Compliance Monthly Update
March 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
ACA exchange coverage and affordability proposed rule.
On March 10, HHS issued a proposed rule titled “Patient Protection and Affordable Care Act; Marketplace Integrity and Affordability” (and an associated fact sheet) that is the first major proposed health care rule under the Trump Administration. The proposed rule, if finalized, would prohibit coverage of gender care (i.e., “sex-trait modification”) as an essential health benefit (EHB) and would make several other enrollment and eligibility changes impacting ACA Exchanges. The proposed changes would be effective beginning with 2026 plan years. According to HHS, these changes are intended to improve program integrity, protect against adverse selection, and address improper enrollments on the Exchanges. Here are key provisions of the proposed rule:
Prohibition of coverage of gender care as an EHB for individual and small group plans.
HHS proposes to prohibit insurance plans subject to the ACA EHB coverage requirements from providing sex-trait modification (i.e., “gender-affirming” care) as an EHB. This would impact all non-grandfathered plans in the individual and small group market (which are subject to the EHB requirements). HHS recognized that some states’ EHB-benchmark plans (CA, CO, NM, VT, and WA) presently cover sex-trait modification as an EHB. If HHS’s regulations are finalized as proposed, insurers in these states could no longer cover sex-trait modification as an EHB. But for states that continue to require coverage for sex-trait modification outside of their EHB-benchmark plans, HHS noted that these states would be required to fund the cost of these benefits. And health plans could still voluntarily cover such care as a non-EHB.
Income verification.
HHS proposes several changes to the income verification process for applicants that apply through the Exchanges, including:
- Removing the exception allowing Exchanges to rely on an applicant’s self-attestation of projected income (if the IRS does not have tax return data to verify household income and family size). Instead, Exchanges would need to verify individuals’ enrollment, requiring enrollees to provide additional documentation.
- Would require additional income verification in instances where an applicant’s self-reported projected household income is between 100% and 400% of the federal poverty level (FPL) when federal tax or other data shows that an applicant’s prior year’s income was below 100%. Individuals would have to prove that their income for the upcoming year is between 100% to 400% of the FPL or be unable to enroll in a plan on an Exchange. This change intends to attempt to identify individuals who may overinflate their income to be eligible for coverage. Currently, no income verification is required if the applicant projects a higher income than in their tax return.
- Would eliminate an automatic 60-day extension (in addition to the general 90-day deadline) when documentation is needed to verify household income in instances of income inconsistency.
Denial of coverage for past due premiums.
HHS proposes to repeal a provision which currently prohibits insurers from requiring enrollees to pay past-due premium amounts to receive coverage under a new policy or contract term. Instead, HHS proposes (subject to state law) to allow insurers to add an enrollee’s past-due premium amount to the initial premium amount the enrollee must pay to effectuate coverage under a new policy or contract term and allow insurers to deny coverage to individuals if the total of past-due premiums and the initial premium amount are not paid in full. The stated purpose of this policy is:
(a) to curtail individuals from taking advantage of guaranteed coverage and seeking coverage when they need health care services and
(b) to strengthen the risk pool and lower gross premiums.
Ineligibility for premium tax credits (PTCs) if fail to reconcile.
HHS proposes to reinstate a prior policy that required Exchanges to determine whether an individual is ineligible for a PTC if they did not file a federal income tax return and reconcile their PTC amount in any given year. Currently, individuals are deemed ineligible for failure to file and reconcile for a two-year span.
Open enrollment and special enrollment period changes.
HHS proposes to shorten the Exchange open enrollment period to November 1 to December 15 (currently the open enrollment period is November 1 to January 15). HHS also proposes to remove a low-income special enrollment period which currently allows individuals with projected household income at or below 150% of the federal poverty level to enroll or change plans on a monthly basis—with the policy goal to reduce adverse selection. HHS also proposes changing the current rule allowing applicants to self-attest that they qualify for a special enrollment period—instead, applicants would be required to submit documentation/proof for the special enrollment.
Active re-enrollment.
