Critical Compliance Issues for Employee Benefits in 2025

Executive Actions Affecting Health Plans

The current administration has issued many executive orders, which is not unusual for a new presidency. Many executive orders revoke or modify previous orders that conflict with the new administration's priorities.

One key order implemented a freeze on unpublished rules from executive agencies. This allows the administration to revoke proposed rules before they are finalized. These orders aim to streamline processes and align regulations with the administration's agenda. Another notable executive order created the Department of Government Efficiency. This new department was created to help address wasteful government spending and to improve government efficiency and productivity, which aligns with the administration's broader push for deregulation and spending reduction. The administration's stance on deregulation creates an environment where employers may face less enforcement scrutiny in the short term, providing an opportunity to review processes and ensure compliance without immediate repercussions.

The administration has also brought in new leadership across key agencies overseeing healthcare and employee benefits. Robert Kennedy is now the Secretary of Health and Human Services (HHS), overseeing agencies and programs like the Food and Drug Administration (FDA), Medicare, and the National Institutes of Health (NIH). At the Department of Labor (DOL), Laurie Chavez has taken the helm, bringing extensive experience in labor issues such as overtime rules, joint employer standards, and contractor regulations. Both of these agencies (together with the IRS) oversee all the governing rules with respect to employer-sponsored health plans, thus any change in leadership often brings a change in the overall approach and manner by which the agencies enforce the rules and regulations that apply to ERISA-governed plans.

Budget and Spending Priorities

One of the administration's stated top priorities has been reducing government spending and reallocation of funds. In March, Congress passed a temporary six-month spending bill to avert a government shutdown, buying more time to negotiate a comprehensive budget.

The proposed budget bills have a large price tag that will require significant spending cuts in order to balance the budget. The administration aims to achieve this through measures such as staffing reductions across federal agencies and the elimination of certain programs or initiatives deemed unnecessary or costly.

One casualty of this effort was the President’s veto of the bipartisan Pharmacy Benefit Manager (PBM) reform bill, which aimed to increase transparency in drug pricing and rebate practices. The administration deemed the proposed regulations costly and unnecessary, highlighting the potential trade-offs between regulatory oversight and cost-cutting measures.

Tax Reforms and Implications

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced significant tax reforms that are set to expire this year. The current administration aims to reauthorize and make permanent several key provisions, including the Section 199A pass-through income deduction, which provides a 20% tax cut for certain businesses.

One proposed change gaining traction is raising the cap on the State and Local Tax (SALT) deduction, which was previously capped at $10,000 under the TCJA. This move would benefit taxpayers in states with high property taxes and mortgage interest payments by allowing them to deduct more of these expenses.

However, the administration plans allow the additional Affordable Care Act (ACA) tax credits introduced during the COVID-19 pandemic to expire.  This decision aims to offset the revenue impact of the proposed tax cuts. Overall, these tax reform proposals attempt to strike a balance between extending tax cuts for businesses and individuals while generating sufficient revenue to pay for the proposed government spending.

Staffing Cuts and Their Impact

Significant staffing cuts have been implemented across various federal agencies. This will have far-reaching consequences for employers and the broader healthcare industry. With fewer personnel available, agency regulatory oversight, enforcement, and guidance may become increasingly limited, creating compliance challenges and heightened risks for organizations operating in this space.  Robust internal compliance programs, risk management strategies, and consultation/guidance from trusted advisors will become even more essential in this evolving regulatory landscape.

Reducing Employer Reporting Burdens

One significant win for employers has been the relief in employer reporting requirements under the ACA. The Employer Reporting Improvement Act, which was passed by the prior administration at the end of 2024, eliminates the burden of mailing or electronically distributing 1095-C statements to all employees.  Statements will only need to be provided upon request. To take advantage of this relief, employers must first provide a clear and accessible notice informing employees of their ability to request a copy. If requested, the employer must furnish it within 30 days of the request or by January 31st, whichever is later.

Additionally, the Employer Reporting Improvement Act established a six-year statute of limitations for ACA penalties, providing more certainty for employers regarding their risk exposure.

Another significant change is the extension of the response window for IRS Letter 226J, which proposes employer shared responsibility penalties. Employers now have 90 days to respond, up from the previous 30-day window, allowing more time to gather the necessary information and respond appropriately.

These changes aim to reduce the administrative burden on employers while maintaining compliance with the ACA's employer mandate.

ACA Market Reforms

The Centers for Medicare and Medicaid Services (CMS) has issued a proposed rule on Marketplace Integrity and Affordability. This rule seeks to (1) address the administration's assertions that many individuals who are receiving subsidies might not be eligible for them, and (2) streamline the enrollment process by shortening the open enrollment window and having one singular enrollment deadline.

