Compliance Monthly Update
April 2025
A brief update on what happened the prior month in group health plan compliance at the federal level, organized chronologically. An update for the state and local level are further down. If you would like additional information, please reach out to the GBS Compliance Team.
Federal Compliance Update
Updated model CHIP Notice released.
The DOL has released a new model employer CHIP Notice (available HERE) with information current as of March 17, 2025. As a reminder, group health plans that maintain a plan with participants who reside in a state that provides premium assistance under Medicaid or CHIP have an annual notice requirement to notify employees of the potential opportunities for premium assistance. The model CHIP notice is updated periodically to reflect changes in the states that offer premium assistance and changes to the relevant state contact information.
CMS releases 2026 Medicare Part D benefit parameters and program instructions with new standard for determining creditable coverage status.
On April 7, CMS announced the 2026 parameters for the defined standard Medicare Part D prescription drug benefit and released the final Calendar Year 2026 Part D Redesign Program Instructions (as well as an associated fact sheet). This guidance addresses the 2026 Medicare Part D program redesign enacted as part of the Inflation Reduction Act of 2022 (IRA) that impacts employers that offer health coverage to Medicare-eligible individuals.
- For 2026, the standard Medicare Part D plan annual out-of-pocket threshold will be $2,100 (up from $2,000 in 2025) with an annual deductible of $615 (up from $590 in 2025).
- The Medicare Part D benefit parameters are important for group health plan sponsors because they are used to determine if the prescription drug coverage offered to Part D eligible individuals is creditable or non-creditable. To be creditable, the actuarial value of the prescription drug coverage must meet or exceed the actuarial value of standard Medicare Part D coverage. Essentially, this means that creditable coverage must be at least as good as standard Medicare prescription drug coverage.
- Plan sponsors are required to notify Medicare-eligible plan participants as to whether their plan constitutes creditable coverage or not. If an individual has creditable coverage, they avoid the penalty for joining Part D late (i.e., after they are first eligible).
- The final instructions also provides a revised version of the simplified determination methodology where coverage will be considered creditable if it:
- Provides reasonable coverage for brand name and generic prescription drugs and biological products.
- Provides reasonable access to retail pharmacies.
- And is designed to pay on average at least 72% of participants’ prescription drug expenses.
- The final instructions do not explain the criteria CMS will use to determine whether a plan provides “reasonable coverage” or “reasonable access.” The requirement to cover at least 72% of participants’ prescription drug expenses is an increase from the current simplified methodology’s 60% requirement.
- Importantly, CMS announced that it will allow plans to use either the old simplified methodology or the newly finalized simplified methodology for calendar year 2026 “to minimize potential risks to the employer group market and to Part D eligible individuals.” However, plans will be required to use the new simplified methodology beginning in calendar year 2027. If not using the simplified methodology, then a plan would use an actuarial evaluation.
President Memoranda directs agencies to repeal regulations.
On April 9, President Trump issued a memorandum entitled Directing the Repeal of Unlawful Regulations that directs agencies to take additional steps related to a previously issued February 19 Executive Order (EO). That EO directed the heads of all executive departments and agencies to identify certain categories of regulations and provide a list of those that may be “unlawful.” The new April 9 memorandum directs the agencies to now take steps to effectuate the repeal of the identified regulations, or the relevant portion of the identified regulations, and to prioritize regulations that conflict with the Loper Bright Supreme Court decision. We may see various regulations repealed in short order, and we will be monitoring for any changes to regulations that may impact group health plans.
Federal court holds current regulatory framework assessing employer mandate penalties is unenforceable.
