Employers that step in to guide workers through this transition can improve retirement outcomes, reduce benefit costs and strengthen employee trust. When older employees understand their Medicare options, they are more likely to retire on time, avoid costly mistakes and feel supported by their employer.

The risks of not helping

Employees approaching retirement often receive little more than COBRA paperwork and general instructions. This lack of guidance can lead to employees making costly errors such as missing key enrollment deadlines.

Two of the most common and expensive mistakes involve late enrollment penalties that apply for the rest of an enrollee’s life:

• Medicare Part B (medical insurance): If employees do not enroll when first eligible and lack qualifying coverage, they may face a lifetime premium penalty that increases their monthly cost permanently. The penalty is 10% of the standard premium for every full 12-month period the employee was eligible but didn’t enroll or have qualifying coverage.
• Medicare Part D (prescription drug coverage): Delaying enrollment without creditable drug coverage can also trigger a permanent penalty added to premiums. The penalty is 1% of the baseline premium for each month the person didn’t have Part D coverage.

In addition, some employees remain on employer plans longer than necessary, increasing costs for themselves and the organization.

How Medicare works with employer coverage

Medicare decisions are not one-size-fits-all. Whether an employee should enroll at age 65 depends largely on their employment status and employer size.

Employees working for companies with 20 or more employees can often delay Part B without penalty if they remain covered under the employer’s plan.

Those at smaller firms may need to enroll in Medicare at 65, as Medicare typically becomes the primary payer.

Employees must also coordinate coverage if they have a spouse on the plan or contribute to a health savings account, which they must stop prior to Medicare enrollment.

How employers can support the transition

You don’t need to provide individualized advice to help your older workers. You can easily create an education strategy that will go a long way toward improving outcomes. Make sure to:

Start early. Introduce Medicare basics as early as age 60, with more detailed education between ages 62 and 64.

Offer workshops and webinars. Discuss enrollment deadlines, coverage options and how Medicare interacts with employer plans.

Provide decision-support tools. Help employees evaluate whether to stay on the employer plan or transition to Medicare.

Send timely reminders. Notify employees as they approach their initial enrollment window (three months before and after age 65).

Connect employees with experts. Offer access to third-party Medicare advisers for one-on-one guidance.

Integrate into offboarding. Include Medicare education in retirement planning materials and exit communications.

Benefits to your organization

Medicare is one of the most important financial and health decisions employees will make, and failing to support them during the transition can lead to unintended consequences. Employees may delay retirement due to uncertainty about health coverage, driving up employer health plan costs as well as their own costs for life. Others may make poor coverage decisions.

When older employees understand their Medicare options, they are more likely to retire on time, avoid costly mistakes and feel supported by their employer. With the right guidance, employers can turn a confusing and stressful process into a well-managed transition that benefits everyone involved.

At the same time, health insurers can no longer shift additional costs to employers and employees through higher deductibles or narrower networks.

Instead, many insurers are pursuing structural changes designed to control long-term costs while improving care quality and member experience.

Interviews with health plan executives and recent industry reporting point to a common theme: reducing avoidable care, simplifying administration and investing earlier in health to prevent expensive problems later.

Employers and their staff can benefit from these strategies, which are increasingly being built into plan design, provider networks and care management programs that influence both premiums and employees’ out-of-pocket costs.

Preventive and personalized care

A central focus for many insurers is expanding preventive care and making it easier for enrollees to engage with their providers before health issues worsen. Executives at plans such as Humana and Highmark Wholecare, in a recent roundtable with the news website Becker’s Payer Issues, emphasized coordinated care models that connect primary care, specialists and support services around the individual.

These models rely on data and digital tools to identify care gaps early, such as missed screenings or unmanaged chronic conditions. Members may receive targeted reminders, care manager outreach or digital coaching to stay on track. For employers, this approach can translate into:

• Fewer high-cost claims tied to late-stage disease
• Fewer avoidable hospitalizations
• Fewer emergency department visits

Employees benefit from clearer guidance, easier navigation of benefits and more proactive outreach instead of reacting to health issues once they become serious and costly.

