The IRS has significantly increased the group health plan affordability threshold, which is used to determine if an employer’s lowest-premium health plan complies with Affordable Care Act rules, for plan years starting in 2026.
The threshold for next year has been set at 9.96% of an employee’s household income, up from 9.02% this year. The higher threshold will give employers more wiggle room when setting their workers’ health insurance premium cost-sharing level to avoid running afoul of the ACA. In addition, penalties for failing to provide coverage that meets the affordability threshold will rise 15% in 2026.
Under the ACA, “applicable large employers” — those with 50 or more full-time or full-time equivalent employees — are required to offer at least one health plan to their workers that is considered affordable based on a percentage of the lowest-paid employee’s household income.
If an employer’s plan fails this test, it will be deemed non-compliant with the law, resulting in penalties for the employer.
The new threshold will apply to all health plans whenever they incept in 2026. The affordability test applies only to the portion of premiums for self-only coverage, not family coverage. If an employer offers multiple health plans, the affordability test applies only to the lowest-cost option.
Calculating
Employers can rely on one or more safe harbors when determining if coverage is affordable:
The employee’s most recent W-2 wages.
The employee’s rate of pay, which is the hourly wage rate multiplied by 130 hours per month.
The federal poverty level.
Penalties
Failure to provide affordable coverage can result in a penalty of $5,010 per affected employee in 2026, up 15% from $4,350 in 2025.
Another penalty, known as the Employer Shared Responsibility Payment, will also increase. This penalty applies to employers that fail to offer minimum essential coverage to at least 95% of full-time employees and their dependents, and when at least one full-time employee purchases exchange coverage and receives a premium tax credit.
This penalty, which applies to the total number of full-time employees (minus the first 30), will rise to $3,340 per employee in 2026, also up 15%.
The above penalties are both indexed to inflation.
The takeaway
As 2026 approaches, it is important to review health plan costs and premium-sharing to ensure your lowest-cost option complies with the ACA affordability requirement.
We can help assess affordability and confirm your plans meet the standard, so your firm stays compliant.
While traditional benefits like group health insurance and 401(k) plans remain foundational, employers who limit themselves to the same offerings year after year may find themselves outpaced in the competition for talent.
Regularly evaluating your benefits package ensures it stays relevant, competitive and cost-effective — and ultimately supports your efforts to attract, retain and engage employees.
Doing this is increasingly important as the last of the Baby Boomers exit the workforce and more Gen Z workers are hired and put to work. Besides generational changes, workers’ needs may shift due to social trends, medical advances and lifestyle changes.
When employers fail to update their offerings, they risk wasting resources on underused benefits or losing valued employees to competitors with more relevant and supportive programs. Conversely, a dynamic, well-calibrated package signals that you care about your employees’ well-being and are in touch with what they value.
How to assess effectiveness
Measuring the success of a benefits program isn’t always straightforward, but several tools can help:
Employee surveys: Poll your workers about which benefits they use, which they value most and what they wish was included. Use both structured and open-ended questions to gather insights. Consider segmenting responses by demographics to detect differing needs.
Utilization data: Track how often employees take advantage of each benefit. Low utilization may mean a benefit is poorly communicated, difficult to access or simply not valued. High usage, especially when tied to positive outcomes, signals success.
Key performance indicators: Monitor metrics such as employee productivity, engagement scores, absenteeism and turnover. Improvements in these areas may be tied to the effectiveness of certain benefits. There might also be no correlation, but they’re still worth tracking.
Turnover trends: If your organization is experiencing higher-than-usual turnover, especially among high performers, your benefits package may not be meeting employee expectations.
Regular feedback loops: Consider holding periodic focus groups or one-on-one discussions. These offer valuable information that goes beyond survey numbers.
Benchmarking keeps you competitive
Employers should also compare their benefits to industry peers. Resources such as SHRM’s Employee Benefits Survey, consulting firm whitepapers and insurance agency reports can reveal trends and standards in your sector.
For example, more than 90% of employers now offer telehealth options, and an increasing number are extending mental health resources, menopause support and caregiving benefits.
Cost-effectiveness and impact
Not all benefits need to be expensive to make a difference. For instance, flexible scheduling, expanded telehealth access or a wellness allowance may deliver high perceived value at a manageable cost.
