduciary decisions, and therefore are not subject to ERISA’s fiduciary duties. Accordingly, it remains to be seen whether the plaintiffs’ efforts to frame the assembly of plan options as a fiduciary function (i.e., the implementation of a plan design decision) will be successful.  

Additionally, the plaintiffs’ arguments largely attempt to apply recognized fiduciary standards of conduct in the retirement plan realm to the group health plan context. For example, by reference to various court decisions, the plaintiffs attempt to equate the group health plan fiduciary’s obligations to those of a retirement plan fiduciary charged with managing plan assets, monitoring investment options and removing imprudent options. But whether and how these decisions can be applied to the group health plan context is uncertain, particularly since there is a lack of established guidance on determining whether a group health plan option is prudent, and any such criteria may not be limited to financial benchmarks.

The plaintiffs also claim that the defendants breached their fiduciary duties by failing to disclose to participants that the Premier PPO was dominated by the other options and erroneously suggesting it was the most financially advantageous option. Plan fiduciaries do have an obligation to provide material information to participants regarding plan benefits, including when they know silence would be harmful or participants may materially misunderstand the benefits. However, it is unclear if this obligation requires a fiduciary to disclose whether a plan option actuarially provides sufficient value as compared to another option.

Employer Takeaway

Employers should be aware of and monitor developments in this unique case. However, it’s early in the litigation process, and the defendants have yet to respond to the allegations. So, it would be premature to try to draw any meaningful conclusions at this time.

That said, while this case proceeds in court, employers, as ERISA plan sponsors, should be mindful of their fiduciary obligations, including with respect to the duties of prudence and loyalty. As enrollment season approaches, employers should carefully review and evaluate their medical plan options. Moreover, employers should ensure they provide employees with adequate and accurate information, in an understandable format, so they can make informed and cost-conscious decisions regarding their plan benefits. Employers that offer multiple medical plan options may determine that charts and other comparison tools should be provided to employees so they can effectively assess their choices and select the most appropriate option.

NFP will continue to monitor this case and report any relevant updates in Compliance Corner.

Read the complaint: Barbich et al v. Northwestern University et al Complaint.

On August 26, 2025, the Fifth Circuit Court of Appeals remanded Braidwood Management Inc. v. Becerra, Inc. back to the district court for further proceedings. The Fifth Circuit made this move in response to the recent Supreme Court ruling in this case.

Background

The Braidwood case concerns the ACA’s preventive care mandate. Under the ACA, insurers and group health plans offering non-grandfathered individual or group health coverage must cover certain preventive services without cost-sharing. The covered requirements include services given an “A” or “B” rating from the U.S. Preventive Services Task Force (USPSTF), vaccines recommended by the Advisory Committee on Immunization Practices (ACIP), and preventive care and screenings for children and women recommended by the Health Resources and Services Administration (HRSA).

When the plaintiffs initiated this case, they brought five claims against the defendants, including allegations that the ACA preventive-care mandates violate the Constitution's Appointments Clause because the appointment process for members of the USPSTF, ACIP, and HRSA did not satisfy the constitutional method for appointing officers of the United States. On this issue, the court ruled that the appointment of officers of the ACIP and HRSA satisfied the constitutional requirements, but the appointment of USPSTF officers did not. We covered the district court’s ruling in our October 11, 2022, article.

As a result, the district court issued a judgment that invalidated and prohibited the DOL, IRS, and HHS (the departments) from enforcing all USPSTF-recommended preventive care mandates issued since the ACA's March 23, 2010, enactment on a nationwide basis. Additionally, the final judgment prevents the departments from enforcing the PrEP coverage requirements for the plaintiffs with religious objections. We covered the consequences of this judgment in our April 3, 2023, article.

When the Fifth Circuit took up the case the first time, they agreed with the district court that the members of the USPSTF were not validly appointed as required by Article II of the Constitution and that the federal government had not cured this deficiency. However, the appellate court also determined that the district court overreached by enjoining all government action taken to enforce the preventive care mandate because it lacked the statutory authority to do so. Similarly, the Fifth Circuit found that the district court lacked the authority to vacate all previous decisions made by the USPSTF. Instead, the Fifth Circuit limited the injunction by preventing the government from enforcing the mandate against the plaintiffs in the case.

The Fifth Circuit also remanded the case back to the district court to consider the fate of two other government entities involved in determining what must be covered under the preventive care mandate. Although the district court and the Fifth Circuit found that the members of the ACIP and the HRSA were properly appointed, the Fifth Circuit questioned whether the process that these entities followed when making their recommendations complied with requirements under the federal Administrative Procedures Act (APA) and therefore remanded the matter back to the district court for further consideration. We covered this in our July 2, 2024, article.

The government appealed this decision to the Supreme Court, which issued its opinion on June 27, 2025. The Court reversed the Fifth Circuit ruling and held that the USPSTF members were inferior officers who were appointed in accordance with the Constitution. The Court then remanded the matter back to the Fifth Circuit for further proceedings. We covered this opinion in our July 1, 2025, article.

Now the Fifth Circuit has kicked the can back to the district court. Although the Supreme Court decided on the issue of USPSTF, the Fifth Circuit points out that the question of whether the process that the ACIP and the HRSA followed when making their recommendations complied with requirements under the federal Administrative Procedures Act (APA) has not yet been answered. Accordingly, the Fifth Circuit has sent the matter back to the district court.

Employer Takeaway

The courts are not yet done with the ACA’s preventive care mandate. Although it appears that the recommendations made by the USPSTF are on solid legal ground, other preventive care recommendations made by ACIP and the HRSA are still in question. In the meantime, the ACA preventive care mandate is still in effect and health plans must continue to comply with its requirements. Employers should be aware of the latest developments in the ongoing Braidwood litigation. We will report relevant updates in Compliance Corner.

Read the remand on the case: Braidwood Management Inc. v. Becerra, Inc.

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.

Read the full case Pa. v. Trump.

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.

IRS Reminds Employers: Employer Educational Assistance Programs Can Help Pay Employee Student Debt Loans Through 2025

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.