HHS is proposing to eliminate automatic re-enrollment for fully-subsidized enrollees. Instead, these applicants whose premium payment is $0 (after application of PTCs) would be required to pay $5/month premium until they update their Exchange application with an eligibility redetermination confirming eligibility for the PTC.
Ineligibility for DACA recipients.
HHS proposes to remove Deferred Action for Childhood Arrivals (DACA) recipients from the definition of “lawfully present” that is used in determining eligibility for ACA Exchange coverage and PTCs.
Updates on various group health plan fiduciary lawsuits.
Last year, there were two class-action lawsuits filed (one against Johnson & Johnson (J&J) and another against Wells Fargo) that introduced a new trend of fiduciary litigation against group health plans specific to prescription drug costs. On March 13, 2025, another class action complaint was filed against JP Morgan alleging breaches to fiduciary duties. Similar to the prior allegations against J&J and Wells Fargo, plaintiffs allege JP Morgan, and its health plan fiduciaries, mismanaged the administration of the prescription drug plan and failed to prudently select and oversee the PBM. We will continue to monitor the progression of the JP Morgan case and here are some updates on the prior J&J and Wells Fargo cases.
- The J&J case (originally filed in January 2024) alleged the plan fiduciaries breached their fiduciary duties by overpaying the plan’s PBM for various drugs. But, on January 24, 2025, the court ruled the plaintiff lacked standing and dismissed this case because the plaintiff was ultimately not harmed when she met her prescription drug maximum each year at issue and any award the court provided would go back to J&J under the terms of the plan document. In response, on March 10, the plaintiff filed an amended complaint to add facts to attempt to provide more concrete support for how J&J’s fiduciary breaches also led to increased premiums and reduced wages. Also, the class added another named plaintiff who had not reached his prescription drug out-of-pocket maximum in hopes of overcoming the standing issue. J&J will likely respond to this amended complaint with another motion to dismiss.
- The Wells Fargo case (originally filed in July 2024) alleged similar allegations to the J&J case that drugs in the PBM’s formulary were priced excessively high. But, on March 24, 2025, this case has also now been dismissed due to lack of standing because the plaintiff’s injuries were “speculative and, ultimately, not redressable.” The dismissal was without prejudice, which means the Wells Fargo plaintiffs will also be able to file an amended complaint.
- It appears the plaintiffs’ bar will continue to bring fiduciary cases against group health plan sponsors. And if a case can establish standing and survive a motion to dismiss—the flood gates may open. As a practical matter for plan sponsors, having good documentation and a process in place for making prudent group health plan decisions will generally be the most effective shield against potential fiduciary lawsuits.
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.
California
San Francisco Health Care Security Ordinance (HCSO) annual report due May 2.
The San Francisco HCSO requires covered employers to spend a minimum amount per hour on health care for eligible San Francisco employees. A covered employer is an employer that (a) employs one or more workers within the geographic boundaries of the City and County of San Francisco, (b) is required to obtain a San Francisco business registration certificate, and (c) has 20 or more employees worldwide (or 50 or more worldwide for nonprofit organizations). In addition, each year covered employers must report information about how their organization complied with the health care expenditure requirement in the prior calendar year. The 2024 Employer Annual Reporting Form (along with instructions and resources) is available on the San Francisco HCSO website and is due May 2, 2025.
Massachusetts
Massachusetts sets individual mandate 2026 MCC dollar limits.
Massachusetts has released Bulletin 01-25 (Guidance Regarding Minimum Creditable Coverage (MCC) Regulations For Calendar Year 2026) with the 2026 dollar limits on deductibles and other cost sharing for MCC. As a reminder, the Massachusetts individual mandate requires state residents to maintain MCC or face a potential state tax penalty. An individual’s compliance with the law is reported on MA Form 1099-HC, which must be distributed to covered MA residents and filed with the Massachusetts Department of Revenue (DOR) by January 31 of each year. See the Mass.gov FAQs for Employers for more information. Most insurance carriers and TPAs prepare, distribute, and file with the DOR on behalf of employers. But if a carrier/TPA will not handle the reporting, the responsibility falls to the employer. Employers with plans covering Massachusetts residents should determine if the plan satisfies MCC requirements and contact their insurer or TPA to find out if they will send Form MA 1099-HC to individuals and report to the DOR.
