Alerts

There will be many changes to various plan limits and other measures next year, (effective after January 1, 2025). The changes include all of the limits and measures that are adjusted for inflation each year, such as the HSA and high deductible health plan requirements, as well as changes to the ACA limits and penalty amounts. 

In addition to making the appropriate adjustments, those changes should be communicated to plan participants and incorporated in updated summary plan descriptions (SPD) or summary of material modifications (SMM).  As they prepare for open enrollment, employers who sponsor group health plans typically send a lot of information about their plans to their employees and should confirm that their open enrollment materials contain certain required participant notices, such as the summary of benefits and coverage (SBC), when applicable. Some participant notices must also be provided annually or upon initial enrollment. 

While many notice or communication requirements are one-time requirements or periodic (versus annual), many commentators suggest that it is a good practice to send all such notices every year at open enrollment. Doing so can minimize costs and streamline administration. Moreover, sending them each year will meet the requirement that the notice be sent in a timely manner. That practice will make it more likely that all affected employees and beneficiaries receive all the required notices as opposed to hoping that they are delivered at the appropriate time.  

Cost of Living Adjustments 

Health FSA Contributions 

There is a dollar limit on employees’ pre-tax contributions to a health FSA. This limit is indexed each year for cost-of-living adjustments. For plan years beginning in 2024, the health FSA limit is $3,200. The IRS has not yet released the health FSA limit for plan years beginning in 2025 (it is typically announced later in the fall).  However, employers can provide a lower limit than the maximum.  If they want to provide additional flexibility, employers can monitor future developments for releasing the health FSA limit for 2025, and when (if) the IRS releases the health FSA limit and communicate the health FSA limit to employees as part of the open enrollment process. 

HDHP and HSA Limits 

Employers should determine whether HDHP cost-sharing limits need to be adjusted for the 2025 limits and communicate HSA contribution limits for 2025 to employees as part of the enrollment process. 

The following table contains the HDHP and HSA limits for 2025. The catch-up contribution limit that applies to HSA-eligible individuals age 55 and older is not adjusted for inflation. 

HDHPs: Expiration of Design Options 

Employees must be covered under an HDHP as of the first day of the month and have no other impermissible coverage to make qualifying HSA contributions or have them made on their behalf. In general, except for preventive care benefits, no benefits can be paid by an HDHP until the minimum annual deductible has been satisfied. However, there are a few narrow exceptions to the minimum deductible requirement, including the following exceptions that are expiring: 

• For plan years ending after Dec. 31, 2024, an HDHP is no longer permitted to provide benefits for COVID-19 testing and treatment without a deductible (or with a deductible below the minimum deductible for an HDHP); and  
• For plan years beginning on or after Jan. 1, 2025, an HDHP is no longer permitted to provide benefits for telehealth or other remote care services before plan deductibles have been met.

Employers that sponsor HDHPs should confirm that the HDHPs will not pay benefits for COVID-19 testing and treatment before the annual minimum deductible has been met and that the benefits for telehealth or other remote care services (except for preventive care benefits) are similarly subject to the minimum HDHP deductible for the year. Of course, those changes should be included in the notification to plan participants and included in the updated SPD or SMM.  

These are among the last remaining COVID protocol carryovers, and they likely are not on the radar of most plan sponsors. The COVID testing and treatment exception is a relatively small expense and may be easily overlooked. Many in the industry thought that the telehealth exception would be permanent since it seemed consistent with other health plan policy recommendations. However, so far, no legislation has been passed for that change. 

Excepted Benefit HRA Limit 

An excepted benefit health reimbursement arrangement (EBHRA) is an employer-funded health care account that reimburses employees for their eligible medical expenses on a tax-free basis. It provides a limited exception for employers to sponsor health plans that do not otherwise meet the ACA/PHSA requirements. Like other HRAs, employers can use EBHRAs to supplement their traditional group health plan coverage and help employees with out-of-pocket medical expenses, including deductibles, copayments, and coinsurance. Employers of all sizes may offer EBHRAs. What is different about an EBHRA is that although an employer must offer a traditional group health plan, employees are not required to enroll in the employer’s group coverage (or any other type of coverage) to be eligible for the EBHRA. Only employers can contribute to HRAs, including EBHRAs. EBHRAs are subject to a maximum amount that may be made newly available for the plan year. This maximum amount is adjusted annually for inflation. For 2024 plan years, the contribution limit is $2,100. This limit increases to $2,150 for plan years beginning in 2025. Employers that sponsor EBHRAs decide how much will be contributed to the EBHRA for eligible employees for the 2025 plan year and communicate the EHBRA’s annual benefit amount to employees as part of the open enrollment process. 