Cost containment through innovation and collaboration

Insurers are increasingly rethinking how care is paid for and delivered. Many are expanding value-based payment arrangements that reward providers for keeping patients healthy rather than paying for higher volumes of services.

Under these arrangements, insurers and providers share data and align financial incentives around outcomes and the total cost of care.

Plans are also using predictive analytics and artificial intelligence to identify members at higher risk of complications and intervene earlier through care coordination, remote monitoring or alternative sites of care.

For employers, this can help slow medical cost growth over time without eroding access to care for their employees.

Administrative efficiency and transparency

Health plans are investing in modernized claims systems, real-time eligibility and claim validation and more streamlined prior authorization for routine or evidence-based care.

Some plans are reducing or reforming prior authorization requirements where data shows little value, while using technology to make remaining reviews faster and more predictable. Insurers are also working to improve transparency around costs and benefits, helping members better understand service costs and coverage before care is delivered.

For employers, lower administrative costs can help moderate premium growth and reduce HR workload tied to billing disputes and employee questions. Employees may benefit from fewer delays, clearer explanations of benefits and less confusion when accessing care.

What this means for employers

While no single initiative will eliminate health care cost pressure, insurers argue that combining preventive care, value-based payment and administrative simplification offers a more durable path forward.

Employers evaluating plan options may want to work with us to assess how their carriers are implementing these or similar strategies and how they measure success.

While health savings accounts have grown in popularity, you can only offer them to employees who are enrolled in high-deductible health plans. Fortunately, there is another option: a health reimbursement arrangement (HRA).

Employers fund these accounts, which reimburse your staff for qualified medical expenses and, in some cases, insurance premiums.

You can claim a tax deduction for the funds you transfer to your employees’ HRAs, and the funds they withdraw from the accounts to reimburse for medical-related expenses are generally tax-free.

Unlike HSAs and flexible spending accounts, though, HRAs are solely funded by employers. Also, unlike HSAs, they are not portable if an employee moves to a new employer.

In addition, federal regulations dictate what types of health care expenses HRAs can reimburse, and those rules vary depending on the type of HRA you offer.

Depending on the type of HRA, funds may be used to reimburse:

• Health insurance premiums,
• Vision and dental insurance premiums,
• Coinsurance, copays and out-of-pocket medical outlays, and
• Qualified medical expenses.

How HRAs work

You decide how much you want to fund your employees’ HRAs. You can fund them in one lump sum. Under federal regulations, you must fund all like employees’ HRAs with the same amount. So, if you have 12 sales reps, each one would have to get an HRA funded with the same amount, but managers and supervisors could receive a different sum.

Employees can only withdraw funds from their account to reimburse them for a legitimate expense they have already paid for. Another option is to provide them with an HRA debit card, which they can use to pay for qualified medical expenses.

Once they have depleted the funds in their HRA for the year, they have to pay for medical expenses out of pocket.

Any HRA money that is unspent by year-end may be rolled over to the following year, although an employer may set a maximum rollover limit that can be carried over from one year to the next.

Expenses HRAs can’t cover:

• Maternity clothes,
• Gym membership fees,
• Marriage counseling, and
• Childcare.

Rules differ from one HRA to another and there are a number of different HRAs:

Integrated HRA — This type of HRA requires employees to also be covered by a group major medical plan. It generally reimburses out-of-pocket medical expenses.

Dental/vision HRA — This type of HRA limits reimbursements to only dental and/or vision expenses.

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)  — This type of HRA is only available to employers that have fewer than 50 employees. The maximum annual reimbursement amount is $5,450 for self-only employees ($454.16 per month) and $11,050 for employees with a family ($920.83 per month).

QSEHRAs are typically used to (legally) allow employers to reimburse their workers for individual health insurance premiums, in addition to other out-of-pocket expenses being reimbursed.

Individual Coverage HRA (ICHRA) — This type of HRA is available to employers of all sizes, and employees must be covered by an individual health insurance plan to be eligible.

The primary intent of the ICHRA is to allow for the reimbursement of individual health insurance premiums, but other out-of-pocket expenses, such as copays and deductibles, can also be reimbursed.

