Quick Takeaway

For people with Medicare, insulin costs remain capped in 2026—but there’s an important change many headlines miss.

For a one-month supply of each Part D-covered insulin product, your cost-sharing in 2026 is generally the lowest of:

• $35
• 25% of the Medicare-negotiated Maximum Fair Price, when applicable
• 25% of the plan’s negotiated price

The Part D deductible does not apply to covered insulin.

That means $35 is effectively a ceiling, not necessarily the amount everyone pays.

Some Medicare beneficiaries could pay less than $35 for certain covered insulin products in 2026.

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Is the $35 Insulin Cap Actually New in 2026?

Not exactly.

Medicare’s insulin cost-sharing protection has already been in effect for several years.

What’s important about 2026 is that the calculation changes.

Previously, people often heard the rule summarized simply as:

“Medicare insulin costs no more than $35 per month.”

That’s still broadly useful.

But beginning in 2026, Medicare Part D uses the more favorable calculation described above.

CMS explicitly states that the applicable cost-sharing amount is the lesser of $35, 25% of the Maximum Fair Price, or 25% of the plan’s negotiated price for the covered insulin product.

So the better 2026 message is:

$35 or less.

---

How the 2026 Rule Works

Imagine your Medicare drug plan covers your insulin.

Scenario A

25% of negotiated price = $52

$35 cap = $35

You pay no more than $35.

Now consider another insulin.

Scenario B

25% of negotiated price = $28

$35 cap = $35

Your applicable cost sharing could be $28.

That’s the important 2026 distinction.

The rule doesn’t automatically force your copay to $35.

It prevents applicable cost sharing from exceeding the statutory limit.

---

What Medicare.gov Says

Medicare’s official consumer guidance states that beneficiaries pay no more than $35 for a one-month supply of each Part B- and Part D-covered insulin product, and the deductible doesn’t apply to insulin.

For a three-month supply, the maximum would generally be:

$35 × 3 = $105

for each covered insulin product.

Again, depending on the 2026 calculation, your actual cost could be lower.

---

Who Gets the Insulin Cost-Sharing Protection?

The protection primarily applies to Medicare beneficiaries whose insulin is covered through:

Medicare Part D

or qualifying insulin covered through:

Medicare Part B.

Which part of Medicare pays depends partly on how you receive your insulin.

---

Part D Insulin

Medicare Part D may cover insulin that is:

Injected using a pen

Injected using a needle

Inhaled

or:

Used with certain pumps that aren’t covered as durable medical equipment under Part B.

Medicare specifically notes that this can include certain disposable or patch pumps and some reusable pumps using disposable insulin cartridges.

For covered Part D insulin, the deductible doesn’t apply.

---

What About Insulin Pumps?

This is where Medicare coverage can become confusing.

If you use insulin through a qualifying durable insulin pump covered under:

Medicare Part B’s Durable Medical Equipment benefit,

Part B can cover the insulin used in that pump.

Medicare says the beneficiary’s cost for a month’s supply of Part B-covered insulin used with the qualifying pump can’t exceed:

$35

and the Part B deductible doesn’t apply to that insulin.

---

The Pump Itself Is Different

Don’t assume the $35 insulin cap means:

your entire insulin-pump system costs $35.

It doesn’t.

CMS explains that normal Medicare cost-sharing can still apply to:

The pump

Tubing

and:

Other supplies.

The insulin protection applies to the covered insulin—not necessarily every piece of equipment involved in insulin therapy.

---

What About Disposable Patch Pumps?

There’s another important distinction.

Medicare’s 2026 insulin guidance notes that some disposable or patch pumps themselves may cost more than $35 because:

the pump isn’t the insulin product.

Part D may cover insulin used with certain disposable pumps, but the cost-sharing protection for insulin shouldn’t be confused with the cost of the delivery device itself.

---

Does Every Insulin Qualify?

This is one of the most important limitations.

For Part D:

The insulin generally needs to be a covered insulin product under your plan.

That means consumers should check the plan’s:

Formulary — its covered-drug list.

A plan doesn’t necessarily have to cover every insulin product available in the United States.

So don’t interpret:

“Medicare has a $35 insulin cap”

as:

“I can buy any insulin I want for $35.”

Coverage still matters.

---

Check Your Exact Insulin Before Choosing a Plan

Suppose you use:

Insulin A.

Plan 1 covers it.

Plan 2 doesn’t.

Plan 2 may advertise:

“Insulin $35 or less.”

But that doesn’t necessarily help if your specific insulin isn’t covered.

Before choosing Medicare drug coverage, enter the exact:

Insulin name

Dosage

Quantity

and:

Pharmacy

into your plan comparison.

That’s much more reliable than comparing premiums alone.

---

Does the Deductible Apply to Insulin?

For covered insulin subject to these rules:

No.

CMS states that the Part D deductible doesn’t apply to covered insulin products.

This is particularly important because the standard Part D deductible in 2026 is:

$615.

Without the special insulin protection, someone needing insulin early in the year could otherwise face much higher upfront prescription expenses.

---

Example: January Prescription

Imagine your Part D plan has the standard:

$615 deductible.

You haven’t filled any prescriptions yet.

Then you refill your covered insulin in January.

You don’t first have to satisfy the entire $615 Part D deductible before receiving the insulin cost-sharing protection.

The insulin-specific rule applies.

That’s a major affordability protection for beneficiaries who need insulin every month.

---

What If You Use More Than One Insulin?

This is another detail that’s easy to miss.

The cost-sharing limit applies to a month’s supply of:

each covered insulin product.

Suppose someone uses two different covered insulin products.

If each reaches the maximum $35 amount, their total could hypothetically be:

$35 + $35 = $70 per month.

So don’t interpret the rule as:

“Nobody with Medicare can spend more than $35 total on insulin each month.”

It’s applied to each covered insulin product.

---

What About a 90-Day Supply?

Medicare explains that a three-month supply generally can’t cost more than:

$105

for each covered insulin product.

That’s:

$35 × 3 months.

If the applicable monthly cost is below $35, the corresponding extended-supply amount may also be lower.

---

What If I Have Extra Help?

The insulin protection also applies to people with Medicare Part D who receive Extra Help.

But some Extra Help beneficiaries may already qualify for cost sharing that’s:

below $35.

Medicare’s April 2026 insulin guidance explicitly says that beneficiaries receiving Extra Help may pay less than $35.

So again:

$35 is not necessarily your required copay.

---

Why 2026 Could Mean Less Than $35

This is one of the biggest updates consumers should understand.

Beginning in 2026, Part D insulin cost sharing considers:

25% of the Maximum Fair Price

for insulin subject to Medicare’s Drug Price Negotiation Program,

and:

25% of the plan’s negotiated price.

If either applicable calculation produces an amount below $35:

the lower amount can apply.

CMS describes the change as moving from a simple maximum copay framework to a calculation involving the lower applicable copayment or coinsurance amount.

---

Example: $100 Negotiated Price

Imagine your plan’s applicable negotiated price for a covered insulin is:

$100.

25% =

$25.

Because:

$25 < $35

the applicable statutory calculation could result in:

$25

rather than $35.

This simplified example shows why consumers shouldn’t automatically assume their 2026 insulin copay will always equal $35.

---

Example: $300 Negotiated Price

Now imagine the applicable negotiated price is:

$300.

25% =

$75.

Compare:

$75

with:

$35.

The lower figure is:

$35.

So the cost-sharing ceiling protects the beneficiary from the larger amount.

---

How the Medicare Drug Price Negotiation Program Fits In

2026 is also historically important because it’s the first year that negotiated prices for the first group of drugs selected under Medicare’s Drug Price Negotiation Program take effect.

CMS’s 2026 Part D rules integrate those Maximum Fair Prices into the insulin cost-sharing calculation when applicable.

That’s why the insulin rule is becoming slightly more complicated—but potentially more favorable for some beneficiaries.

---

The $2,100 Part D Out-of-Pocket Cap

Insulin users also benefit from another major Medicare Part D protection.

For 2026, the annual Part D out-of-pocket threshold is:

$2,100.

After reaching the applicable annual out-of-pocket threshold, enrollees enter the catastrophic phase, where they generally have no additional cost sharing for covered Part D drugs.

The 2025 limit was $2,000.

The 2026 amount increased to $2,100 under the statutory inflation adjustment.

---

Insulin Is Only One Part of Diabetes Spending

This distinction matters.

The insulin cost-sharing protection can substantially reduce insulin expenses.

But people with diabetes may also pay for:

Glucose testing supplies

Continuous glucose monitors

Needles

Syringes

Pump equipment

Doctor visits

Laboratory testing

and:

Other medications.

Those expenses don’t all automatically fall under the insulin-specific $35 protection.