As a reminder, an applicable large employer (ALE) can be subject to penalties under the ACA if it fails to offer coverage to substantially all its full-time employees or if coverage is not affordable. To date, employers usually learn of possible employer mandate penalties when they receive a Letter 226-J from the IRS. In this case, an employer sued HHS after the IRS issued it a Letter 226-J proposing penalties under the employer mandate. The employer argued that HHS and the IRS improperly categorizing the Letter 226-J as a certification before the assessment of a penalty. Arguing that HHS, rather than the IRS, was required to provide the certification. Under the statutory language of the ACA, HHS is required to certify to the employer that one or more full-time employees was enrolled in a qualified health plan before the IRS can propose penalties. HHS regulations delegated the responsibility to certify employee enrollment in a qualified health plan to the IRS. Here, the Letter 226-J claimed that it served as a “certification” to the employer before assessment of the employer shared responsibility penalty. The employer responded to the IRS that it disagreed with the proposed assessment and was paying the penalty under protest. The employer then filed a refund claim with the IRS. When it did not receive a response, the employer sued HHS, and on April 10, a federal court has now ruled in favor of the employer. The court held that the ACA gives the authority to make the certification exclusively to HHS, not the IRS. For the IRS to assess the penalty, at least one full-time employee of the employer had to be certified as having enrolled in a qualified health plan. The court held that the employer was entitled to a refund, and it set aside the HHS regulation delegating IRS the authority to certify an employer before assessing an employer shared responsibility penalty as void and unenforceable. Because HHS currently has no certification process in place, the IRS is arguably unable to impose penalties. But this decision is binding only in the Northern District of Texas. The IRS and HHS could decide to change their procedures to conform to this ruling, or they also could decide to maintain their longstanding position internally and in every other district court until those courts rule against them. An employer who previously paid an employer mandate penalty may want to explore the possibility of reclaiming the penalty from the IRS in light of this decision. But ACA penalty challenges must follow specific procedures and time frames. For example, employers should not expect ACA penalties imposed and paid a decade ago to be refunded based on this new case (generally, there is a three-year statute of limitations for making a refund claim).
CMS final rule declines to include proposed rule’s coverage of GLP-1s for weight loss under Medicare or Medicaid.
On April 15, CMS published the final rule titled “Medicare and Medicaid Programs; Contract Year 2026 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly” and an associated Fact Sheet. Most of this final rule is not directly applicable to group health plans but instead implement changes related to Medicaid and Medicare coverage. Of note, however, is that the final rule did not include a proposed rule change related to weight-loss drugs (e.g., GLP-1s). The Biden administration, when they published the proposed rule, attempted to have Medicare Part D and Medicaid cover anti-obesity drugs for the 2026 contract year – which would have substantially increased access to GLP-1 drugs for weight loss. But under the final rule, anti-obesity medications, when used for weight loss or chronic weight management for the treatment of obesity, will continue to be excluded from Part D and Medicaid coverage.
Litigation allowed to proceed challenging the use of AI in claim decisions.
A federal court recently issued a preliminary ruling to partially allow a case to proceed against Cigna’s alleged wrongful denials of benefits by using AI to process claims. Because the participants had presented arguments sufficient to support their assertion that entrusting medical necessity decisions to the automated algorithm violated plan terms (when the claims administrator’s policies indicated the determination would be made by a “medical director”), the court allowed the claim to proceed. Plan sponsors and claim administrators should monitor this case for guidance on the future use of AI in benefit plan decision making.
Trump executive order on lowering drug prices includes PBM fee transparency (no immediate impact on group health plans).
On April 15, President Trump issued an executive order (and an associated fact sheet) directing federal officials to take measures to lower prescription drug prices in a variety of ways, building on initiatives addressing prescription drug prices in the first Trump administration. As a reminder, executive orders serve as directives from the President to federal agencies. They do not change existing laws but introduce administrative action through proposed regulations and instruct agencies to develop and issue regulations or guidance consistent with current statutory authority. Therefore, while the order does not immediately change any legal obligations, it does signal future regulatory actions that could impact how employers manage their group health plans. Highlights of the order that are of interest to plan sponsors include the following:
- PBM transparency. The order directs the DOL to propose new regulations aimed at improving fiduciary transparency for employer-sponsored health plans. Although the exact direction of this EO has been interpreted a few ways, forthcoming proposed regulations are expected to clarify. It is generally understood however that the EO focuses on PBMs and aims for enhanced reporting of indirect and direct compensation similar to, or within, existing 408(b)(2)(B) direct and indirect compensation reporting that is currently associated with other service providers like brokers/consultants.