ICHRAs have only been around since January 2020 thanks to a law that allowed HRA funds to be used to pay for individual health insurance premiums.

Employees can use these HRAs to buy their own comprehensive individual health insurance with pretax dollars either on or off the Affordable Care Act’s health insurance marketplace.

Excepted Benefit HRA (EBHRA) — This HRA will allow for the reimbursement of COBRA premiums, short-term medical plan premiums, dental and vision expenses. The annual reimbursement limit for an EBHRA is $1,800 (adjusted for inflation).

The takeaway

There are a variety of HRAs that let you help your employees pay for their health care expenses. These valuable savings vehicles give both your organization and your staff a tax break on the funds, and they are another tool in helping you retain and attract talent.

In fact, you can even pair an HRA with an HSA, as long as the HRA is HSA-qualified.

In these instances, you would need to offer a “limited-purpose HRA” that only reimburses employees for expenses that are exempt from the HSA deductible requirement.

These expenses are:

• Health insurance premiums
• Long-term care premiums
• Dental expenses
• Vision expenses.

The law aims to open up the “black box” of prescription drug pricing, but it also puts both self-insured and fully insured employers closer to the compliance line, with potential civil monetary penalties that can reach $10,000 per day for reporting failures and $100,000 per violation for knowingly providing false information.

At the core of the law are three major requirements that directly affect how employer health plans interact with PBMs:

• Full rebate pass-through: PBMs must pass 100% of rebates, discounts and other compensation back to the health plan.
• Detailed reporting: PBMs must provide semiannual reports outlining drug spending, utilization and compensation structures.
• Audit rights: Plan sponsors have the statutory right to audit PBM records at least annually.

These provisions are designed to give employers clearer insight into prescription drug costs, but they also create new fiduciary responsibilities.

How this affects employers

Self-insured employers, which contract directly with PBMs, will feel the most immediate impact. They must ensure they receive required reports, review them and make summary information available to plan participants. They must also document compliance efforts.

Employers that purchase fully insured plans are not off the hook. While carriers and PBMs handle much of the administration, the law still applies to the plan sponsor in certain cases, particularly around participant disclosures and ensuring compliance upstream.

The law does not clearly assign liability for penalties in all situations. As a result, PBMs and insurers may attempt to shift risk to employers through contract language.

Specifically, some PBM agreements may include indemnification provisions that require the employer to cover penalties — even if the PBM failed to meet its reporting obligations.

New risks

Employers should pay close attention to several emerging risks:

• Contractual liability: PBMs may try to transfer penalty exposure to plan sponsors.
• Reporting gaps: Failure to obtain or share required data could trigger fines.
• Notice requirements: Employers must inform plan members about available prescription drug data.
• Fiduciary exposure: Plan sponsors must act prudently in overseeing PBM arrangements.

Employers may avoid penalties if they can demonstrate a “good faith effort” to comply. That makes documentation critical.

What employers should do now

With most provisions taking effect in 2029 for calendar-year plans, employers have time to prepare:

• Review PBM contracts and renegotiate any indemnification clauses that shift compliance risk.
• Establish a compliance process to retain PBM reports and allow employees to request copies.
• Keep records of communications and efforts to obtain required data.
• Ensure summary benefit information and required notices include information on the new law.
• Work with us to better understand compliance issues.
• Notify participants about their right to access PBM plan-level summary data. We can help you integrate this into your next open enrollment or summary plan documents update.

Why this matters

The new PBM mandates are intended to reduce drug costs and improve transparency, but they also introduce a compliance burden that many employers are not equipped to handle alone.

Employers should not assume their PBM or insurance carrier is managing all aspects of compliance. Ultimately, plan sponsors bear fiduciary responsibility for their health plans.

That makes it critical to work closely with a knowledgeable benefits advisor like us who can help review contracts, interpret reporting requirements and ensure that your plan remains compliant as these rules take effect.

During the last three years, a new driver of health plan costs has emerged: a growing share of employees are postponing doctor visits, screenings and even medications until conditions worsen.