---

Insulin Supplies Can Have Different Rules

For example, Medicare notes that Part D plans may cover certain supplies used to inject insulin, including:

Syringes

Needles

Gauze

and:

Alcohol swabs.

But the $35 insulin cap doesn’t simply make every diabetes-related item $35 or less.

Always distinguish:

the insulin

from:

the supplies used to administer it.

---

Continuous Glucose Monitors Are Separate

Continuous glucose monitors—or CGMs—have become increasingly common for diabetes management.

But CGMs aren’t insulin.

Their Medicare coverage and cost-sharing rules are separate from the insulin cap.

The same applies to many:

Test strips

Lancets

Meters

and:

Pump supplies.

This is why someone shouldn’t calculate their total diabetes budget based only on:

$35 × 12.

---

Your Pharmacy Still Matters

Part D plans use pharmacy networks.

Consumers should verify whether their preferred pharmacy is:

In network

and whether another pharmacy provides more favorable pricing for their other prescriptions.

The insulin cap provides important protection, but your pharmacy choice can still affect your broader prescription-drug spending.

---

Medicare Advantage Members Get Protection Too

If you receive prescription coverage through a:

Medicare Advantage Prescription Drug plan (MA-PD),

the Part D insulin cost-sharing protections apply to covered Part D insulin.

Medicare Advantage plans must follow applicable Medicare requirements.

However, the rest of your healthcare costs can differ substantially by plan.

So insulin cost shouldn’t be the only consideration when choosing Medicare Advantage coverage.

---

Don’t Choose a Plan Based Only on Insulin

Suppose:

Plan A

Covered insulin: $35

Premium: $0

but:

Your endocrinologist isn’t in network.

Plan B

Covered insulin: $30

Premium: $45

and:

Your endocrinologist and preferred hospital are in network.

Which plan is better?

There’s no universal answer.

You need to consider:

Total annual healthcare cost + provider access + drug coverage.

---

Compare All Your Medications

Someone with diabetes may also take medication for:

Blood pressure

Cholesterol

Heart disease

Kidney disease

or other conditions.

Your insulin may be inexpensive under both plans.

But another prescription could differ by:

hundreds or thousands of dollars annually.

That’s why Medicare plan comparison should include:

every medication you take.

---

What About the Medicare Prescription Payment Plan?

Medicare Part D plans also offer the:

Medicare Prescription Payment Plan.

This option allows participating beneficiaries to spread eligible out-of-pocket prescription costs across monthly payments during the year rather than paying the entire amount at the pharmacy at once.

However, this program:

doesn’t reduce the underlying prescription cost.

It changes the timing of payments.

For insulin users with other expensive medications, that may still help with monthly cash flow.

---

What the $35 Cap Doesn’t Mean

The insulin protection does not mean:

All diabetes care is $35 per month.

It does not mean:

Every insulin sold in America must be covered by your plan.

It does not mean:

Insulin pumps cost $35.

It does not mean:

Diabetes supplies are automatically free.

And it does not mean:

Everyone pays exactly $35.

For 2026, some Medicare beneficiaries may pay:

less.

---

2026 Example: A Medicare Beneficiary Using Insulin

Consider a hypothetical retiree named Robert.

Robert has:

Medicare Advantage with Part D.

He uses one covered insulin product.

His plan’s applicable 2026 calculation produces:

$35 per month.

His annual insulin cost would therefore be approximately:

$420

if he fills a one-month supply every month and nothing changes.

But Robert also uses:

Blood-pressure medication

Cholesterol medication

and:

Continuous glucose-monitor supplies.

Those items have separate coverage and cost-sharing rules.

So:

Robert’s insulin spending ≠ Robert’s total diabetes spending.

---

Another Example: Paying Less Than $35

Maria uses a covered Part D insulin.

Suppose 25% of the applicable negotiated price is:

$24.

Because the 2026 statutory calculation uses the lower applicable amount, Maria could pay:

$24

rather than $35 under this simplified example.

That’s why the phrase:

“$35 insulin cap”

is useful—but incomplete.

A more precise description for 2026 is:

“$35-or-less Medicare insulin cost sharing.”

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Why This Matters for People on Fixed Incomes

Imagine someone previously faced unpredictable insulin expenses.

Predictability matters enormously when monthly income comes primarily from:

Social Security

Pensions

or:

retirement savings.

A predictable insulin ceiling makes it easier to budget.

For one covered insulin product at the full $35 monthly maximum:

Maximum annual cost = $420

for the insulin itself, assuming 12 one-month fills.

For two covered insulin products each reaching $35:

Maximum = $840

under that simplified scenario.

Again, other healthcare and diabetes-related costs remain separate.

---

How to Check Your Insulin Coverage

When reviewing a Medicare plan:

Step 1

Write down the exact name of every insulin you use.

Step 2

Check whether each product appears on the plan’s formulary.

Step 3

Confirm the expected 2026 cost.

Step 4

Enter all your other medications.

Step 5

Check your pharmacy.

Step 6

Compare the plan’s total estimated annual drug costs.

Step 7

For Medicare Advantage, also verify your doctors and hospitals.

Use the official Medicare Plan Finder to compare available coverage.

---

Questions to Ask Your Medicare Plan

If something isn’t clear, ask:

Is my exact insulin on your 2026 formulary?

What will I pay for a 30-day supply?

Would I pay less than $35 under the 2026 calculation?

What would a 90-day supply cost?

Which pharmacies are in network?

Do I need prior authorization?

Are there quantity limits?

What will my insulin-delivery supplies cost?

Getting answers before enrollment can prevent expensive surprises.

---

2026 Insulin Coverage Checklist

Before choosing or renewing Medicare coverage:

• List every insulin product you use.
• Confirm each insulin is covered.
• Check your expected monthly copay.
• Remember $35 is a ceiling for applicable covered insulin, not necessarily your exact cost.
• Check whether the 2026 calculation results in less than $35.
• Remember the Part D deductible doesn’t apply to covered insulin.
• Check 90-day supply pricing.
• Confirm your preferred pharmacy.
• Review insulin-supply costs separately.
• Review pump costs separately.
• Review CGM coverage separately.
• Enter all non-insulin prescriptions.
• Check the plan’s formulary restrictions.
• Review the $2,100 Part D annual out-of-pocket threshold.
• Compare total annual drug costs rather than insulin alone.
• For Medicare Advantage, verify doctors and hospitals.
• Review your coverage again each year.

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Frequently Asked Questions

Is insulin capped at $35 in Medicare for 2026?

For a one-month supply of each covered insulin product, Medicare provides cost-sharing protections of $35 or less, depending on the applicable rules.

Can Medicare insulin cost less than $35 in 2026?

Yes. For Part D in 2026, the applicable amount is generally the lesser of $35, 25% of the applicable Maximum Fair Price, or 25% of the plan’s negotiated price.

Does the Part D deductible apply to insulin?

No. The Part D deductible doesn’t apply to covered insulin products subject to the insulin cost-sharing rules.

What’s the maximum for a three-month supply?

Medicare says a three-month supply generally costs no more than $105 for each covered insulin product, and it may be lower.

Does Medicare Part B cover insulin?

Part B covers insulin used with certain insulin pumps covered under Medicare’s Durable Medical Equipment benefit. The insulin cost for a month’s supply can’t exceed $35, and the Part B deductible doesn’t apply to that insulin.

Is an insulin pump limited to $35?

No. The $35 protection applies to covered insulin under the applicable rules. Normal Medicare cost-sharing can apply to the pump, tubing and other supplies.

What is the Medicare Part D out-of-pocket cap for 2026?

The annual Part D out-of-pocket threshold is $2,100 in 2026.

---

Final Thoughts

The biggest thing to understand about Medicare’s insulin rules in 2026 is:

$35 is a maximum—not necessarily your price.

For covered Part D insulin, the 2026 rules use the lower applicable amount among:

$35

25% of the Maximum Fair Price

or:

25% of the plan’s negotiated price.

The deductible also doesn’t apply to covered insulin.

That’s meaningful protection for millions of Medicare beneficiaries managing diabetes.

But insulin is only one part of the financial picture.

Your:

Formulary

Other prescriptions

Insulin supplies

Pump equipment

CGM

Doctors

and:

overall Medicare plan

can have just as much impact on your annual healthcare spending.

So when comparing plans for 2026, don’t simply ask:

“Does this plan have $35 insulin?”

Ask:

“What will my complete diabetes care actually cost under this plan?”

That’s the comparison that matters.

Important Accuracy Note About the “86%” Claim

The proposed headline should be adjusted before publication.

Current 2026 data do not support saying that 86% of Medicare Advantage enrollees are choosing $0-premium plans.

