A New Era of Health and Welfare Fiduciary Litigation

Health Plan Fiduciary Litigation on the Rise

Employer-sponsored health plans — particularly self-funded plans — are facing increased fiduciary scrutiny under ERISA. Recent litigation has focused on rising healthcare and prescription drug costs, PBM oversight, excessive administrative fees, vendor compensation, and fiduciary governance practices.

With expanded healthcare transparency requirements making plan pricing data more accessible, plaintiffs are increasingly comparing plan costs and challenging fiduciary decision-making processes. Employers should review vendor agreements, monitor plan expenses and PBM arrangements, strengthen fiduciary governance, and maintain clear documentation of decision-making and oversight activities.

Although no fiduciary process can eliminate litigation risk entirely, organizations that establish prudent governance procedures and maintain clear documentation may be better positioned to demonstrate compliance with ERISA fiduciary obligations.

CMS Updates Medicare Part D Creditable Coverage Rules for 2027 

CMS has finalized new Medicare Part D creditable coverage rules beginning in 2027, increasing the standards employer-sponsored prescription drug plans must meet to remain “creditable.” The changes follow the recent redesign of Medicare Part D benefits and may impact employers offering prescription drug coverage, particularly high-deductible health plans (HDHPs). 

Beginning in 2027, plans generally must cover brand, generic, and biologic drugs, provide reasonable pharmacy access, and pay at least 73% of prescription drug expenses on average to meet simplified creditable coverage standards. Employers should work with carriers, PBMs, actuaries, and consultants to review current plan designs and ensure Medicare Part D notices accurately reflect coverage status. 

CMS also removed Medicare Part D notice requirements for certain account-based arrangements, including HRAs and ICHRAs.

IRS Releases 2027 Employer Shared Responsibility Payment Amounts

The IRS has released the updated ACA Employer Shared Responsibility, also known as “Pay or Play” penalty amounts for 2027. Applicable large employers (ALEs), generally those with 50 or more full-time/full-time equivalent employees, may face penalties if they fail to offer affordable, minimum value coverage to substantially all full-time employees.

For 2027, the Section 4980H(a) penalty increased to $3,780 per full-time employee (minus the first 30 employees), while the Section 4980H(b) penalty increased to $5,670 per affected employee receiving Marketplace subsidies.

Employers should continue monitoring affordability calculations, employee classifications, variable-hour tracking, and ACA reporting processes to help reduce potential penalty exposure.

Question of the Month

Employee HSA Contributions with Spouse on Medicare

Q. When a group purchases an EAP outside of their ancillary carrier’s free program, is this standalone EAP product a COBRA benefit to employees?

A.  Whether an EAP is subject to COBRA depends on the structure of the EAP and whether it provides “medical care.” If the EAP provides medical care, which can include mental health counseling, it is subject to COBRA. But if the EAP does not provide medical care, for example it does not provide counseling but simply provides referrals to a counselor, the EAP is not subject to COBRA. Most EAPs tend to provide some form of medical care and therefore are subject to COBRA.

Answers to the Question of the Month are provided by Kutak Rock LLP. Kutak Rock provides general compliance guidance through the UBA Compliance Help Desk, which does not constitute legal advice or create an attorney-client relationship. Please consult your legal advisor for specific legal advice.