The proposed changes include (but are not limited to) the following:

• The introduction of a $5 fee for automatic renewals, applied to individuals enrolled in $0 premium plans, which is returned to enrollees in the second month of coverage. The theory is that this nominal fee will prompt individuals to actively confirm their enrollment, rather than being passively renewed without their knowledge or intent to use the coverage.
• Shortened enrollment windows for the Health Insurance Marketplace, with the goal of creating a sense of urgency to encourage individuals to enroll more promptly.
• Outstanding past-due premiums must be paid before coverage can be renewed.

HIPAA and Reproductive Health Privacy

In the wake of the Dobbs decision, the Department of Health and Human Services (HHS) introduced a new Final Rule aimed at protecting the privacy of reproductive health care information. Under this Final Rule, if law enforcement or certain other agencies request reproductive health care information, the covered entity or business associate must first obtain a valid signed attestation form. This form requires the agency to specify whether they are seeking the information to impose criminal or civil sanctions on the individual for receiving “potentially unlawful” reproductive services.

The rule broadly defines reproductive health care services to include not only abortion but also fertility management, contraception, prenatal care, and menopause-related treatments. Until the administration and the agencies provide additional guidance about any delayed enforcement, employers and health plans should plan on updating their HIPAA privacy practices and procedures to comply with these new requirements by 2026.

Mental Health Parity Compliance

The Mental Health Parity and Addiction Equity Act (MHPAEA) requires group health plans to provide mental health and substance use disorder benefits in parity with medical/surgical benefits. Beginning in February 2021, plans are required to have a written Comparative Analysis for any non-quantitative treatment limitations (NQTLs) that apply to their mental health or substance use disorder benefits. There are benefit limitations that cannot be expressed numerically, such as provider network adequacy or medical necessity criteria.

In September 2024, the federal agencies released a new Final Rule to help plans with their NQTL compliance. Key requirements of the Final Rule include:

• Details regarding the content and data requirements for comparative analyses reports and their examinations of the processes, strategies, and data used in designing and applying NQTLs to mental health/substance use disorder benefits
• Ensuring meaningful benefits for core treatments are provided (e.g., applied behavior analysis therapy for autism)
• Imposing a certification requirement on plan fiduciaries that they have engaged in a prudent process and adequately monitored service providers in preparing comparative analyses
• Solidifying deadlines for providing analyses and compliance action plans to the DOL upon request

However, the ERISA Industry Committee (ERIC) has filed a lawsuit challenging this Final Rule, arguing it exceeds statutory authority, is arbitrary and capricious, and overly burdensome for plans.  While the legal challenge plays out and the fate of the Final Rule remains uncertain, plans can take steps forward in their compliance efforts by:

• Requesting NQTL comparative analyses from carriers and third-party administrators
• Considering vendor assistance for comprehensive comparative analyses
• Using other available resources, such as the DOL’s MHPAEA self-compliance tool)

Staying proactive and leveraging available resources can help plans navigate the evolving MHPAEA landscape.

FICA Tax Avoidance Schemes

Beware of vendors offering supposed "wellness programs" that promise significant FICA tax savings. These are often illegal tax avoidance schemes in disguise. The typical setup involves employees making large "contributions" (e.g. $1,500–$5,000 per month) to the "wellness program," completing minor online activities, and then having those contributions returned to them via payroll—effectively bypassing FICA taxes.

These schemes are extremely risky and likely to draw scrutiny from the IRS. The agency has issued clear guidance warning about such FICA avoidance arrangements/programs and has levied hefty penalties of $500,000 or more against employers engaging in them.

No matter how enticing the promised tax savings are, these schemes are too good to be true. Employers should exercise extreme caution and consult legal/tax experts before considering any program marketed primarily as a way to reduce FICA taxes. The potential costs of an IRS crackdown far outweigh any purported benefits.

Staying Ahead in a Shifting Compliance Landscape

As the employee benefits regulatory environment continues to evolve, plan sponsors face increasing pressure to stay informed and adapt to new compliance requirements. From mental health parity rule updates to changes in HIPAA privacy regulations, keeping up with these developments is essential to protecting both employees and your organization.

At Woodruff Sawyer, our dedicated team of experts is here to help you navigate these complexities with confidence. Whether you’re seeking customized guidance, actionable insights, or up-to-date resources, we’re committed to ensuring you have the tools and support needed to respond to shifting rules and stay ahead of compliance challenges.