KFF’s analysis of CMS data finds that 75% of people enrolled in individual Medicare Advantage plans with prescription drug coverage (MA-PDs) pay no additional premium beyond their Medicare Part B premium in 2026. Separately, 67% of available MA-PD plans charge no additional premium.

A safer SEO headline is:

Medicare Advantage 2026: Why 75% of Enrollees Are Choosing $0-Premium Plans

That preserves the strength of the topic while keeping the article factually accurate.

---

What Does a $0-Premium Medicare Advantage Plan Actually Mean?

The phrase:

“$0 premium”

can sound as though Medicare coverage costs nothing.

That’s not what it means.

A $0-premium Medicare Advantage plan generally means the plan charges no additional monthly Medicare Advantage premium.

Beneficiaries normally still need to pay their Medicare Part B premium.

The standard Medicare Part B premium in 2026 is:

$202.90 per month

for most beneficiaries, although some people pay more because of income-related adjustments.

So:

$0 Medicare Advantage premium ≠ $0 healthcare cost.

That’s the most important concept to understand before comparing plans.

---

How Popular Are $0-Premium Plans in 2026?

Very popular.

According to KFF’s analysis:

75%

of enrollees in individual Medicare Advantage plans with prescription drug coverage pay no additional premium beyond Medicare Part B in 2026.

And availability is even broader.

Nearly:

98% of Medicare beneficiaries

have access to at least one Medicare Advantage prescription-drug plan charging no additional premium in 2026.

That’s one reason these plans have become such a powerful competitor to Original Medicare.

---

Medicare Advantage Is Now a Major Part of Medicare

Medicare Advantage is no longer a niche alternative.

In 2026:

35.2 million

people are enrolled in Medicare Advantage.

That’s approximately:

55%

of eligible Medicare beneficiaries with both Parts A and B.

For comparison, Medicare Advantage represented only about:

19%

of eligible beneficiaries in 2007.

The market has changed dramatically.

---

Why Can Medicare Advantage Plans Charge $0?

This is where consumers understandably become suspicious.

A private insurance company isn’t providing coverage for free.

Medicare Advantage plans receive payments from the federal Medicare program to provide Medicare-covered benefits to their members.

Plan payments and Medicare’s bidding system can also produce rebates that plans can use in various ways, including helping finance supplemental benefits or reducing certain beneficiary costs.

This financing structure allows some insurers to offer plans with:

No additional monthly plan premium.

So the plan isn’t operating without revenue.

The beneficiary simply isn’t being charged an additional monthly premium for that particular plan.

---

Reason #1: $0 Is Extremely Attractive to Retirees

Imagine two advertisements.

Plan A

$0 additional monthly premium

Plan B

$65 monthly premium

Before comparing anything else, Plan A has an obvious psychological advantage.

For someone living on:

Social Security

Pension income

or:

Retirement savings,

monthly expenses matter.

Avoiding an additional $50 monthly premium would represent:

$600 per year

in premium savings.

Avoiding $100 per month would represent:

$1,200 annually.

That’s enough to get consumers’ attention.

---

Reason #2: Many Plans Bundle Prescription Drug Coverage

Another major attraction is integration.

In 2026, 96% of Medicare Advantage enrollees in individual plans open for general enrollment are in plans that include prescription drug coverage.

That can create a convenient package:

Hospital coverage

Medical coverage

Prescription coverage

under one Medicare Advantage plan.

By contrast, someone using Original Medicare may decide to obtain a separate stand-alone Part D prescription plan.

---

Reason #3: Dental Benefits

Original Medicare generally doesn’t provide comprehensive routine dental coverage.

Medicare Advantage plans frequently advertise benefits involving:

Dental exams

Cleanings

X-rays

Fillings

and sometimes more extensive dental services.

For 2026, KFF reports that 98% or more of individual Medicare Advantage plans offer dental, vision and hearing benefits.

That’s a major marketing advantage.

But:

“Dental included” doesn’t tell you how generous the dental benefit actually is.

---

Check the Dental Maximum

Suppose Plan A advertises:

Dental coverage included.

But the annual dental allowance is:

$1,000

with network restrictions.

Plan B might provide:

$2,000

with different cost-sharing.

Both can advertise:

“Dental.”

Their actual value could be very different.

Check:

Annual benefit maximum

Covered procedures

Coinsurance

Waiting requirements if applicable

and:

Participating dentists.

---

Reason #4: Vision Coverage

Many Medicare Advantage plans include routine vision benefits.

Depending on the plan, these might involve:

Eye exams

Eyeglasses

or:

Contact-lens allowances.

Again, the word:

“Vision”

doesn’t tell you the dollar value.

One plan might offer a modest eyewear allowance.

Another could provide more generous benefits.

Compare actual coverage rather than icons on a brochure.

---

Reason #5: Hearing Benefits

Hearing aids can be expensive.

That’s why hearing benefits are particularly attractive to Medicare beneficiaries.

Many Medicare Advantage plans provide some combination of:

Hearing exams

Hearing-aid benefits

or:

Discounted devices.

KFF reports hearing benefits are offered by at least 98% of individual Medicare Advantage plans in 2026.

But coverage details matter enormously.

---

Reason #6: Supplemental Benefits

Medicare Advantage plans have competed aggressively through supplemental benefits.

Depending on the plan and eligibility requirements, benefits may involve:

Over-the-counter items

Meal programs

Transportation

Fitness benefits

Remote-access technologies

and other services.

However, consumers should notice an important 2026 trend:

Some supplemental benefits are becoming less common.

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Some Extra Benefits Declined in 2026

According to KFF, among individual Medicare Advantage plans:

OTC allowance: 73% in 2025 → 66% in 2026

Meal benefit: 65% → 57%

Remote-access technologies: 53% → 48%

Transportation: 30% → 24%.

So while dental, vision and hearing remain extremely common, some other extras have been scaled back.

That’s another reason existing members should:

review their plan every year.

Don’t assume your 2025 benefits automatically remain identical in 2026.

---

Reason #7: Maximum Out-of-Pocket Protection

This is an important structural difference from Original Medicare.

Medicare Advantage plans have annual limits on out-of-pocket spending for Medicare Part A and Part B covered services.

Original Medicare doesn’t have the same built-in annual out-of-pocket maximum for Part A and Part B services.

That’s one reason people using Original Medicare often consider:

Medigap.

The existence of an annual spending ceiling can make Medicare Advantage attractive to beneficiaries concerned about catastrophic medical costs.

---

But $0 Premium Doesn’t Mean $0 Out-of-Pocket

This is where consumers can make an expensive mistake.

A $0-premium plan can still have:

Deductibles

Copays

Coinsurance

Prescription costs

and:

Out-of-network expenses.

You may pay:

$0 each month

and still spend thousands during a year in which you need significant healthcare.

Premium is only:

one component of total cost.

---

Compare Total Annual Cost

Instead of asking:

“Which plan has the lowest premium?”

ask:

“What could this plan cost me during the entire year?”

Consider:

Annual Premium

Medical Deductible

Copays

Coinsurance

Prescription Costs

Noncovered Expenses

=

Potential Total Healthcare Cost

This is a much better comparison.

---

Example: $0 Plan vs. $60 Plan

Consider two hypothetical plans.

Plan A — $0 Premium

Additional MA premium:

$0

Specialist copay:

$50

Hospital:

$350/day for several days

Plan B — $60 Premium

Annual additional premium:

$720

Specialist copay:

$25

Hospital cost-sharing:

Lower than Plan A.

If you’re relatively healthy:

Plan A may cost less.

If you frequently see specialists or expect hospitalization:

Plan B might potentially cost less overall.

The premium alone can’t answer the question.

---

Your Doctors May Matter More Than Your Premium

Imagine you’ve seen the same cardiologist for:

12 years.

You find an attractive Medicare Advantage plan:

$0 premium

Dental

Vision

Hearing

Everything looks perfect.

Then you discover:

Your cardiologist isn’t in the network.

That could completely change the decision.

Provider networks are one of the most important Medicare Advantage trade-offs.

---

HMO vs. PPO Matters

Many Medicare Advantage plans use:

HMO

or:

PPO

structures.

An HMO may generally require members to receive nonemergency care from participating providers, subject to the plan’s rules.

A PPO typically provides more flexibility for out-of-network care but may charge substantially more when you leave the network.

KFF reports that more than half of Medicare Advantage beneficiaries are enrolled in HMOs.

Network rules therefore affect millions of beneficiaries.

---

The $0-Premium Network Trade-Off

A $0-premium plan may save:

$600–$1,200+ annually

compared with a plan charging an additional monthly premium.