- As context, PBMs have in past taken the position that they were not a “covered service provider” that would be required to provide direct and indirect compensation disclosure. It appears this could change by adding additional fee disclosure requirements on (or about) PBMs through ERISA’s prohibited transactions rules.
- The order gives the DOL 180 days to issue proposed regulations to enhance PBM transparency, which would then need to go through the routine notice and comment period before any final regulations are issued.
- Drug importation. The executive order requires the FDA to take steps within 90 days to streamline and improve the Section 804 Importation Program created under the first Trump administration, which permits states to import drugs from Canada. Several states have filed Section 804 program requests, and Florida’s program was approved on January 5, 2024. Colorado, Florida, Maine, New Hampshire, New Mexico, North Dakota, Vermont and Wisconsin have laws allowing for a state drug importation program – six of these states have submitted Section 804 Importation Program proposals and are awaiting FDA approval. This executive order directs the FDA to streamline the process for these states.
Supreme Court ruling adopts simplified pleading requirements for ERISA prohibited transaction claims, which may lead to more fiduciary lawsuits.
On April 17, the U.S. Supreme Court ruled in Cunningham v. Cornell University that employees may challenge their employer’s fee arrangement with a plan service provider under loosened pleading standards for alleging a violation of ERISA’s prohibited transaction rules. As a result, it will be easier for plaintiffs to claim that the plan fiduciaries acted improperly. Although the case relates to retirement plans, the same rules apply for group health plans.
- As background, ERISA establishes strict standards of conduct for plan fiduciaries. One such responsibility is the duty of loyalty, which requires plan fiduciaries to act solely in the interest of the plan’s participants and beneficiaries. ERISA’s prohibited transaction rules supplement the duty of loyalty by categorically barring certain transactions between the plan and a “party in interest,” which includes plan service providers. Significantly, ERISA includes numerous exemptions to its prohibited transaction rules, one of which exempts contracts with service providers if no more than reasonable compensation is paid for the services.
- Previously, several courts held that plaintiffs claiming a plan engaged in a prohibited transaction needed to allege facts disproving the applicability of an exemption to the prohibited transaction rules (e.g., the reasonable compensation exemption) to move forward with their lawsuit. However, based on their statutory interpretation of ERISA, the Supreme Court has now ruled that plaintiffs only need to show that the fiduciary engaged in a prohibited transaction to pursue their claims (e.g., that the plan used plan assets to pay service providers—which nearly all plans do). Then the defendant fiduciary has the burden of proving that an exemption applies, rather than requiring the plaintiff to disprove the exemption when bringing a claim.
- This decision simplifies the standard for filing prohibited transaction claims, which may lead to more employee lawsuits. In its opinion, the Supreme Court acknowledged Cornell’s concerns that the ruling would encourage meritless litigation and increase costs for plan sponsors. The Court noted that while these are serious concerns, lower courts have other ways to screen out meritless claims before cases proceed to the more costly discovery phase.
- To help minimize risk, plan sponsors should periodically review and document their compliance with ERISA’s fiduciary duty requirements, including the prohibited transaction rules. This process should include reviewing service provider compensation to confirm its reasonableness. Because of the Cunningham ruling, more claims may get through to formal discovery, which means that documentation of decisions made by fiduciaries will be scrutinized. So again, this is a reminder for plan sponsors to revisit their fiduciary governance of the plan.
Oral arguments before the Supreme Court on the ACA preventive services mandate.
