What to address now. What to prepare for in 2027.
As we head into the final quarter of 2026, employers sponsoring group health and welfare plans should confirm that fourth-quarter deadlines are covered, year-end administration is reconciled, and 2027 plan changes are reflected in documents, systems, and employee communications. The most common year-end oversight is the assumption that another party handled the requirement. Other parties can and often do fulfill these requirements, but employers should confirm that they have done so.
Group health plan sponsors that provide prescription drug coverage must disclose whether the coverage is creditable or non-creditable to Medicare Part D-eligible individuals before the Medicare annual election period begins. The notice may be included with open enrollment materials if it is prominent and delivered on time. A separate annual disclosure to CMS is also generally due within 60 days after the beginning of the plan year.
Employer action: Confirm the creditable coverage determination, deliver the correct notice by October 15, and retain evidence of delivery. Do not assume the carrier distributed the notice on the employer's behalf. Model notices can be found on the CMS website.
See the Medicare Part D Alert here.
Group health plans and health insurance issuers must annually attest that their agreements with the carriers do not contain prohibited restrictions on access to provider-specific cost and quality information or de-identified claims data. A carrier or third-party administrator may submit the attestation for the plan, but the plan sponsor should verify the scope of that submission and keep confirmation.
Employer action: Identify who will submit the attestation, confirm that all applicable plan options and reporting periods are covered, and retain the submission confirmation.
Fully insured plans may receive a Medical Loss Ratio (MLR) rebate when an insurer does not meet the applicable medical spending standard (85% of premiums spent on claims for large plans, 80% for small plans and individual coverage). If an insurer generates a rebate, they often inform the covered members, your employees, that they will generate a rebate. That will often mean the employees will be looking to obtain their share. However, the amounts are typically quite small, and it is administratively burdensome to reimburse the employees for a share of those rebates. Therefore, when a rebate is received, the employer must determine whether any portion is an ERISA plan asset and, if so, use the participant portion for the exclusive benefit of plan participants and beneficiaries. While providing the employees a pro rata portion of the rebate is always permitted, it is typically very burdensome, so employers seek other options. Common acceptable approaches include participant payments, a premium holiday, or a benefit enhancement, depending on the facts and plan terms.
Employer action: Document the plan-asset analysis, select a reasonable allocation method, apply the participant portion promptly—generally within three months of receipt—and retain the calculation and proof of use.
Before 2027 elections are processed, employers should confirm that their Section 125 plan document, enrollment materials, payroll deductions, and administrator settings all match. Review the health FSA limit, any carryover or grace period, dependent care FSA limit, election rules, and eligible benefit offerings.
Employer action: Compare the written plan to the 2027 enrollment setup and payroll configuration; adopt any required amendment before the applicable effective date and resolve inconsistent limits or administration.
Section 125 cafeteria plans, health FSAs, dependent care FSAs, and certain self-funded health plans may be subject to nondiscrimination testing. Waiting until after the year closes can eliminate practical options to manage a potential failure. Section 125 and health FSA plans rarely fail nondiscrimination testing; however, historically, that has not been the case for dependent care FSAs. Ideally, the testing should be done even earlier in the year to avoid last-minute issues.
NEW IRS PROPOSAL: Proposed rules issued in August 2026 clarify dependent care FSA testing; generally, it counts employees who actually receive dependent care contributions or benefits greater than zero. The proposal also provides a potential correction method for certain failures by including excess benefits in affected HCEs' income by the Form W-2 furnishing deadline. Employers may rely on the proposed guidance for plan years beginning before final rules are issued.
Employer action: Complete testing while corrective options remain. Ask the testing vendor which methodology it used, consider rerunning a prior failed DCAP test under the proposed rules, and coordinate any correction with payroll before Forms W-2 are furnished.
Renewals often change plan options, premiums, or administrators. Those changes must reach the COBRA administrator so qualified beneficiaries receive accurate enrollment choices and rates. A year-end reconciliation can also uncover missing qualifying events, notices, or participant records.
Employer action: Provide 2027 plan and rate information to the COBRA administrator, reconcile qualified beneficiaries and pending events, and confirm that election and premium notices reflect the new plan year.
Changes to eligibility, benefits, contributions, carriers, administrators, or other material plan terms may require a plan amendment, updated summary plan description (SPD), or summary of material modifications (SMM). Note: Changes to costs of coverage are not required to be included in these plan documents; however, they still do need to be communicated to the plan participants. Carrier booklets and benefit summaries do not automatically update the employer's ERISA documents.
Employer action: Identify material 2026 and 2027 plan changes, confirm the governing document is current, determine the required participant communication, and retain documentation of the distribution process.
Applicable large employers (“ALEs”) and sponsors of self-funded minimum essential coverage plans should begin reconciling 2026 ACA reporting data before filing season. Common errors involve full-time status, offer dates, affordability codes, employee contributions, dependent information, and incomplete Social Security numbers or dates of birth.