But if your preferred:

Doctor

Hospital

Specialist

or:

Cancer center

isn’t in network, those premium savings may become far less important.

Before enrolling, check each important provider individually.

Don’t rely solely on:

“My hospital system probably accepts it.”

Verify.

---

Prior Authorization Is Another Trade-Off

Medicare Advantage plans can require prior authorization for certain services.

That means the plan may need to approve a service before it will cover it under applicable rules.

Prior authorization may apply to areas such as:

Certain imaging

Post-acute care

Some procedures

Medical equipment

and other services.

This is another reason:

$0 premium shouldn’t be your only selection criterion.

---

Prescription Drugs Can Change the Math

A Medicare Advantage prescription drug plan may have:

$0 additional premium.

But your medications might still involve:

Deductibles

Copays

Coinsurance

Formulary tiers

and:

Pharmacy-network requirements.

KFF reports a notable change for 2026:

82% of MA-PD enrollees are now in plans charging a prescription-drug deductible.

In 2024, that figure was only:

23%.

That’s a dramatic shift.

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Don’t Assume “Drug Coverage Included” Means Generous Coverage

Suppose your plan includes Part D.

Excellent.

Now check:

Is your medication on the formulary?

Then:

Which tier?

Then:

What’s the deductible?

Then:

Copay or coinsurance?

Then:

Which pharmacy gives you preferred pricing?

This is especially important for people using expensive brand-name or specialty medications.

---

Part D Costs Changed Significantly

Medicare prescription-drug coverage has undergone major changes.

The Medicare Prescription Payment Plan also allows Part D enrollees to spread qualifying out-of-pocket prescription costs across capped monthly payments rather than paying the entire amount at the pharmacy at once.

But remember:

Spreading payments doesn’t reduce the underlying cost.

It changes:

when you pay.

---

Why Insurers Like $0-Premium Plans

From an insurer’s perspective, $0 premium is an extraordinarily powerful marketing feature.

Consumers can quickly understand:

$0.

It’s harder to communicate:

Network adequacy

Drug formularies

Hospital coinsurance

Prior authorization

and:

Maximum out-of-pocket exposure

in an advertisement.

That’s why consumers need to look beyond the headline number.

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Why Medicare Advantage Keeps Growing

Medicare Advantage enrollment has increased substantially over the past two decades.

In 2026:

35.2 million people

are enrolled.

That’s:

55% of eligible Medicare beneficiaries.

Major attractions include:

Low or zero additional premiums

Bundled prescription coverage

Supplemental benefits

and:

Annual out-of-pocket limits.

But growth doesn’t mean Medicare Advantage is automatically the right choice for everyone.

---

Medicare Advantage vs. Original Medicare + Medigap

This is often the more meaningful decision.

Medicare Advantage

May offer:

$0 or low additional premiums

Bundled drug coverage

Dental/vision/hearing extras

Annual medical out-of-pocket maximum

but may involve:

Provider networks

and:

Prior authorization.

Original Medicare + Medigap + Part D

Can involve:

Higher monthly premiums

and multiple policies,

but may offer:

Broader provider flexibility

and potentially more predictable cost-sharing depending on the Medigap plan.

Neither approach universally wins.

---

The “Healthy Today” Trap

A 65-year-old may think:

“I barely see a doctor. Give me the $0 plan.”

That may be reasonable.

But insurance decisions should also consider:

What happens if your health changes?

Imagine developing a serious condition requiring:

Multiple specialists

Repeated imaging

Hospitalization

Rehabilitation

or:

Specialty medication.

Your plan’s:

Network

cost-sharing

maximum out-of-pocket limit

and:

authorization rules

suddenly become much more important.

---

The Medigap Timing Issue

Someone considering Medicare Advantage should also understand that moving between Medicare Advantage and Original Medicare isn’t always economically identical to making the original choice.

Federal Medigap protections are strongest during certain guaranteed-issue periods, including the initial Medigap open enrollment period.

Outside protected circumstances, an insurer may be able to use medical underwriting in many states.

That means:

“I’ll just switch to Medigap later if I get sick”

isn’t always a reliable strategy.

State rules and individual circumstances vary.

---

How to Evaluate a $0-Premium Plan

Before enrolling, examine these seven areas:

1. Premium — Is it truly $0 additional premium?
2. Doctors — Are your physicians in network?
3. Hospitals — Are your preferred facilities included?
4. Drugs — Are your medications covered and at what cost?
5. Cost Sharing — What are specialist, hospital and imaging costs?
6. Maximum Out-of-Pocket — What’s your worst-case medical exposure?
7. Prior Authorization — Which services require plan approval?

Only after checking those should supplemental benefits become a major deciding factor.

---

Don’t Choose Based on Dental Alone

Free dental coverage is appealing.

But imagine:

Plan A

Better dental allowance

but:

Your cardiologist isn’t in network.

Plan B

Smaller dental allowance

but:

Your doctors, hospital and medications are well covered.

For someone with significant medical needs:

Plan B could easily be the stronger insurance choice.

Core medical coverage should usually come before perks.

---

Don’t Choose Based on a Grocery or OTC Allowance Alone

Supplemental allowances can be valuable for eligible members.

But a:

$50 monthly benefit

shouldn’t distract you from:

thousands of dollars of potential medical cost-sharing.

Always compare major financial risks first.

---

What Current Members Should Do Every Fall

Don’t automatically renew.

Plans can change:

Premiums

Networks

Drug formularies

Deductibles

Copays

Supplemental benefits

and:

Prior-authorization rules.

The decline in several supplemental benefits between 2025 and 2026 demonstrates why annual comparison matters.

Review your Annual Notice of Change carefully.

---

2026 Medicare Advantage Checklist

Before selecting a plan:

• Confirm the additional monthly premium.
• Remember the Medicare Part B premium still applies.
• Verify your primary-care physician.
• Verify every important specialist.
• Check your preferred hospitals.
• Enter every prescription into the plan comparison.
• Check the Part D deductible.
• Review medication tiers.
• Compare preferred pharmacies.
• Check specialist copays.
• Review inpatient hospital cost-sharing.
• Review outpatient surgery costs.
• Check imaging costs.
• Review the annual out-of-pocket maximum.
• Understand HMO/PPO rules.
• Review prior-authorization requirements.
• Compare dental benefits.
• Compare vision benefits.
• Compare hearing benefits.
• Review supplemental-benefit restrictions.
• Consider travel and out-of-area needs.
• Compare against Original Medicare + Medigap + Part D.
• Review your coverage every year.

---

Frequently Asked Questions

Are 86% of Medicare Advantage enrollees in $0-premium plans in 2026?

Current national data don’t support that figure. KFF’s analysis of CMS data finds 75% of enrollees in individual MA-PD plans pay no additional premium beyond Part B in 2026.

How many Medicare Advantage plans charge $0 premiums?

Among Medicare Advantage plans with Part D prescription coverage available for individual enrollment, 67% charge no additional premium in 2026.

How many people can access a $0-premium plan?

Nearly 98% of Medicare beneficiaries have access to an MA-PD plan charging no additional premium in 2026.

Is a $0 Medicare Advantage plan actually free?

No. Beneficiaries generally still pay the Medicare Part B premium and may face deductibles, copays, coinsurance and other healthcare costs.

What’s the standard Medicare Part B premium in 2026?

The standard monthly Part B premium is $202.90 in 2026, although higher-income beneficiaries can pay more.

How many people have Medicare Advantage in 2026?

Approximately 35.2 million people, representing 55% of eligible Medicare beneficiaries with Parts A and B.

Do Medicare Advantage plans include prescription drugs?

Most individual plans do. In 2026, 96% of Medicare Advantage enrollees in individual plans open for general enrollment are enrolled in plans offering prescription drug coverage.

Do $0-premium plans include dental and vision?

Many do. At least 98% of individual Medicare Advantage plans offer dental, vision and hearing benefits in 2026, but the scope and dollar value vary significantly.

---

Final Thoughts

The popularity of $0-premium Medicare Advantage plans isn’t difficult to understand.

They can combine:

$0 additional plan premium

with:

Prescription coverage

Dental

Vision

Hearing

and other supplemental benefits.

And in 2026, three-quarters of individual MA-PD enrollees pay no additional premium beyond their Medicare Part B premium.

But:

$0 premium isn’t the same as $0 cost.

The best Medicare plan isn’t necessarily the one with the smallest number printed beside:

“Monthly Premium.”

It’s the plan that works best for your:

Doctors

Hospitals

Medications

Healthcare needs

Budget

and:

risk tolerance.

The smartest 2026 Medicare shopper should therefore treat:

$0 premium as the beginning of the comparison—not the end.

Quick Takeaway

Employers are being sold an increasingly attractive promise:

Give employees a wellness app → employees become healthier → healthcare claims fall → the program pays for itself.