On April 21, the U.S. Supreme Court heard oral arguments in a lawsuit (the Braidwood case) challenging the ACA requirement that non-grandfathered health plans must cover certain preventive services without cost-sharing. A final decision from the Supreme Court could be issued in June, but from the oral arguments it appears the Supreme Court is leaning towards saving the task force recommendations at issue and the constitutionality of the preventive services mandate.
- As a reminder, the ACA requires health plans to cover preventive services with no cost-sharing for participants, and the ACA empowers three agencies—the U.S Preventive Services Task Force (PSTF), the Health Resources and Services Administration (HRSA), and the Advisory Committee on Immunization Practices (ACIP)—to determine what kinds of preventive care fall within each category of mandatory coverage by issuing guidelines or recommendations.
- In March of 2023, a district court ruled in the Braidwood case that the ACA requirement to provide preventive services as recommended by the PSTF is unconstitutional and issued a nationwide injunction that prohibited the federal government from enforcing the ACA preventive services mandate. However, that district court ruling was stayed pending the outcome of the appeal.
- In June of 2024, the Fifth Circuit affirmed that the PSTF’s members had not been validly appointed under the Constitution because they were not nominated by the President and confirmed by the Senate. The court explained that this appointment process is necessary due to the level of power exercised by the PSTF in making recommendations on preventive services required to be covered under the ACA. Under this ruling, HHS was enjoined from enforcing PSTF recommendations, but only as to the Braidwood The court reversed the trial court’s decision to vacate all agency actions taken to enforce the preventive services mandates and to universally block the agencies from enforcing the mandates with a nationwide injunction. The court withheld judgment and remanded the case back to the trial court to determine if the members of HRSA and ACIP were also unconstitutionally appointed. So, although the Fifth Circuit ruled that some aspects of the ACA preventive service requirements are unconstitutional, those requirements still apply to group health plans nationwide (except for the plaintiffs who brought this lawsuit). Therefore, the preventive services requirement remained intact for the time being.
- Then the DOJ, under the Biden administration, asked the Supreme Court to review the Fifth Circuit holding that the appointment of the PSTF is unconstitutional. On January 10, 2025, the Supreme Court agreed to hear the case, and on April 21 oral arguments were held.
- Four days after hearing oral arguments, the Supreme Court asked both the federal government and the challengers to file new briefs discussing the HHS secretary’s power to appoint members to the task force.
- We will continue keeping an eye on this case and will give updates on any developments and the impact on the ACA preventive services mandate.
State/Local Compliance Update
A brief update on what happened the prior month in group health plan compliance at the state and local level, listed alphabetically. If you would like additional information, please reach out to the GBS Compliance Team.
Arkansas
IRS extends deadlines due to disaster declaration.
Due to severe storms, straight-line winds, tornadoes, and flooding that began on April 2, the IRS announced an extended deadline for individuals and businesses in Arkansas to file various federal individual and business tax returns and make tax payments. Individuals and businesses in Arkansas now have until November 3, 2025, to file and make tax payments.
- This relief applies to the Form 5500 filing requirement that generally is required to be submitted to the IRS within 7½ months after the end of the plan year, unless an extension is requested. Form 5500 returns that were required to be filed on or after April 2, 2025, and before November 3, 2025, are postponed through November 3. The Form 5500 instructions provide direction on how to utilize disaster relief on the form when such declarations are available. Failure to do so may result in penalties if the Form is filed after its original deadline and an extension was not timely filed.
- Form 720 (used for PCORI fee filings) is covered by this relief. Employers required to file the form by July 31, 2025, to report the number of covered lives is delayed until November 3, 2025. But this relief does NOT apply to the PCORI fee payment. So, employers sponsoring self-insured plans (insurers pay the fee for fully insured plans) will still be required to pay the fee by July 31, 2025.
- Note that this relief does NOT apply to W2s or Forms 1094 or 1095 filing requirements.
New Arkansas law prohibits PBM ownership of pharmacies.