Employer action: Confirm who will prepare and file Forms 1094/1095 (often the payroll provider but not always), reconcile payroll, eligibility, and enrollment data, resolve missing information, and review a sample coding file before forms are generated.
Employers with employees or covered individuals in multiple jurisdictions should identify state-specific reporting, disclosure and assessment obligations. Federal ACA reporting vendors and carriers do not always handle every state filing.
|
Jurisdiction |
Year-End Review |
|
CA |
Minimum essential coverage reporting; confirm filing responsibility for California residents. |
|
DC |
Individual mandate coverage reporting; confirm whether the carrier, vendor, or employer will file. |
|
MA |
HIRD in Q4; MA 1099-HC and coverage reporting responsibilities may also apply. |
|
NJ |
Health Insurance Mandate reporting; out-of-state employers covering NJ residents may have obligations. |
|
RI |
Individual mandate minimum essential coverage reporting. |
|
VT |
Quarterly Health Care Fund assessment rules and annual employee coverage declarations may apply. |
Employer action: Map employees and covered individuals by work and residence location, identify applicable state requirements, confirm the filing party and obtain proof of filing.
For plan years beginning in 2027, the ACA affordability percentage increases to 10.22%. Applicable large employers should test the employee contribution for the lowest-cost self-only option that provides minimum value using the selected federal poverty line, rate-of-pay, or Form W-2 safe harbor. The indexed 2027 employer mandate penalty amounts are $3,780 under Section 4980H(a) and $5,670 under Section 4980H(b), stated as annualized amounts.
Employer action: Run the 2027 affordability calculation before employee contributions are finalized, document the safe harbor being used, and confirm that payroll deductions match the approved rates.
|
2027 Limit |
Self-Only |
Family |
|
HSA contribution limit Age 55+ catch-up contribution remains $1,000 |
$4,500 |
$9,000 |
|
HDHP minimum deductible |
$1,750 |
$3,500 |
|
HDHP maximum out-of-pocket |
$8,700 |
$17,400 |
The maximum amount available under an excepted-benefit HRA is $2,250 for plan years beginning in 2027.
Employer action: Confirm that the 2027 HDHP design remains HSA-compatible and update enrollment materials, payroll limits, and administrator systems before the new plan year begins.
Recent law changes expanded HSA compatibility for certain arrangements, including qualifying direct primary care arrangements and pre-deductible telehealth services. Employers offering or considering these designs should evaluate the arrangement against the applicable conditions instead of assuming it automatically disqualifies HSA contributions.
Employer action: Review any direct primary care, telehealth, or other pre-deductible benefit with the carrier, TPA, and HSA administrator; document why the arrangement is HSA-compatible before communicating eligibility.
The dependent care assistance exclusion increased beginning in 2026 to $7,500 for single individuals and married couples filing jointly, and $3,750 for married individuals filing separately. Employers that adopted the higher amount should make sure the written plan, 2027 enrollment materials, payroll system, and administrator all use the same limit. The higher limit does not reduce the importance of early nondiscrimination testing (but see above regarding new flexibility).
Employer action: Confirm whether the employer adopted the increased DCAP limit, verify the plan amendment and system settings, and schedule early and final testing under the proposed IRS methodology.
Employers using tobacco surcharges or other health-contingent wellness incentives should review how reasonable alternative standards are described and administered. Recent federal guidance provides enforcement relief concerning retroactive rewards in certain circumstances, but it does not eliminate the requirement to offer and disclose a reasonable alternative standard.
Employer action: Review all wellness notices, surcharge rules, and vendor processes; confirm that participants can request a reasonable alternative and that payroll applies rewards consistently when an alternative is completed.
The federal employer tax credit for paid family and medical leave was made permanent and expanded beginning in 2026, including potential treatment of qualifying paid-leave insurance premiums. The credit is a tax matter and depends on specific eligibility and program requirements.
Employer action: Employers offering paid family and medical leave should ask their tax advisor whether the expanded credit may be available and what records are needed to support a claim.
Beginning in 2027, account-based arrangements such as HRAs and health FSAs are excluded from the Medicare Part D creditable coverage disclosure requirement. This relief does not remove the notice obligation for an employer's traditional group medical plan with prescription drug coverage.
Employer action: Separate account-based arrangements from the underlying medical plan when assigning 2027 Part D notice responsibilities and confirm the determination method used for the medical plan's prescription drug coverage.
Best practices for all of these items include documentation of the entity that owned each requirement, what was completed, when it was completed, and where the supporting record is stored. Completing that review before filing and enrollment activity accelerates can reduce last-minute corrections and support a smoother start to 2027.
Reach out to your World Insurance service team with questions or for assistance coordinating year-end compliance responsibilities.
FINAL CHECK: Assign. Verify. Document. If a carrier, TPA, payroll vendor, or reporting vendor is responsible, obtain confirmation rather than relying on assumption.
This Compliance Alert is provided by World Insurance for general informational purposes only. It is not intended as, and should not be relied upon as, legal or tax advice. Please consult your benefits counsel or tax advisor for guidance specific to your plan.