The reality is more complicated.

High-quality randomized research has found that workplace wellness programs can improve some self-reported health behaviors, but those improvements don’t necessarily translate into lower healthcare spending, fewer medical visits or better measurable health outcomes—at least over relatively short evaluation periods.

That doesn’t mean wellness technology is worthless.

It means employers should stop asking:

“How many people downloaded our wellness app?”

and start asking:

“What measurable business or employee-health outcome are we paying this app to improve?”

That’s the foundation of a credible Stay-Well ROI strategy.

---

Why Wellness ROI Matters More in 2026

Employer healthcare budgets are under substantial pressure.

Mercer’s 2026 research projects average employer health-benefit cost growth of approximately 6.7%, the highest growth rate in 15 years.

At the same time, benefits departments may already be paying for:

Wellness apps

Mental-health platforms

Fitness programs

Sleep programs

Nutrition coaching

Diabetes management

Weight-management programs

Musculoskeletal apps

Telehealth

and:

Care-navigation platforms.

Each vendor may have a convincing presentation.

But collectively, employers need to ask:

Are these programs producing enough value to justify their cost?

---

The $20-Per-Employee Problem

Imagine a company has:

1,000 employees

Its wellness platform costs:

$20 per employee per month.

Annual cost:

1,000 × $20 × 12

=

$240,000

The vendor reports:

65% registration

40% monthly engagement

150,000 steps logged

and:

8,000 meditation sessions completed.

Those statistics sound impressive.

But the CFO asks:

“What did our $240,000 actually accomplish?”

That’s where wellness ROI gets difficult.

---

Downloads Are Not ROI

One of the easiest mistakes is treating:

App registration

as:

Business value.

Suppose 700 employees download an app.

That’s:

70% enrollment.

Excellent.

But then only 250 employees use it after three months.

And perhaps only 100 use it consistently after six months.

The employer isn’t really paying for:

700 active users.

It may effectively be paying for:

100 engaged employees.

---

Calculate Cost Per Engaged Employee

Suppose annual program cost is:

$240,000

and 200 employees use it meaningfully.

Effective annual cost per engaged employee:

$240,000 ÷ 200

=

$1,200 per engaged employee.

Now the employer has a more useful question:

“Are we receiving at least $1,200 of value per engaged employee?”

That value doesn’t necessarily have to come entirely from medical claims.

It could potentially include:

Better employee experience

Reduced absenteeism

Improved retention

Better access to care

Improved productivity

or:

Improved health behaviors.

But employers should identify the outcome explicitly.

---

What Randomized Research Actually Shows

Wellness programs have been studied much more rigorously than many employers realize.

A major randomized clinical trial involving 32,974 employees found that employees offered a workplace wellness program reported higher rates of regular exercise and active weight management.

But after 18 months, researchers found no significant differences in:

Clinical health measures

Healthcare spending

Healthcare utilization

Absenteeism

Job performance

or:

Job tenure.

That’s an important finding.

Wellness can influence behavior without immediately producing measurable financial savings.

---

Another Two-Year Study Found Similar Results

A separate randomized trial involving 4,834 university employees evaluated a comprehensive workplace wellness program over two years.

Researchers found improvements in certain health beliefs and an increased proportion of employees reporting that they had a primary-care physician.

But they found no significant effects on:

Biometric outcomes

Medical diagnoses

or:

Healthcare utilization.

Again:

Engagement doesn’t automatically equal savings.

---

Why Wellness ROI Gets Overstated

Imagine employees who voluntarily participate in a fitness program.

They’re likely to be different from employees who don’t participate.

Participants may already:

Exercise more

eat differently

be more health-conscious

or:

use preventive healthcare more consistently.

If you simply compare:

Participants vs. nonparticipants,

you might conclude:

“The wellness program created healthier employees.”

But some of those employees may have been healthier before joining.

This is called:

selection bias.

The JAMA randomized research specifically noted that observational comparisons between participants and nonparticipants could overstate program effects.

---

The Famous Wellness ROI Formula

The simplest ROI calculation is:

ROI = (Financial Benefit − Program Cost) ÷ Program Cost

Suppose:

Program cost: $200,000

Verified financial benefit: $260,000

Then:

($260,000 − $200,000) ÷ $200,000

=

30% ROI

That calculation is easy.

Determining whether the wellness program actually caused the $260,000 benefit is much harder.

---

Don’t Give the App Credit for Everything

Suppose healthcare spending falls:

5%.

The wellness vendor claims victory.

But during the same year your company also:

Changed insurance carriers

Introduced a new PBM

Raised the deductible

Implemented telemedicine

Changed provider networks

and:

Had fewer catastrophic claims.

Which intervention caused the reduction?

You don’t know.

A credible wellness evaluation needs to account for other changes.

---

Measure ROI and VOI Separately

Employers can benefit from distinguishing:

ROI — Return on Investment

from:

VOI — Value on Investment.

ROI focuses primarily on measurable financial return.

VOI can include broader outcomes such as:

Employee satisfaction

Stress reduction

Improved access

Recruitment

Retention

Workforce resilience

and:

Organizational culture.

Both can matter.

But don’t label every positive employee experience as:

“Healthcare savings.”

---

The Stay-Well Scorecard

Instead of one inflated ROI number, evaluate wellness programs across several categories.

Measure	What to Track
Adoption	Employees registered
Engagement	Meaningful active users
Retention	Users active after 6–12 months
Health behavior	Exercise, sleep, nutrition changes
Clinical outcome	Appropriate measurable health indicators
Healthcare utilization	ER, inpatient and outpatient use
Claims	Risk-adjusted medical/pharmacy spending
Productivity	Absence and relevant work outcomes
Employee experience	Satisfaction and perceived usefulness
Financial return	Verified savings relative to cost

This produces a much more complete picture.

---

Metric #1: Registration Rate

Start with:

Eligible Employees

versus:

Registered Employees.

If:

1,000 eligible

and:

600 register

your registration rate is:

60%.

Useful?

Yes.

ROI?

No.

Registration tells you whether employees showed initial interest.

---

Metric #2: Meaningful Engagement

Define engagement before reviewing vendor reports.

A vendor might classify someone as “active” because they:

Opened the app once

or:

Received a notification.

Your definition should be more meaningful.

For example:

Monthly Engaged User

An employee who completes at least one meaningful health-related action during the month.

The exact definition depends on the program.

---

Metric #3: Engagement Retention

Initial enthusiasm can be misleading.

Track:

Month 1

Month 3

Month 6

Month 12.

Example:

Month 1: 650 users

Month 3: 430

Month 6: 260

Month 12: 140

The vendor might advertise:

“650 employees engaged!”

Finance should see:

“Only 140 remained engaged after one year.”

Both numbers describe the same program.

---

Metric #4: Cost Per Active User

Suppose:

Annual cost: $180,000

Average active users: 300

Then:

$600 per active employee annually.

Now compare that with competing interventions.

Could $600 per employee provide more value through:

HSA contributions?

Mental-health visits?

Primary-care access?

Care navigation?

or:

Lower employee premiums?

That’s the opportunity-cost question.

---

Metric #5: Health Behavior

Some wellness programs may genuinely improve:

Physical activity

Weight-management behavior

Sleep routines

Nutrition habits

or:

Stress-management behavior.

Randomized wellness research has found improvements in some self-reported behaviors, particularly exercise and active weight management.

That’s a legitimate outcome.

Just don’t automatically convert:

“More exercise”

into:

“$500,000 healthcare savings.”

Those are different claims.

---

Metric #6: Healthcare Utilization

If the vendor claims medical savings, examine:

Emergency-room visits

Hospital admissions

Primary-care utilization

Specialist visits

Prescription use

and:

Preventive-care utilization.

Compare these carefully over time.

Preferably use:

appropriate comparison groups

and:

risk adjustment

where feasible.

---

Metric #7: Claims Cost

This is where many ROI promises become difficult to prove.

Claims are volatile.

One employee undergoing:

Cancer treatment

or:

Organ transplantation

can substantially change annual spending.

So simply comparing:

2025 claims vs. 2026 claims

may produce a misleading result.

Employers need to account for:

Population changes

High-cost claimants

Benefit changes

Medical inflation

and:

Changes in employee demographics.

---

Metric #8: Absenteeism

Wellness vendors frequently argue that healthier employees miss fewer workdays.

Potentially.

But measure it.

Compare:

Sick days

Unscheduled absence

and:

Disability absence

before and after implementation where appropriate.

And remember that randomized wellness research has not consistently demonstrated meaningful reductions in absenteeism.

---

Metric #9: Employee Retention

A wellness platform might provide value even without medical savings if employees genuinely value it.