For example, a wellness allowance is a fixed amount of money provided by the employer that staff can spend on their health and well-being like gym memberships, fitness classes, mental health apps and more.
Review spending against usage and satisfaction levels, and consider whether reallocating dollars could deliver better outcomes.
We can also help you identify underused or high-cost benefits that may be ripe for replacement — or negotiate better vendor terms.
Takeaway for employers
Just like you measure your business’s performance, ROI, profits and more, you should take time, at least annually, to evaluate your benefits package.
If, based on your evaluation, you plan to make changes to your benefits lineup, including eliminating a benefit, there will always be some staff who won’t be happy about it.
Make sure to be transparent about why and how the decision supports employee needs. This builds trust and demonstrates a responsive, employee-first mindset.
The sweeping One Big Beautiful Bill Act signed into law by President Trump on July 4, 2025, makes permanent the ability of high-deductible health plans to offer pre-deductible coverage for telehealth and other remote care services without compromising employees’ eligibility to contribute to health savings accounts.
This change, effective for plan years beginning after Dec. 31, 2024, restores a popular pandemic-era flexibility that had otherwise expired at the end of 2024. For employers that offer HDHPs with HSA options, they can now choose whether to incorporate first-dollar telehealth coverage to enhance their plan’s value, reduce employee costs and improve access to care.
Brief background
Under longstanding federal law, to qualify for HSA contributions, a participant must be enrolled in a qualified HDHP and have no other “impermissible” health coverage — meaning no coverage that pays for non-preventive care before the deductible is met. Historically, this included most telehealth services.
That changed temporarily with the CARES Act in 2020, which allowed HDHPs to cover telehealth on a first-dollar basis without affecting HSA eligibility. Congress extended this relief several times, but the last extension expired on Dec. 31, 2024, for calendar-year plans.
What it means for employees
Telehealth services benefit plan enrollees in many ways:
Convenience: Workers in rural or remote areas, or those juggling caregiving responsibilities, no longer need to take time off work or travel to see a provider for routine care that can be handled virtually.
Lower costs: First-dollar coverage for virtual visits can eliminate out-of-pocket expenses for common services like check-ups, prescription renewals or managing chronic conditions.
Chronic care support: Individuals managing ongoing conditions such as diabetes or hypertension may find it easier to stay on top of treatment plans with telehealth check-ins.
What was not included in the final law
While the law’s inclusion of the telehealth safe harbor was celebrated, many other pandemic-era telehealth waivers were left out of the final package. These excluded provisions include:
Lifting geographic and originating site restrictions on telehealth under Medicare.
Allowing audio-only services to qualify for reimbursement.
Extending telehealth coverage by federally qualified health centers and rural health clinics.
Eliminating in-person visit requirements for telemental health services.
Unless further legislative action is taken, those waivers will expire by the end of September 2025, limiting broader telehealth expansion — especially for Medicare and rural populations.
Takeaway for employers
Employers looking to implement or reinstate telehealth coverage to their HDHPs should coordinate with their insurance carriers or third-party administrators and update plan documents, summary plan documents and employee communications accordingly.
If your 2025 plan has already started, you may need to send your enrollees special notices informing them of the change.
As the cost of providing health benefits continues to rise, more employers intend to change or reduce their 2026 offerings to control spending, according to a new survey.
In a survey of more than 700 U.S. employers by Mercer — including over 500 large organizations (those with 500 or more employees) — 51% of large employers said they are likely to make plan design changes in 2026 that would shift some costs to employees, such as modest increases to deductibles or out-of-pocket maximums. That’s up from 45% in 2025.
At the same time, 49% said they would try to avoid shifting costs altogether, reflecting continued sensitivity to employee affordability and satisfaction. Many are looking to minimize premium increases for both the company and employees by fine-tuning plan structures.
Strategies employers are using
To help manage rising costs while supporting employee access to care, employers are considering a variety of plan adjustments:
Offering copay-based plans with low or no deductibles to reduce upfront care costs.
Providing larger health savings account contributions to lower-income employees enrolled in high-deductible plans.
Maintaining free employee-only coverage in at least one available plan (offered by 12% of large employers).
Extending telemedicine services to part-time or non-benefits-eligible staff.
Offering medical loans with low or no interest to help employees manage large bills.