Instead of early, lower-cost intervention, employees are entering the system later and sicker. This is fueling more catastrophic claims, higher utilization of emergency services and ultimately higher costs for employer-sponsored plans.

Across the country, providers report more late-stage diagnoses and unmanaged chronic conditions. When symptoms become severe, they often require more intensive treatments that drive up costs, including:

• Hospitalization,
• Specialist care,
• Advanced imaging and
• Expensive drug regimens.

Delayed care domino effect

The reasons for this trend are well documented. A survey by the Employee Benefit Research Institute found that four in 10 privately insured adults report higher health care costs. At the same time, polling by KFF found that 36% of adults say they have skipped or postponed needed care due to cost, and about one in five have not filled a prescription for the same reason.

High-deductible health plans are a major factor. While they can help control premiums, they also require employees to pay sometimes thousands of dollars out of pocket before coverage begins. That financial exposure can lead workers to put off care, particularly if they are unsure whether a visit is necessary.

Medication non-adherence is another driver. About one-third of adults report skipping doses or delaying prescriptions due to costs, according to KFF. This can worsen chronic conditions and lead to hospitalizations that could have been avoided with consistent treatment.

What employers can do

• Lower financial barriers to preventive care — Waive or reduce cost-sharing for primary care visits, screenings and chronic condition management.
• Promote and simplify primary care access — Offer telehealth, onsite or near-site clinics and easy scheduling to reduce friction.
• Educate employees on how their plans work — Many workers do not fully understand deductibles, health savings accounts or covered services, which can lead to unnecessary delays.
• Encourage medication adherence — Consider programs that reduce or eliminate costs for essential medications tied to chronic conditions.
• Use data to identify gaps in care — Analyze claims to find employees who are missing preventive services or managing chronic conditions poorly.
• Steer employees to high-value providers — Offer insurance from carriers that offer networks or incentives that guide workers to high-quality, lower-cost settings for procedures and treatments.
• Leverage wellness and condition management programs — Programs that help employees manage diabetes, musculoskeletal issues or cardiovascular health can improve outcomes and reduce long-term costs.

Employers have more influence than they may realize in addressing delayed care. The goal is to reduce barriers and make it easier for employees to access care early.

According to a report by Aflac, only 38% of employees said they understand everything about their benefits, suggesting that most workers need more guidance on how their coverage works. When employees lack health care literacy — the ability to find, understand and use health information and services — they are more likely to delay care, make poor medical decisions and incur unnecessary costs.

For employers, that translates into higher claims costs, lower productivity and frustration with benefit programs.

Improving health care literacy can deliver measurable benefits. The Centers for Disease Control and Prevention has estimated that better health literacy could prevent nearly 1 million hospital visits annually and save more than $25 billion in health care costs.

The cost of confusion

Employees who do not understand their benefits often:

• Use out-of-network providers unnecessarily.
• Choose higher-cost care settings, like emergency rooms for non-emergencies.
• Skip preventive care that could head off more serious conditions later.
• Misinterpret bills or fail to challenge incorrect charges.

These behaviors drive up employer-sponsored plan costs and can also lead to more absenteeism and presenteeism.

Open enrollment is not enough

Many employers concentrate their communication efforts during open enrollment. While important, that once-a-year push is not enough to build true understanding.

Employees make health care decisions year-round, like when they schedule a test, fill a prescription or choose where to seek care. Without ongoing education, even well-designed benefit plans can go underutilized and employees may make costly choices.

Employers that take a continuous approach to education are more likely to see employees engage with their benefits and make smarter decisions.