Ask:

“Would losing this benefit meaningfully affect your decision to stay?”

That’s different from asking:

“Do you like this app?”

An employee might answer:

“Sure, it’s nice.”

That doesn’t mean the benefit affects retention.

---

Metric #10: Employee Satisfaction

Measure:

Ease of use

Perceived usefulness

Trust

Accessibility

Quality of support

and:

Likelihood of continued use.

But avoid relying only on surveys of active users.

If 15% of employees use the program and 95% of those users love it, that’s valuable—but it doesn’t mean:

95% of your workforce loves the program.

---

Watch for the “Engaged Population” Trick

A vendor might report:

“Participants reduced medical spending by 12%.”

Ask:

“Participants compared with whom?”

If participants voluntarily joined while the comparison group didn’t, the groups may differ substantially.

Ask whether the analysis controlled for:

Age

health status

prior claims

income

location

and other relevant characteristics.

Better still:

Ask whether an independent evaluator validated the analysis.

---

Strategy #1: Pay for Outcomes, Not Downloads

Instead of paying entirely:

Per eligible employee per month,

consider whether the contract can tie some compensation to:

Engagement thresholds

Retention

Access metrics

Clinical outcomes

or:

Other agreed performance measures.

The right metric depends on what the vendor actually controls.

Don’t demand guaranteed medical savings from an app that cannot realistically control medical spending.

---

Strategy #2: Negotiate Engagement Guarantees

Suppose the vendor promises:

50% engagement.

Put the definition in the contract.

Specify:

What counts as engagement

Measurement period

Data source

and:

Financial consequence if the guarantee isn’t met.

Otherwise:

“engagement”

can become whatever definition produces the best sales presentation.

---

Strategy #3: Audit Vendor Overlap

Your organization might have:

General wellness app

Mental-health app

Meditation app

Fitness app

Weight-management platform

and:

Health coaching.

That’s six vendors potentially contacting the same employee.

Mercer’s current employer research shows companies continue to offer a growing variety of digital and behavioral-health resources, including online cognitive behavioral therapy and AI-enabled coaching.

More vendors don’t automatically mean better benefits.

Sometimes they mean:

more fragmentation.

---

Strategy #4: Consolidate Low-Use Apps

Imagine:

App A

Annual cost: $80,000

Active employees: 60

Cost per active user:

$1,333

App B

Annual cost: $120,000

Active employees: 600

Cost per active user:

$200

Unless App A serves a particularly high-value clinical need, its economics deserve scrutiny.

Eliminating low-value programs can free money for benefits employees use more heavily.

---

Strategy #5: Don’t Confuse Wellness With Clinical Care

Meditation reminders can be useful.

They aren’t a replacement for:

Mental-health treatment.

Step challenges can be fun.

They’re not:

Diabetes management.

Nutrition tips aren’t:

Medical obesity treatment.

Employers should distinguish between:

General wellness

and:

Clinical intervention.

Different programs deserve different outcome measures.

---

Strategy #6: Target Programs to Actual Claims Problems

Suppose claims analysis shows unusually high spending related to:

Musculoskeletal conditions.

A targeted musculoskeletal intervention may deserve more attention than another generic wellness app.

If pharmacy spending is the problem:

Audit pharmacy strategy.

If emergency-room utilization is the problem:

Improve primary-care/navigation access.

If behavioral-health access is poor:

Address behavioral healthcare.

Benefits strategy should begin with:

the problem

not:

the vendor.

---

Strategy #7: Measure Long-Term Engagement

Some wellness interventions may require time before meaningful outcomes emerge.

But that doesn’t justify endless spending without evidence.

Establish checkpoints:

90 days

Adoption and engagement

6 months

Engagement retention and employee experience

12 months

Behavior and utilization indicators

24+ months

Clinical and financial outcomes where measurable

The evaluation horizon should match the claimed outcome.

---

Strategy #8: Protect Employee Privacy

Wellness platforms can collect sensitive information.

Employers should understand:

What data the app collects

Who owns it

Who can access it

Whether data is shared

How long it’s retained

How it’s secured

and:

What happens when the vendor relationship ends.

Don’t adopt an app simply because its dashboard looks impressive.

Data governance belongs in vendor due diligence.

---

Strategy #9: Make Participation Accessible

A wellness program won’t provide much value if it works only for:

Young

healthy

desk-based

tech-comfortable

employees.

Consider:

Shift workers

Remote workers

Employees with disabilities

Employees without company smartphones

and:

Workers with different language or accessibility needs.

A benefit should be realistically usable by the workforce you’re buying it for.

---

Strategy #10: Compare Wellness Spending With Alternatives

Suppose your company spends:

$300 per employee annually

on wellness platforms.

Ask what else $300 could fund.

For 1,000 employees:

$300,000.

Potential alternatives might include:

Additional HSA funding

Reduced employee premium contributions

Mental-health visits

Primary-care access

Care-navigation services

or:

Targeted chronic-condition programs.

The correct question isn’t:

“Is wellness good?”

It’s:

“Is this the highest-value use of our next benefits dollar?”

---

A Better Wellness Vendor Dashboard

Every quarter, ask vendors for the same standardized dashboard:

KPI	Q1	Q2	Q3	Q4
Eligible employees	—	—	—	—
Registered users	—	—	—	—
Monthly active users	—	—	—	—
Meaningfully engaged users	—	—	—	—
90-day retention	—	—	—	—
Cost per active user	—	—	—	—
Employee satisfaction	—	—	—	—
Target outcome	—	—	—	—
Verified savings	—	—	—	—

Don’t let every vendor invent a different success metric.

---

Example: The $250,000 Wellness App

Consider an employer with 2,000 employees.

Annual app cost:

$250,000

Vendor reports:

1,200 registrations

Sounds excellent.

But the employer’s audit finds:

600 used the app within 90 days

350 remained active after six months

220 remained meaningfully active after one year.

Cost per sustained active user:

$250,000 ÷ 220 = about $1,136

The company then asks whether the program produced:

Measurable health improvements

Reduced absence

Better retention

Meaningful employee satisfaction

or:

Verified healthcare savings.

If none can be demonstrated, renewal should not be automatic.

---

When a Wellness App May Still Be Worth It

A program doesn’t need to produce immediate medical savings to have value.

Imagine an app costs:

$60 per employee annually

and achieves:

Strong utilization

High satisfaction

Better access to mental-wellness resources

and:

Consistently positive employee feedback.

The employer might reasonably conclude:

“This is an employee-experience benefit.”

That’s legitimate.

Just call it what it is.

Don’t claim:

“$4 healthcare savings for every $1 invested”

unless credible evidence supports that number.

---

What Employers Should Ask Before Buying a Wellness App

Ask:

What exact problem does this solve?

How do you define an active user?

What percentage remain active after 12 months?

What’s your average engagement among comparable employers?

What outcomes have randomized or controlled studies demonstrated?

Has your ROI methodology been independently validated?

How do you adjust for participant selection bias?

How do you account for catastrophic claims?

What data will we receive?

Can we independently audit results?

What performance guarantees are included?

How is employee health data protected?

Can we terminate if engagement remains low?

If a vendor cannot answer these clearly, that’s useful information.

---

Wellness Red Flags

Be cautious when a vendor promises:

Guaranteed large medical savings

Instant ROI

Massive productivity improvements

or:

Extremely high engagement

without clearly explaining methodology.

Another red flag:

“Our participants saved 25%.”

Immediately ask:

Compared with whom?

---

What Success Looks Like

A strong wellness program might show:

Year 1

High adoption + sustained engagement.

Year 2

Evidence of meaningful behavior change or improved access.

Longer Term

Credible clinical, workforce or financial outcomes consistent with the program’s purpose.

But employers shouldn’t assume each stage automatically leads to the next.

That’s exactly what rigorous wellness research warns against.

---

The 2026 Wellness ROI Checklist

Before renewing your wellness vendors:

• Calculate total annual program cost.
• Calculate cost per eligible employee.
• Calculate cost per registered user.
• Calculate cost per meaningfully active user.
• Measure 3-, 6- and 12-month engagement.
• Define engagement contractually.
• Separate participation from outcomes.
• Identify the program’s primary objective.
• Review healthcare utilization where relevant.
• Review risk-adjusted claims where appropriate.
• Measure absenteeism if it’s a stated objective.
• Measure employee experience.
• Evaluate retention claims carefully.
• Review selection bias.
• Audit vendor methodology.
• Review overlapping apps.
• Compare spending with alternative benefits.
• Review privacy and data security.
• Negotiate performance guarantees.
• Request independent validation where appropriate.
• Avoid automatic renewal.
• Document why each vendor remains in the benefits portfolio.