Alternative and innovative health plan options
Some employers are also adopting newer plan models aimed at improving cost-efficiency and transparency over the long term, including:
Variable copay plans. These arrangements adjust copays based on provider costs and allow employees to see prices upfront. While only 6% of large employers offered them in 2025, 35% plan to offer a similar option in 2026. Among those already offering one, nearly 30% of covered workers opted in.
Exclusive provider organization plans. These plans use a closed network of providers and often offer higher plan value with lower premiums. More large employers are turning to them as a cost-conscious alternative to preferred provider organization plans.
High-performance networks. These arrangements, often offered by national and regional carriers, steer care toward high-quality, cost-effective providers.
Why costs are climbing
Employers responding to the Mercer survey cited a few key cost drivers:
Prescription drug spending, which rose 8% in 2024, led by specialty medications and the growing use of GLP-1 drugs for diabetes and obesity.
Higher provider prices, driven partly by health system consolidation and labor shortages in the health care workforce.
Increased demand for services, especially as more Americans age into higher-utilization categories.
Average health plan costs are expected to increase by 5.8% in 2025, following a 4.5% rise in 2024.
Enhancing support in other areas
Even as employers look for ways to manage rising expenses, many remain focused on strengthening benefits in areas that support employee well-being, satisfaction and retention.
According to the survey:
76% of large employers plan to offer digital stress management tools in 2026, such as mindfulness and meditation apps.
51% will provide live or in-person resources for building resiliency and managing stress.
Nearly one in three employers plan to expand voluntary benefits by 2027, including offerings like pet insurance and employee discount programs.
Many employers are also training managers to recognize signs of mental health issues and direct employees to helpful resources.
What this means for your business
Mercer’s findings show that employers across the country are taking a proactive, balanced approach to managing rising costs while staying focused on supporting their workforce.
We can help you:
Explore plan design options that preserve affordability.
Identify cost-saving strategies without sacrificing coverage.
Strengthen benefits in areas with the greatest employee impact.
With thoughtful planning, it’s possible to keep your benefit offerings competitive and cost-effective, even in a challenging cost environment.
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law, a sweeping tax and spending measure that includes implications for health savings accounts and employer-sponsored benefits.
While an early version of the bill passed by the House of Representatives promised broad reforms to group health insurance, most of those provisions were ultimately stripped from the final version. What remained were a handful of updates — centered on HSAs — that will affect how employers structure and manage high-deductible health plans (HDHPs) and related benefits moving forward.
The final bill significantly expands access and flexibility for HSAs. These updates take effect in 2025 and 2026 and mark the most substantial set of HSA reforms since the accounts were created.
Permanent telehealth compatibility with HDHPs
Effective for plan years beginning on or after Jan. 1, 2025, HDHPs can now offer first-dollar coverage of telehealth services without jeopardizing HSA eligibility.
This provision makes permanent a temporary COVID-era relief measure that was previously set to expire. Employers can now continue offering or reintroduce $0 telehealth visits under their HDHPs without disqualifying employees from contributing to HSAs.
Direct primary care arrangements now HSA-Compatible
Beginning Jan. 1, 2026, individuals enrolled in direct primary care arrangements, which are subscription-based models for routine and preventive care, will remain eligible to contribute to HSAs.
The law sets monthly caps on reimbursable DPC fees: $150 per individual and $300 per family. DPC payments within those limits are also now classified as qualified medical expenses, meaning they can be reimbursed from HSA funds.
Marketplace plans HSA-eligible
Starting in 2026, individuals enrolled in Bronze or Catastrophic-level Affordable Care Act marketplace plans will be allowed to open and contribute to HSAs. This is a significant departure from current rules, which generally require enrollment in HDHPs that meet strict federal design criteria.
The change may be particularly relevant for employers offering Individual Coverage HRAs (ICHRAs) or Qualified Small Employer HRAs (QSEHRAs), as it expands the range of employee-selected plans that maintain HSA eligibility.
What was left out of the final bill
Despite significant momentum in earlier versions of the bill, several proposed reforms to group health insurance and employer-sponsored benefits did not make it into the law.
ICHRA cafeteria plan limitations: Proposals to rebrand ICHRAs as “CHOICE Arrangements” and allow employees to use cafeteria plans to pay for exchange-based individual coverage with pre-tax dollars were removed. As a result, the regulatory status quo remains, and such premiums must still be paid with after-tax income.