On April 16, Governor Huckabee Sanders signed into law Act 624, making Arkansas the first state in the nation to prohibit PBMs from acquiring or holding a direct or indirect interest in a pharmacy. Under the Act, as of January 1, 2026, the Arkansas State Board of Pharmacy must either revoke or not renew pharmacy permits where the permit holder is a PBM or its subsidiary, is an entity managed by a PBM, or is an entity that has a direct or indirect ownership interest in a PBM. This law has already had an immediate impact, with at least on PBM announcing plans to shutter their Arkansas pharmacy operations and others publicly cautioning about potential disruptions to hundreds of thousands of Arkansians’ prescriptions. PBMs and other industry stakeholders have also criticized the Act’s potential to limit patients’ access to drugs and increase prescription drug costs. But other states—including Indiana, New York and Vermont—are considering similar state initiatives to bolster independent pharmacies and combat perceived anticompetitive operations. Note also that there is similar bipartisan federal legislation that Congress is working on.
Maryland
Maryland delays FAMLI program.
On April 7, the Maryland General Assembly passed HB 102 that postpones the implementation dates for the Maryland Family and Medical Leave Insurance (FAMLI) program. Now, payroll deductions by employers will begin January 1, 2027. And leave benefits will become available to eligible employees starting not earlier than January 1, 2027, or later than January 3, 2028.
Mississippi
Telehealth coverage requirements under Mississippi fully insured plans.
On March 12, Governor Reeves signed SB 2415 that mandates fully insured health plans cover telemedicine services to the same extent as in-person consultations. The bill also requires that all health insurance and employee benefit plans in Mississippi reimburse out-of-network providers for telemedicine services under the same reimbursement policies applicable to other out-of-network providers.
Tennessee
IRS extends deadlines due to disaster declaration.
Similar to Arkansas, due to severe storms, straight-line winds, tornadoes, and flooding that began on April 2, the IRS announced an extended deadline for individuals and businesses in Tennessee to file various federal individual and business tax returns and make tax payments. Individuals and businesses in Tennessee now have until November 3, 2025, to file and make tax payments.
- This relief applies to the Form 5500 filing requirement that generally is required to be submitted to the IRS within 7½ months after the end of the plan year, unless an extension is requested. Form 5500 returns that were required to be filed on or after April 2, 2025, and before November 3, 2025, are postponed through November 3. The Form 5500 instructions provide direction on how to utilize disaster relief on the form when such declarations are available. Failure to do so may result in penalties if the Form is filed after its original deadline and an extension was not timely filed.
- Form 720 (used for PCORI fee filings) is covered by this relief. Employers required to file the form by July 31, 2025, to report the number of covered lives is delayed until November 3, 2025. But this relief does NOT apply to the PCORI fee payment. So, employers sponsoring self-insured plans (insurers pay the fee for fully insured plans) will still be required to pay the fee by July 31, 2025.
- Note that this relief does NOT apply to W2s or Forms 1094 or 1095 filing requirements.
Court finds ERISA preempts application of Tennessee PBM law to self-funded plans.
On March 31, a federal district court held that a Tennessee law requiring PBMs to admit any will pharmacy into the PBM’s network (also known as an “any willing provider” law) was preempted by ERISA. The court noted that ERISA preempts state laws that are impermissibly connected to an ERISA plan. An impermissible connection with ERISA plans may exist where the law governs a central matter of plan administration or interferes with nationally uniform plan administration. The court explained that restrictions on provider and pharmacy networks such as “any willing provider” requirements affect a key aspect of plan administration, forcing plans to structure benefits in a particular way. The court distinguished this direct regulation of benefit structures from other types of state PBM laws regulating benefits that courts have held were not preempted by ERISA. Currently, multistate self-funded plan sponsors are confronted with various state PBM laws and an unclear standard of when ERISA preemption applies. Hopefully either Congress or the Supreme Court can weigh in soon to provide more certainty and consistency.