---

Frequently Asked Questions

Do workplace wellness programs reduce healthcare costs?

Not necessarily. Large randomized studies have found improvements in some health behaviors but no statistically significant reduction in healthcare spending or utilization over the periods studied.

Are wellness apps a waste of money?

Not automatically. They may improve employee experience, access, engagement or certain behaviors. The value depends on the program, workforce, objective, cost and measurable outcomes.

What’s the best wellness ROI metric?

There isn’t one universal metric. Employers should combine program cost, sustained engagement, health or workforce outcomes and verified financial effects.

Is app registration a good KPI?

It’s useful for measuring adoption, but registration alone isn’t ROI.

What is cost per engaged employee?

Divide total program cost by the number of employees meeting a clearly defined engagement threshold.

Should employers cancel apps with low engagement?

Low engagement should trigger investigation. Employers should consider the program’s clinical importance, target population, outcomes and alternatives before deciding.

How long should employers wait for ROI?

It depends on the claimed outcome. Engagement can be measured quickly, while changes in clinical outcomes or healthcare spending may require substantially longer observation and more rigorous analysis.

---

Final Thoughts

The biggest mistake employers can make in 2026 is assuming:

Wellness = healthcare savings.

Rigorous evidence doesn’t support such a simple equation.

Workplace wellness programs have demonstrated improvements in some employee behaviors, but major randomized studies have failed to find significant short-term improvements in healthcare spending, utilization or many clinical outcomes.

Meanwhile, employers are facing another year of substantial health-benefit cost growth, making every benefits dollar more important.

That doesn’t mean eliminating wellness.

It means managing wellness like any other business investment:

Define the objective.

Measure sustained engagement.

Track relevant outcomes.

Calculate cost per active employee.

Audit vendor claims.

Compare against alternatives.

Renew programs that demonstrate meaningful value.

The best wellness app isn’t necessarily the one with the most features.

It’s the one that can answer a simple question:

“What changed because we paid for you?”

Quick Takeaway

Your company may negotiate aggressively over health-insurance premiums while overlooking one of the most complicated parts of employee healthcare spending:

Prescription-drug money flowing through your PBM.

A Pharmacy Benefit Manager—or PBM—typically sits between health plans, drug manufacturers and pharmacies. Depending on the contract, money can move through rebates, administrative fees, pharmacy reimbursement, spread pricing and other financial arrangements.

Calling every payment a “kickback” would be inaccurate. Many rebates and fees are contractual and lawful.

The real employer question is:

Who is getting paid, how much are they receiving, and does your contract let you verify it?

That question has become even more important in 2026. The U.S. Department of Labor proposed enhanced PBM fee-disclosure requirements in January, and after Congress enacted additional PBM-related ERISA provisions in the Consolidated Appropriations Act, 2026, DOL extended the proposal’s comment period to address those statutory changes.

For employers sponsoring ERISA-covered health plans, vendor transparency isn’t merely a procurement issue.

It can also intersect with fiduciary responsibility.

---

First: What Does a PBM Actually Do?

PBMs administer prescription-drug benefits for health plans.

Their services may include:

Processing pharmacy claims

Creating formularies

Negotiating with drug manufacturers

Negotiating pharmacy reimbursement

Operating pharmacy networks

Administering prior authorization

Managing specialty medications

and:

Providing mail-order pharmacy services.

A PBM can therefore influence:

Which drugs employees receive.

Where prescriptions are filled.

What the plan pays.

What employees pay.

What manufacturers pay back through rebates.

That’s enormous influence over one of an employer health plan’s major cost categories.

---

Why PBM Transparency Is Such a Big Issue

Imagine your plan pays:

$500

for a prescription.

That doesn’t necessarily mean the pharmacy received $500.

Depending on the arrangement, the PBM may have:

Reimbursed the pharmacy a different amount

while:

Charging the plan another amount.

The PBM or an affiliate may also receive manufacturer compensation associated with the medication.

Employers therefore shouldn’t ask only:

“What’s our pharmacy spend?”

They should ask:

“Where did every dollar go?”

---

What Is Spread Pricing?

Spread pricing occurs when the amount the PBM charges the health plan for a prescription exceeds what the PBM reimburses the pharmacy, with the PBM retaining some or all of the difference according to the arrangement.

For example:

Employer plan pays PBM

$250

PBM pays pharmacy

$190

Difference

$60

This simplified example illustrates a:

$60 spread.

Whether this arrangement is permissible depends on the contract and applicable law.

But employers need to know whether it exists.

---

The FTC Found Significant Spread-Pricing Revenue

This isn’t merely theoretical.

In its January 2025 analysis of specialty generic drugs, Federal Trade Commission staff estimated that the three largest PBMs generated approximately:

$1.4 billion

in income from spread pricing on the specialty generic drugs analyzed during the study period.

That alone should give plan sponsors a reason to understand exactly how their PBM contract works.

---

The Bigger FTC Finding: Specialty Drug Markups

The FTC’s findings went considerably further.

Its analysis examined the three largest PBMs:

Caremark

Express Scripts

and:

OptumRx.

FTC staff found that the PBMs marked up numerous specialty generic drugs dispensed through affiliated pharmacies by hundreds or thousands of percent.

The affiliated pharmacies generated more than:

$7.3 billion

in dispensing revenue above estimated acquisition costs on the specialty generic drugs studied from 2017 through 2022.

That’s a striking number.

And it highlights another important audit issue:

Vertical integration.

---

Your PBM May Own the Pharmacy

A modern PBM isn’t necessarily an independent middleman.

The PBM may be part of a larger healthcare organization that also owns or is affiliated with:

Insurance operations

Specialty pharmacies

Mail-order pharmacies

Healthcare providers

or other healthcare businesses.

That creates potential economic incentives employers need to understand.

For example:

Who benefits when a prescription is routed to an affiliated specialty pharmacy?

The FTC reported that pharmacies affiliated with the three largest PBMs received 68% of specialty-drug dispensing revenue in 2023, compared with 54% in 2016.

That doesn’t prove every affiliated-pharmacy arrangement is inappropriate.

But it absolutely makes:

affiliate economics

an important part of PBM due diligence.

---

The “Rebate” Problem

Drug manufacturers sometimes provide rebates or other payments connected with formulary placement and prescription utilization.

An employer might reasonably assume:

“The PBM negotiates rebates and gives them to us.”

Maybe.

But your contract determines the economics.

You need to determine whether your arrangement provides:

100% pass-through

or whether some compensation can be retained.

You also need to understand how your agreement defines:

“rebate.”

A narrow definition could potentially exclude other forms of manufacturer compensation from what gets passed through.

---

Don’t Ask Only “Do We Get 100% of Rebates?”

This is one of the biggest procurement mistakes.

A PBM salesperson says:

“We pass through 100% of rebates.”

Excellent.

Now ask:

“What exactly counts as a rebate?”

Then ask about:

Administrative fees

Data fees

Price-protection payments

Market-share payments

Formulary-related compensation

Service fees

and:

Other manufacturer remuneration.

The economic question isn’t:

“Do you pass through rebates?”

It’s:

“Do you pass through all compensation attributable to our plan, and can we audit it?”

---

Why 2026 Is Different

PBM disclosure has become a major federal policy issue.

In January 2026, the Department of Labor proposed rules intended to require PBMs serving employer-sponsored self-insured ERISA plans to disclose detailed information about their compensation and financial arrangements.

Among the proposed disclosures are:

Manufacturer rebates and other payments

Compensation related to spread pricing

and:

Payments recouped from pharmacies.

The proposal also contemplated audit rights allowing plan fiduciaries to verify PBM disclosures.

Then the Consolidated Appropriations Act, 2026 amended ERISA with additional provisions relating to pharmacy-benefit-management services. DOL subsequently extended its rulemaking comment period so it could consider how its proposed regulations should interact with the new statutory requirements.

For employers, the direction is unmistakable:

PBM compensation is moving toward greater scrutiny and transparency.

---

Your Fiduciary Responsibilities Matter

Private-sector employers sponsoring ERISA-covered group health plans need to understand their fiduciary responsibilities.

The Department of Labor says fiduciaries must generally:

Act solely in participants’ and beneficiaries’ interests

Act prudently

Follow governing plan documents

and:

Pay only reasonable plan expenses.

Hiring service providers can itself involve fiduciary responsibilities.

And your responsibility doesn’t necessarily stop once you’ve signed the contract.

---

“Our Broker Handles It” Isn’t Enough

Employers commonly delegate health-plan administration to:

Insurance brokers

benefits consultants

TPAs

PBMs

and:

other vendors.

That’s normal.

But delegation doesn’t mean employers should stop monitoring them.