Practical ways to build health care literacy

Employers do not need to overhaul their benefits strategy to make progress. Small, consistent steps can have a meaningful impact:

• Use plain language. Rewrite benefit materials to eliminate jargon and explain key terms like deductibles, copays and coinsurance in simple terms. Aim for a sixth- to eighth-grade reading level.
• Educate year-round. Provide monthly or quarterly communications that focus on one topic at a time, such as preventive care, telemedicine or how to read an explanation of benefits.
• Show real-world examples. Compare costs for common scenarios like urgent care vs. emergency room visits so employees see the financial impact of their choices.
• Promote in-network savings. Use visuals or tools that highlight how much employees can save by staying within network providers.
• Leverage multiple channels. Combine e-mail newsletters, intranet content, webinars and short videos to meet employees where they are.
• Offer decision support. Provide access to benefits counselors, either in person or virtually, to help employees choose plans and understand coverage.
• Encourage preventive care. Regular reminders about screenings, vaccinations and annual checkups can reinforce healthy behaviors and reduce long-term costs.
• Use data to guide efforts. Review claims trends and employee questions to identify where confusion is highest, then tailor education accordingly.

Build trust and engagement

Employers that invest in health care literacy often become a trusted source of information for their workforce. That trust can increase participation in wellness programs, improve satisfaction with benefits and strengthen retention.

It also aligns with a broader shift in how employees view their benefits. Workers increasingly expect guidance and want help navigating a complex system. Fortunately, employers are well positioned to provide it.

Employers fund these flexible benefit plans with funds that are deducted from their employees’ salaries on a pre-tax basis. Since the salary reductions are not received by the employee, they are not considered wages for income tax purposes.

Cafeteria plans are particularly good for participants who have regular expenses related to medical issues and childcare.

The worker can choose from a menu of options into which they want to funnel the funds, and how they want those funds allocated. Options can include:

• Health insurance,
• Voluntary benefits premiums (like vision and dental),
• Life insurance,
• 401(k), and
• Flexible spending account.

Besides the fact that your employees use money that hasn’t been taxed to pay for these benefits, the payroll deductions for them also reduce their taxable income while raising take-home pay.

A cafeteria plan is especially attractive because it lets them choose which benefits they want. This is great since one size does not fit all in the world of employee benefits.

Set-up and tax implications

Cafeteria plans are also called Section 125 plans because they were created by Section 125 of the IRS Code.

When a plan is created, the benefits are available to employees, their spouses, and their dependents. Depending on the circumstances and details of the plan, Section 125 benefits may also extend to former employees, but the plan cannot exist primarily for them.

Section 125 plans offer a number of tax-saving benefits for employers. For each participant in the plan, employers save on the Federal Insurance Contributions Act (FICA) tax, the Federal Unemployment Tax Act (FUTA) tax, the State Unemployment Tax Act (SUTA) tax, and workers’ compensation insurance premiums.

Combined with the other tax savings, a Section 125 plan usually funds itself because the cost to open the plan is low.

Also, it’s estimated that participating employees can save 20% to 40% of every dollar put into the plan. The employee chooses how much they want to put into the plan each year and this is deducted from their paycheck automatically for each payroll period.

Remember: Flexible benefit plans are not without their drawbacks. But if you want to attract and retain key personnel with competitive benefit packages while keeping your own costs low, they can be an attractive alternative to standard benefit plans.

Call us for more information on how you can set up a flexible benefit plan for your staff.

There are several types of flexible benefit plans, including cafeteria plans and flexible spending accounts.

Flexible spending accounts

An FSA lets your employees pay for medical-related expenses and dependent care that may not be covered by their health plan. They can later use these funds to pay for an array of expenses such as:

• Out-of-pocket medical costs,
• Acupuncture, chiropractic services and the like,
• Medical equipment,
• Day-care provider fees,
• Elder care.

Also, employers can allow the employee to carry over a portion of the funds in an FSA to the first few months of the next year. The maximum permitted carryover amount is $550.

The modern workforce spans four generations, each shaped by different life stages, financial pressures and comfort levels with technology. That means the same benefits message and enrollment experience will land differently depending on who is receiving it. Recent surveys have found benefits satisfaction has slipped, suggesting expectations are rising faster than many programs and communications are evolving.

Benefits are complex, personal and often tied to major life decisions. When communications are too generic or the enrollment process feels frustrating, employees may tune out, postpone decisions or default to last year’s elections even when their needs have changed.