Employers that maintain group medical plans are permitted to offer traditional HRAs without the limits imposed by the EBHRA rules. However, employees not also covered by the group medical plan cannot have access to the traditional HRA due to the ACA rules. An additional option for the EBHRA would be one for retirement only, which is also part of the exception to the ACA limits on HRAs. 

ACA Affordability Requirement 

Applicable large employers (ALEs – those with 50 or more full-time employees or the equivalent) must offer minimum essential coverage that is also affordable and minimum-value coverage to their full-time employees (and dependents) or risk paying a penalty to the IRS. An ALE’s health coverage is affordable if the employee’s required contribution for the lowest cost self-only coverage that provides minimum value does not exceed 9.5% (as adjusted) of the employee’s household income for the taxable year. For plan years beginning in 2024, the adjusted affordability percentage is 8.39%. 

The affordability percentage for plan years beginning on or after Jan. 1, 2025, has not been released yet. Employers should, therefore, monitor future developments for the IRS’ release of the affordability percentage for 2025 and confirm, when the new threshold is released that at least one of the health plans offered to full-time employees satisfies the ACA’s affordability standard. 

Because an employer generally will not know an employee’s household income, the IRS has provided three optional safe harbors that ALEs may use to determine affordability based on information that is available to them: the Form W-2 safe harbor, the rate-of-pay safe harbor, and the federal poverty line safe harbor. 

Out-of-Pocket Maximum Limits 

Non-grandfathered health plans are subject to limits on cost-sharing for essential health benefits (EHB). EHBs reflect the scope of benefits covered by a typical employer plan. They must include items and services in 10 general categories, including emergency services, hospitalization, ambulatory patient services, prescription drugs, pregnancy, maternity and newborn care, mental health and substance use disorder services, rehabilitative and habilitative services, laboratory services, preventive and wellness services and chronic disease management, and pediatric services. 

The annual limits on total enrollee cost sharing for EHB for plan years beginning on or after Jan. 1, 2025, are $9,200 for self-only coverage and $18,400 for family coverage. 

Employers should confirm that their health plan limits comply with the 2025 adjustment. Note, (as set out in the chart above) that the out-of-pocket maximum limits for HDHPs compatible with HSAs must be lower than the ACA’s limits. For the 2025 plan year, the out-of-pocket maximum limits for HDHPs are $8,300 for self-only coverage and $16,600 for family coverage. 

Other Open Enrollment Reminders 

Prescription Drug Benefits – Creditable Coverage Determination 

Employers that provide prescription drug coverage to individuals who are eligible for Medicare Part D must inform these individuals and the Centers for Medicare and Medicaid Services (CMS) whether their prescription drug coverage is creditable, meaning that the employer’s prescription drug coverage is at least as good as Medicare Part D coverage. These disclosures must be provided annually and at certain other designated times, including when there is a change to a prescription drug benefit’s creditable coverage status. As noted above, inclusion with open enrollment materials will meet that requirement. 

Previously, CMS stated that one of the methods for determining whether coverage is creditable (the “simplified determination” method) would no longer be valid as of calendar year 2025, given the significant changes made to Medicare Part D by the Inflation Reduction Act (IRA). However, CMS subsequently decided that it will continue to permit the use of the simplified determination methodology, without modification, for the calendar year 2025 group health plan sponsors who are not applying for the retiree drug subsidy. 

Nevertheless, employers should confirm as soon as possible whether their health plans’ prescription drug coverage for 2025 is creditable or non-creditable to prepare to send the appropriate Medicare Part D disclosure notices. 