Minnesota
Proposed rules issued for Minnesota Earned Sick and Safe Time (ESST) law.
Minnesota has published proposed rules that (if adopted) will regulate the ESST law. As a reminder, ESST is paid leave employers must provide to employees in Minnesota that can be used for certain reasons, including when an employee is sick, to care for a sick family member, or to seek assistance if an employee or their family member has experienced domestic abuse, sexual assault or stalking (see the Minnesota ESST website for more information). Employees accrue one hour of ESST for every 30 hours worked, up to 48 hours annually. Here are highlights of the proposed rules:
- If an employer fails to designate and clearly communicate the accrual year to each employee, the (default) accrual year is a calendar year.
- Employees anticipated to work over 50 percent in Minnesota in an accrual year would accrue ESST for all hours worked despite location. If the employer anticipates that the employee will work 50% or less of their hours in Minnesota during the accrual year, then only the employee’s hours worked in Minnesota will count toward accrual of ESST. If the employee begins the accrual year without the expectation of working in Minnesota for more than 50% of their work time, but the expectation of working in Minnesota increases during the year to more than 50% of worked time, then the employer must allow the employee to accrue hours beginning on the date of the change in circumstances. An employee who is teleworking is considered to be working in the state from which they telework.
- Would allow employers to “advance” ESST hours. That is, when an employee begins employment, an employer is permitted to advance ESST to an employee based on the number of hours the employee is anticipated to work for the remaining portion of the accrual year, provided an employer need not advance over 48 ESST hours. However, if the advanced amount were less than the amount the employee would have accrued based on the actual hours worked for the rest of the accrual year, the employer would be required to provide more ESST to make up the difference within 15 days of the actual accrued amount surpassing the advanced amount.
- Clarify that employees have a choice to use paid ESST or take unpaid and “unprotected” leave, and that employers may not require employees to use ESST. However, if an employee chooses not to use ESST, the absence would not be protected by the ESST law.
- Employers can demand documentation from employees suspected of ESST misuse. Misuse is defined to include an employee routinely using ESST the day immediately before or after a weekend, vacation, or holiday; or using increments of ESST in less than thirty minutes at the start of a scheduled shift.
North Dakota
North Dakota law caps cost of insulin.
Governor Armstrong has signed HB 1114 that caps the out-of-pocket cost of a month’s supply of insulin at $25 (for fully-insured plans issued in North Dakota). The out-of-pocket costs for a month of associated supplies will also be capped at $25.
Virginia
Governor Youngkin vetoes bill that would have created a Prescription Drug Affordability Board.
For the second year in a row, Virginia Governor Youngkin vetoed the creation of a Prescription Drug Affordability Board. Under HB 1724, the board would have had the authority to set upper payment limits on certain prescription drugs. In his veto message, Governor Youngkin stated that the legislation “risks limiting patient access to essential medication by prioritizing costs over medical necessity.”
Washington
Seattle hotel healthcare expenditure ordinance expanded to small ancillary businesses.
As background, since July 1, 2020, Seattle’s Improving Access to Medical Care for Hotel Employees Ordinance has required covered employers to make monthly healthcare expenditures to or on behalf of covered employees to increase their access to medical care. Starting July 1, 2025 (or at the next open enrollment thereafter), ancillary hotel businesses that contract, lease, or sublease with a covered hotel and that have between 50 to 250 employees worldwide must also comply with the ordinance. So, if an organization owns, controls, or operates a Seattle hotel or motel of 100 or more guest rooms (a “covered hotel”) or is an ancillary hotel business with 50 or more employees worldwide, then the organization may be subject to healthcare expenditures for Seattle employees, even if the organization is not based in Washington. An ancillary hotel business is one that has one or more of the following relationships with a covered hotel: (a) routinely contracts with the hotel to provide services in conjunction with the hotel’s provision of short-term lodging; (b) leases or subleases space at the site of the hotel to provide services in conjunction with the hotel’s provision of short-term lodging; or (c) provides food and beverages to hotel guests and to the public and has an entrance within the hotel. For more information, see the Seattle ordinance FAQs.