HSA contributions for seniors: A proposed change allowing working individuals over age 65 to continue contributing to HSAs was not included.
Gym membership reimbursements via HSAs: Earlier drafts allowed HSA funds to be used for fitness costs — this too was scrapped.
Increased HSA contribution caps based on income: Proposals to allow higher earners to contribute more to HSAs based on income levels were eliminated from the final law.
Expanded catch-up contributions for married couples: The provision allowing joint catch-up HSA contributions to a single account for married couples filing jointly did not survive.
Rollovers from FSAs/HRAs to HSAs: A rule allowing limited rollovers from terminating flexible spending or health reimbursement arrangements into HSAs was dropped.
Implications for employer plans
While the final law has narrowed in focus, its HSA-related provisions will still impact how many employers approach plan design.
Strategic use of telehealth and DPC arrangements. Employers can now build HDHPs that include robust virtual and primary care access without affecting employee HSA eligibility. This flexibility may allow for more cost-efficient, employee-friendly benefit structures.
Expanded HSA access for ICHRA offerings. For employers offering ICHRAs or QSEHRAs, the inclusion of Bronze and Catastrophic marketplace plans as HSA-eligible opens a wider range of plan options for employees, potentially improving satisfaction and adoption.
Administrative action required. Employers choosing to take advantage of these new flexibilities must work with legal counsel, third-party administrators or their broker to ensure plan documents, enrollment materials and employee communications are updated ahead of the 2026 changes.
Bottom line
The One Big Beautiful Bill ultimately delivered modest but meaningful changes for employers offering HDHPs and HSAs. While many had hoped for a broader overhaul of group health insurance and reimbursement arrangements, the final law doubled down on expanding the use and appeal of HSAs — giving employers more tools to offer flexible, consumer-driven health benefits in an evolving landscape.
If you have questions about how this may affect your current health plan and how it expands your options, please give us a call.
The typical family’s income slips by more than $12,000 in the year after a breadwinner suffers a critical illness such as a heart attack, stroke or cancer, according to a study by Metropolitan Life Insurance Company.
This reduction of income isn’t primarily due to lack of medical coverage. It is actually attributed to the inability to work and earn an income. The approximate out-of-pocket medical expenses add about $3,000 dollars of extra costs during the first post-diagnosis year.
Despite these side effects, MetLife found that almost half of Americans with full-time jobs did not even have $5,000 dollars’ worth of accessible savings to cover a major illness diagnosis. More than 28% did not have at least $500 dollars in savings.
The MetLife study also showed that:
In the event of a medical emergency, two-thirds of American workers had three months or less in available savings.
Only one-fifth of women and one-third of men were “very confident” that a financial emergency could be handled with their rainy-day fund.
A little more than half of those with a full-time job were extremely or somewhat concerned about the possibility of a critical illness impacting the financial stability of their family.
The study concluded that many Americans are unprepared to deal with the short- and long-term loss of income and out-of-pocket expense that is all too often associated with critical illness. Another aspect of the study may reveal the reason so many are unprepared: every surveyed patient had medical insurance, but only 7% had critical illness insurance and only 4% had cancer coverage.
Critical illness insurance
The purpose of critical illness insurance is to provide a one-time or lump-sum payment to assist in offsetting the out-of-pocket expenses associated with certain critical illnesses.
Applicable critical illnesses may include an organ transplant, heart attack, stroke, cancer, loss of vision, burns, HIV, or kidney failure. The critical illness insurance is not a replacement for standard health insurance or disability insurance. The design is purely to supplement such policies.
Only 28% of the surveyed full-time workers had heard of insurance for critical illness. However, from further questioning about critical illness insurance, the number might be even lower, as three out of every five patients seemed to confuse it with their standard health insurance policy – and one in five confused it with disability insurance or other government programs.
While the study showed a clear theme that many Americans are monetarily unprepared for a critical illness, it also provided evidence that many workers are concerned about their lack of preparation.
By expanding employee benefits to include voluntary critical illness insurance or raising awareness about existing benefits, you are offering important financial protection to employees.
In other words, you can help bridge the gap between the cost of a critical illness and what standard insurance covers, which allows the employee to better focus on recovering and possibly returning to the workforce.
If you want to know more about voluntary critical illness coverage, give us a call.