The employers that win on engagement typically do three things well:

• Segment the workforce — Generation, life stage, family status, career stage, location and role
• Offer multiple ways to learn — Digital, live and self-serve
• Make the experience easy — Clear choices, fewer clicks and fast answers

Baby boomers

Boomers are often focused on retirement readiness, health care coverage and protecting income. Many are already of retirement age but choose to keep working. They typically appreciate a personal touch and time to digest information before making decisions.

• Offer live Q&A sessions and phone-based support during enrollment.
• Provide clear comparisons of medical plan costs, networks and coverage.
• Highlight catch-up retirement contributions and step-by-step retirement planning resources.
• Pair complex choices (Medicare coordination, supplemental products and long-term care options) with one-on-one counseling.

Generation X

Gen X employees often juggle competing responsibilities, including kids and aging parents. They tend to value autonomy, straightforward information and tools that respect their time.

• Use concise e-mails and one-page summaries that link to more details as needed.
• Offer self-serve decision tools for health plans, FSAs and disability coverage.
• Emphasize financial protection benefits (life, disability and critical illness) in plain language.
• Provide flexible office hours for short calls, not long meetings.

Millennials

Millennials commonly look for flexibility and benefits that support evolving family and financial needs. They are comfortable with digital enrollment but still want clarity and proof of value.

• Build mobile-friendly enrollment processes with short videos and brief explainers.
• Spotlight flexibility-related benefits such as remote options, caregiving support and paid leave when applicable.
• Promote financial wellness resources, student loan support or budgeting tools if offered.
• Tie benefits to career growth, such as tuition support, certification reimbursement, mentorship and internal mobility.

Generation Z

Gen Z is highly responsive to technology-driven experiences and expects speed, transparency and easy access. They also tend to prioritize mental well-being and want information in short, visual formats.

• Use text message-style reminders, in-app nudges or chat-based help if possible.
• Provide bite-size content like short videos, FAQs and simple “what it covers” flyers.
• Make mental health benefits easy to find and use, including EAP access and digital options.
• Offer guided enrollment portals for those new to employee benefits, including definitions and examples.

Execution

A workable multigenerational strategy does not require building four separate benefits programs. Start by updating how workers access, understand and use existing benefits.

• Survey and listen: Ask employees what they use, what confuses them and how they prefer to receive information.
• Offer “digital plus human”: Keep digital enrollment simple but back it up with real-time support for complex questions.
• Measure what matters: Track participation by benefit type, access methods, call center volume and common questions. Then refine communications year-round.
• Segment by life stage, not just age: Family status, health needs and financial stress often predict benefit priorities better than age alone.

When employees can engage with benefits in ways that fit them best, enrollment tends to rise, confusion drops and benefits become a more visible driver of satisfaction and retention.

The changes in the Consolidated Appropriations Act of 2026 are designed to ensure that manufacturer rebates and other drug-price concessions flow back to plans and self-insured employers, while giving plan fiduciaries better data to evaluate whether PBM contracts actually lower costs.

The goal is for health plans to pass those funds to employer customers as lower premiums as they have in West Virginia after similar legislation took effect there, according to studies.

PBMs contract with drugmakers, pharmacies and payers, and handle formularies, pharmacy networks and claims processing while negotiating rebates and discounts with manufacturers. Critics across the political spectrum argue that PBMs’ incentives can push plans toward higher list-price drugs with bigger rebates, which PBMs have been accused of pocketing. This means employers and employees pay more overall, especially when cost sharing is tied to list price.

Skeptics worry that PBMs will adjust to the legislation by replacing lost rebate-related revenue with administrative fees or other contract mechanisms.

The two core reforms

Rebate and discount pass-throughs — The law requires PBMs to pass through 100% of manufacturer rebates, fees, discounts and other remuneration (excluding “bona fide service fees”) to ERISA-covered group health plans or plan sponsors. In practice, it targets business models in which PBMs retain a share of rebates or embed revenue in “spread pricing.”

The pass-through requirement will apply to PBM contracts entered into, renewed or extended for plan years beginning on or after Aug. 3, 2028. For many calendar-year plans, that effectively means Jan. 1, 2029.