Preventive Care Benefits 

The ACA requires non-grandfathered health plans and issuers to cover a set of recommended preventive services without imposing cost-sharing requirements, such as deductibles, copayments, or coinsurance when the services are provided by in-network providers. The recommended preventive care services covered by these requirements are:  

• Evidence-based items or services with an A or B rating in recommendations of the U.S. Preventive Services Task Force.
• Immunizations recommended by the Advisory Committee on Immunization Practices for routine use in children, adolescents, and adults.
• Evidence-informed preventive care and screenings in guidelines supported by the Health Resources and Services Administration (HRSA) for infants, children, and adolescents.
• Other evidence-informed preventive care and screenings in HRSA-supported guidelines for women. 

Health plans and issuers are required to adjust their first-dollar coverage of preventive care services based on the latest preventive care recommendations. In general, coverage must be provided for a newly recommended preventive health service or item for plan years beginning on or after the one-year anniversary of when the recommendation was issued. For example, health plans and issuers must cover screenings for anxiety disorders in adults, including pregnant and postpartum patients, effective for plan years beginning on or after June 30, 2024 (e.g., the plan year beginning Jan. 1, 2025, for calendar-year plans). More information on the recommended preventive care services is available at www.HealthCare.gov. 

Therefore, employers should confirm that the health plan covers the latest recommended preventive care services without imposing any cost-sharing when the care is provided by in-network providers. 

Mental Health Parity – Required Comparative Analysis for NQTLs 

The Mental Health Parity and Addiction Equity Act (MHPAEA) requires parity between a group health plan’s medical/surgical benefits and its mental health or substance use disorder (MH/SUD) benefits. These parity requirements apply to financial requirements and treatment limits for MH/SUD benefits. In addition, any nonquantitative treatment limitations (NQTLs) placed on MH/SUD benefits must comply with MHPAEA’s parity requirements. For example, NQTLs include prior authorization, step therapy protocols, network adequacy, and medical necessity criteria. 

MHPAEA requires health plans and issuers to conduct comparative analyses of the NQTLs used for medical/surgical benefits compared to MH/SUD benefits. This analysis must contain a detailed, written, and reasoned explanation of the specific plan terms and practices and include the basis for the plan’s or issuer’s conclusion that the NQTLs comply with MHPAEA. Plans and issuers must make their comparative analyses available to specific federal agencies or applicable state authorities upon request. In recent years, the U.S. Department of Labor (DOL) has made MHPAEA compliance a top enforcement priority, primarily focusing on MHPAEA’s parity requirements for NQTLs. 

Employers should confirm with their health plan issuers (or third-party administrators) that comparative analyses of NQTLs will be updated, if necessary, for the plan year beginning in 2025. 

Employers will, by necessity, rely on their health plan issuers or TPAs for the appropriate analysis. Employers rely on the issuers and TPAs to design the appropriate and effective protocols for all medical plan coverage, mental health, and medical/surgical coverage. The employer is just not in a position to make those determinations. However, the rules require the employers that sponsor the plans to be responsible for those determinations. So, employers need to communicate to their plan issuers or TPAs that they rely on the vendor to make that determination and provide the appropriate analysis. 

OPEN ENROLLMENT NOTICES 

Employers who sponsor group health plans provide certain benefits notices in connection with their plans’ open enrollments. Some of these notices, such as the SBC, must be provided at open enrollment, and others, such as the WHCRA notice, must be distributed annually. Others, such as the initial COBRA notice, are only required to be provided a single time. However, many advisors recommend that employers include all types of notices in their open enrollment materials for administrative convenience and to ensure compliance with the distribution rules. 

Of course, employers should review their open enrollment materials to confirm that they accurately reflect the terms and cost of coverage of their plans. Plan design changes for 2025 should also be communicated to plan participants and included in an updated SPD or an SMM. 

Summary of Benefits and Coverage (SBC)

The ACA requires health plans to provide an SBC to applicants and enrollees each year at open enrollment or renewal time. Federal agencies have provided a template for the SBC, which health plans and issuers are required to use. To comply with the SBC requirements, employers should include an updated SBC with open enrollment materials. The plan administrator is responsible for providing the SBC for self-funded plans. For insured plans, the issuer usually prepares the SBC. If the issuer prepares the SBC, an employer is not required to also prepare an SBC for the health plan, although they may need to distribute the SBC prepared by the issuer. 