Transparency and reporting — PBMs will have to provide detailed reporting to group health plans at least twice a year, with an option for quarterly reporting upon request.

Reports are expected to include information that helps sponsors understand drug spending and PBM revenue sources such as rebates, fees and spread pricing, plus data tied to formulary decisions. Civil penalties can apply for failure to disclose information and for knowingly providing false information.

What’s in it for employers

A key reason employers and other payers are hopeful is the experience in West Virginia, where state officials reported that a rebate pass-through approach was associated with materially smaller group premium increases in the state’s 2026 small-group and large-group filings.

For 2026, the rebate pass-through mandate cut the average group health plan rate increase to 12.6% from 19.5%, according to data calculated by insurers and published in a report compiled by the West Virginia Offices of the Insurance Commissioner. The pass-through mandate caused one insurer to cut its large-group rates by 3% rather than increasing premiums by 5%.

That said, state results can be hard to generalize because plan design, market competition and underlying claims trends differ.

For employers that purchase group health insurance, the new PBM rules could eventually help reduce prescription drug costs by ensuring that rebates and discounts negotiated by PBMs flow back to health plans instead of being retained by intermediaries.

However, because the reforms do not take effect for several years and PBMs may adjust their pricing models, employers should not expect immediate savings. Employers should also work with us to monitor how their carriers incorporate the new requirements into future pharmacy benefit arrangements.

In a Feb. 24, 2026 letter to the U.S. Departments of Treasury, Labor and Health and Human Services (HHS), the organizations asked the Trump administration to tighten oversight of the law’s independent dispute resolution system. The groups argue that the process, which was designed to settle payment disputes between insurers and out-of-network medical providers, is being manipulated in ways that increase health care costs.

A study cited in the letter found that the IDR process generated at least $5 billion in wasteful spending between 2022 and 2024, including administrative fees and arbitration awards that far exceed typical market rates.

How the No Surprises Act works

The No Surprises Act took effect in 2022 and was designed to protect patients from unexpected medical bills. Before the law, patients could receive large bills if they unknowingly received care from out-of-network providers (for example, an out-of-network anesthesiologist at an in-network hospital).

The law prohibits providers from billing patients for these unexpected charges. Instead, insurers and providers must negotiate payment for the service. If they cannot reach an agreement within 30 days, either side can initiate the IDR arbitration process.

Congress intended the process to serve as a limited backstop for resolving occasional disputes, but it has evolved into something far larger.

Federal regulators originally estimated that about 17,000 disputes would enter arbitration each year. Instead, more than 3.3 million disputes were filed between mid-2022 and May 2025, according to a study published in Health Affairs.

Act is a new cost driver

The Office of the Assistant Secretary for Planning and Evaluation, a division of HHS, issued a report in 2026 that found the act is driving up costs for health plans, payers and patients. It found that:

• About 85% of the disputes that flowed through the system in 2023 involved participants in health plans sponsored by private employers.
• IDR reviewers took an average of 91 days to handle disputes, and some took more than 300 days to close some disputes.
• The reviews cost an average of $445 each.
• The reviewers sided with providers in hospital care cases 80% of the time.
• When reviewers sided with the providers, they awarded significantly higher payment rates. For example: For colonoscopy anesthesia, health insurers paid providers an average of $300 in 2023. When an IDR reviewer handled a dispute involving the procedure, it awarded an average payment of $1,252.

What the coalition wants

Industry analysts say the growing use of arbitration is already creating new affordability pressures for employer health plans and their employees through higher premiums, deductibles and cost-sharing.

In their letter, the groups urged federal regulators to take several steps to restore the arbitration system to its intended purpose.

They recommended that the agencies:

• Strengthen enforcement to ensure only eligible claims enter the IDR process.
• Require arbitrators to explain decisions that deviate significantly from benchmark payment levels.
• Increase transparency around arbitration outcomes.
• Penalize providers that repeatedly submit ineligible claims.

The coalition argues that stronger oversight is necessary to ensure the No Surprises Act continues protecting patients without unintentionally driving up health care costs for employers and their workers.