Medicare Part D Notices 

Group health plan sponsors must provide a notice of creditable or non-creditable prescription drug coverage to Medicare Part D-eligible individuals covered or who apply for, prescription drug coverage under the health plan. This creditable coverage notice alerts individuals about whether their prescription drug coverage is at least as good as the Medicare Part D coverage. The notice generally must be provided at various times, including when an individual enrolls in the plan and each year before Oct. 15 (when the Medicare annual open enrollment period begins). Model notices are available on the Centers for Medicare and Medicaid Services’ website. 

Annual CHIP Notices 

Group health plans covering residents in a state that provides a premium subsidy to low-income children and their families to help pay for employer-sponsored coverage must send an annual CHIP notice about the available assistance to all employees residing in that state. The DOL has provided a model notice. Employers should confirm they are using the most recent model notice, as the DOL updates it regularly. 

Initial COBRA Notices 

COBRA applies to employers with 20 or more employees who sponsor group health plans. Group health plan administrators must provide an initial COBRA notice to new participants and certain dependents within 90 days after plan coverage begins. The initial COBRA notice may be incorporated into the plan’s SPD. A model initial COBRA notice is available from the DOL. 

The requirement to deliver the initial COBRA notice is only one time when the individual first enrolls in the health plan. However, the rules for COBRA note that the COBRA election period would not begin until BOTH the initial COBRA notice and the general COBRA notice are delivered to the COBRA-qualified beneficiary. Therefore, if the initial COBRA notice is not delivered (or the employer cannot demonstrate that it followed the procedures for delivery), it is possible that the COBRA election notice would never have begun so the affected individual who missed the standard 60-day cutoff for electing COBRA could potentially have another bite at the apple only later when the individual is sick or injured. Given that anti-selection risk, it is an easy call to include an initial COBRA notice at open enrollment every year, as it will then be a simple process to demonstrate that the delivery requirement was met. 

SPDs 

Plan administrators must provide an SPD to new participants within 90 days after plan coverage begins. Any changes made to the plan should be reflected in an updated SPD booklet or described to participants through an SMM. Also, an updated SPD must be furnished every five years if changes are made to SPD information, or the plan is amended. Otherwise, a new SPD must be provided every 10 years. Although there is no obligation to provide the SPD annually, many employers choose to do so to make sure they meet that requirement. 

Notices of Patient Protections 

Under the ACA, group health plans and issuers that require the designation of a participating primary care provider must permit each participant, beneficiary, and enrollee to designate any available participating primary care provider (including a pediatrician for children). Additionally, plans and issuers that provide obstetrical/gynecological care and require a designation of a participating primary care provider may not require preauthorization or referral for such care. If a health plan requires participants to designate a participating primary care provider, the plan or issuer must provide a notice of these patient protections whenever the SPD or similar description of benefits is provided to a participant. If an employer’s plan is subject to this notice requirement, they should confirm that it is included in the plan’s open enrollment materials. This notice may be included in the plan’s SPD. Model language is available from the DOL. 

Grandfathered Plan Notices 

If an employer has an ACA-grandfathered plan (which is becoming more rare), they should include information about the plan’s grandfathered status in plan materials describing the coverage under the plan, such as SPDs and open enrollment materials. Model language is available from the DOL. 

Notices of HIPAA Special Enrollment Rights 

At or before the time of enrollment, an employer’s group health plan must provide each eligible employee with a notice of their special enrollment rights under HIPAA. This notice may be included in the plan’s SPD.

HIPAA Privacy Notices 

The HIPAA Privacy Rule requires covered entities (including group health plans and issuers) to provide a Notice of Privacy Practices (or Privacy Notice) to each individual who is the subject of protected health information (PHI). Health plans are required to send the Privacy Notice at certain times, including to new enrollees at the time of enrollment. Also, at least once every three years, health plans must either redistribute the Privacy Notice or notify participants that the Privacy Notice is available and explain how to obtain a copy. Self-insured health plans must maintain and provide their Privacy Notices. However, special rules apply for fully insured plans, where the health insurance issuer, not the plan itself, is primarily responsible for the Privacy Notice. 

The sponsor of a fully insured health plan has limited responsibilities with respect to the Privacy Notice. If the sponsor of a fully insured plan has access to PHI for plan administrative functions, they are required to maintain a Privacy Notice and provide the notice upon request (as well as comply with all the administrative requirements of HIPAA privacy). However, if the sponsor of a fully insured plan does not have access to PHI for plan administrative functions (that is, they are “hand-off” of PHI), they are not required to maintain or provide a Privacy Notice or comply, directly with the other HIPAA privacy practices. That means that they cannot have individual-level access to plan information, only summary information that does not personally identify the individuals. A plan sponsor’s access to enrollment information, summary health information, and PHI released pursuant to a HIPAA authorization does not qualify as having access to PHI for plan administration purposes. 

Model Privacy Notices are available through the U.S. Department of Health and Human Services. 

WHCRA Notices 

Plans and issuers must provide a notice of participants’ rights to mastectomy-related benefits under the WHCRA at the time of enrollment and on an annual basis. The DOL’s compliance assistance guide includes model language for this disclosure. 

Wellness Program Notices 

Group health plans that include wellness programs may be required to provide certain notices regarding the program’s design. Generally, these notices should be provided when the wellness program is communicated to employees and before employees provide any health-related information or undergo medical examinations. These notices are required in the following situations: 

• HIPAA Wellness Program Notice—HIPAA imposes a notice requirement on health-contingent wellness programs offered under group health plans. Health-contingent wellness plans require individuals to satisfy standards related to health factors (e.g., not smoking) to obtain rewards. The notice must disclose the availability of a reasonable alternative standard to qualify for the reward (and, if applicable, the possibility of waiver of the otherwise applicable standard) in all plan materials describing the terms of a health-contingent wellness program. The DOL’s compliance assistance guide includes a model notice that can be used to satisfy this requirement. 
• Americans with Disabilities Act (ADA) Wellness Program Notice—Employers with 15 or more employees are subject to the ADA. Wellness programs that include health-related questions or medical exams must comply with the ADA’s requirements, including an employee notice requirement. Employers must give participating employees a notice that tells them what information will be collected as part of the wellness program, with whom it will be shared, and for what purpose, as well as the limits on disclosure and the way information will be kept confidential. The U.S. Equal Employment Opportunity Commission has provided a sample notice to help employers comply with this ADA requirement. 

Michelle’s Law 

Michelle’s Law requires continued coverage under most group health plans for up to one year for a student enrolled in a post-secondary educational institution who loses student status under the group health plan because he or she takes a medically necessary leave of absence. The impact of Michelle’s Law has been limited by the age 26 mandate, which requires an employer-sponsored group health plan that provides dependent coverage for the children of its participants to continue to make that coverage available until a child has attained age 26, regardless of the child’s status as a student. As a result, Michelle’s Law primarily impacts plans that choose to make coverage available for children age 26 or older if the adult child is a student, but which do not otherwise provide coverage for adult children of that same age.  

Exchange Notices 

The ACA amended the Fair Labor Standards Act (FLSA) to require that employers provide all new hires and current employees with a written notice regarding the health coverage options that are available through the ACA Exchanges (also known as the Marketplace) and some of the consequences if an employee decides to purchase a qualified health plan through the ACA Exchange instead of employer-sponsored coverage. The DOL 
models are in English and Spanish.

ICHRA Notices 

Employers may use individual coverage health reimbursement arrangements (ICHRAs) to reimburse their eligible employees for insurance policies purchased in the individual market or Medicare premiums. Employers with ICHRAs must notify eligible participants about the ICHRA and its interaction with the ACA’s premium tax credit. In general, this notice must be provided at least 90 days before the beginning of each plan year. Employers may provide this notice at open enrollment time if it is at least 90 days before the beginning of the plan year. A model notice is available for employers to use to satisfy this notice requirement.