DOL specifically recommends that employers establish a formal review process and periodically evaluate service-provider performance, reports and actual fees.

Your benefits committee should therefore know:

Who your vendors are.

What they’re paid.

Who else pays them.

What contractual obligations they have.

Whether they’re meeting those obligations.

---

Audit Your Broker Too

PBMs aren’t the only vendors worth examining.

Your broker or benefits consultant may potentially receive compensation through:

Direct employer fees

Carrier commissions

Bonuses

Revenue-sharing arrangements

or other compensation.

DOL specifically tells employers to ask prospective service providers whether they receive third-party compensation such as:

commissions, finder’s fees or revenue sharing.

That’s a powerful question.

“Please disclose every source of direct and indirect compensation related to our account.”

Put it in writing.

---

The Four-Layer Vendor Audit

A strong benefits audit should examine four different layers.

Layer 1 — Contract

What does the agreement actually promise?

Layer 2 — Money

What was actually paid?

Layer 3 — Claims

Do transaction-level claims match the contract?

Layer 4 — Affiliates

Did related companies receive additional economic benefit?

Many employers examine only Layer 1.

That’s not enough.

---

Audit Step 1: Obtain Every Contract

Collect:

PBM agreement

Insurance contract

TPA agreement

Broker agreement

Stop-loss agreement

Specialty-pharmacy agreement

and:

Vendor amendments.

Don’t rely on PowerPoint presentations.

Don’t rely on:

“That’s how we’ve always handled it.”

The contract controls the arrangement.

---

Audit Step 2: Identify Every Dollar of Compensation

Create a vendor-compensation map.

For each vendor, document:

Compensation	Amount	Paid By	Recipient
Direct admin fee	$___	Employer/plan	PBM
Manufacturer rebates	$___	Manufacturer	PBM/plan
Pharmacy spread	$___	Plan transaction	PBM
Broker commission	$___	Carrier	Broker
Consulting fee	$___	Employer	Consultant
Specialty-pharmacy margin	$___	Plan/member	Affiliate
Other revenue sharing	$___	Third party	Vendor

The goal is simple:

No mystery money.

---

Audit Step 3: Check Your Rebate Guarantee

Suppose your PBM guarantees:

$1 million in annual rebates.

That sounds impressive.

But ask:

Is it based on actual rebates?

Is it a minimum guarantee?

Does the PBM keep amounts above the guarantee?

Which claims qualify?

Which drugs are excluded?

How are rebate adjustments handled?

When are rebates paid?

Can the employer verify manufacturer payments?

A large rebate guarantee doesn’t automatically mean:

lowest net drug cost.

---

High Rebates Can Sometimes Hide Expensive Drugs

Imagine:

Drug A

Gross price: $1,000

Rebate: $400

Net:

$600

Another therapeutically appropriate option might hypothetically cost:

$300

with little or no rebate.

If the plan focuses only on:

“How big is our rebate?”

Drug A looks attractive.

But from the employer’s perspective:

$600 > $300.

That’s why sophisticated pharmacy purchasing focuses on:

Net cost

rather than:

rebate size.

---

Audit Step 4: Calculate Net Drug Cost

For each major drug or drug category, try to understand:

Gross Plan Cost

minus:

Rebates

minus:

Other Contractual Credits

equals:

Net Plan Cost

Then compare that with alternatives.

This helps reveal whether a seemingly impressive rebate arrangement actually delivers good economics.

---

Audit Step 5: Look for Spread Pricing

Ask your PBM:

“For every claim, can we see what the plan paid and what the pharmacy received?”

If the answer is no:

Ask why.

Your audit should examine:

Ingredient cost billed to plan

versus:

Pharmacy reimbursement

plus:

Dispensing fee

and any:

Post-adjudication adjustments.

Large unexplained differences deserve investigation.

---

Audit Step 6: Examine Specialty Drugs Separately

Don’t bury specialty drugs inside total pharmacy spending.

They’re too important.

Create a separate report showing:

Drug

Number of prescriptions

Gross plan cost

Employee cost

Rebate

Net plan cost

Dispensing pharmacy

and:

Whether the pharmacy is PBM-affiliated.

The FTC’s findings demonstrate why this deserves particular scrutiny.

---

Audit Step 7: Identify Affiliated Pharmacies

For your largest pharmacy claims ask:

“Who owns the pharmacy?”

Then determine whether it’s affiliated with your:

PBM

health insurer

or:

parent healthcare organization.

Affiliation isn’t automatically problematic.

But it can create financial incentives.

Employers should understand whether the PBM:

requires

encourages

or:

financially incentivizes

members to use its own pharmacy.

---

Audit Step 8: Look for Steering

Suppose an employee tries to fill an expensive specialty prescription at an independent pharmacy.

They’re told:

“You must use our specialty pharmacy.”

Ask:

Why?

Is it:

clinical?

network-related?

contractual?

or:

financial?

The FTC’s 2025 report said dispensing patterns suggested PBMs may steer highly profitable specialty generic prescriptions toward affiliated pharmacies.

That makes steering an important audit question.

---

Audit Step 9: Review Generic Drug Pricing

Generic doesn’t automatically mean:

cheap.

The FTC found markups of hundreds and even thousands of percent on certain specialty generic drugs in its study.

Your audit should therefore examine:

Plan price vs. benchmark/acquisition-related pricing.

Don’t assume:

generic = no pricing problem.

---

Audit Step 10: Check the Definition of “Pass-Through”

A PBM may market itself as:

pass-through.

But that term can mean different things depending on the contract.

Does it mean:

Actual pharmacy cost passed through?

All rebates passed through?

All manufacturer compensation passed through?

No spread pricing?

Transparent administrative fee?

Don’t accept the label.

Read the economics.

---

Audit Step 11: Examine the Formulary

Your formulary determines which medications receive:

preferred placement

non-preferred placement

or:

restrictions.

Ask:

“What financial arrangements influence formulary placement?”

You want to know whether decisions are based primarily on:

clinical value

net cost

or:

manufacturer economics.

The cheapest gross-price drug isn’t always the best choice.

But neither is the drug generating the biggest rebate.

---

Audit Step 12: Examine Prior Authorization

Prior authorization can help control inappropriate use.

But it also affects:

employees

physicians

and:

treatment delays.

Audit:

Approval rates

Denial rates

Appeals

Turnaround times

and:

Major drug categories requiring authorization.

Cost control should not become:

administrative obstruction.

---

Audit Step 13: Review Pharmacy Clawbacks and Adjustments

PBM economics can include post-transaction adjustments involving pharmacies.

DOL’s 2026 proposed disclosure framework specifically identifies payments recouped from pharmacies as information PBMs would need to disclose under the proposal.

Employers should therefore understand whether:

post-adjudication fees

or:

other pharmacy recoupments

create revenue related to their plan.

---

Audit Step 14: Demand Audit Rights

One of the most important clauses in your PBM contract may simply be:

Your right to audit.

Strong audit provisions should address issues such as:

Claims data

Rebate calculations

Manufacturer compensation

Pharmacy reimbursement

Guarantees

and:

Contract performance.

Also examine:

How often audits are permitted

Who can conduct them

How far back they can look

What data can be examined

and:

What happens when errors are discovered.

A transparency promise you cannot verify has limited value.

---

Watch for Audit Restrictions

A contract may technically say:

“Client has audit rights.”

Then the next paragraphs impose:

Narrow auditor qualifications

Short audit windows

Limited data access

Restrictions on manufacturer contracts

or:

Confidentiality provisions limiting verification.

Don’t evaluate:

whether an audit clause exists.

Evaluate:

whether the audit clause is actually useful.

---

Audit Step 15: Reconcile Guarantees

PBM contracts often contain performance guarantees involving:

Discounts

Rebates

Generic dispensing rates

or:

Service performance.

At year-end:

Recalculate them.

Don’t simply accept the PBM’s statement:

“All guarantees were achieved.”

Verify the methodology.

---

Audit Step 16: Benchmark Your Contract

Your PBM arrangement shouldn’t exist in a vacuum.

Compare:

Administrative fees

Discount guarantees

Rebate guarantees

Specialty pricing

Audit rights

and:

Contract terms

with competitive alternatives.

DOL’s fiduciary guidance specifically recommends getting information from more than one provider and comparing firms on consistent information.

Competition can be one of your strongest audit tools.

---

Audit Step 17: Put the PBM Out to Bid Periodically

You don’t necessarily need to switch vendors.

But periodically conducting an:

RFP — Request for Proposal

can reveal whether your current economics remain competitive.

Give competing PBMs identical claims data and specifications.

Then compare:

Net cost

not simply:

largest discount

or:

largest rebate.

---

The “Big Discount” Trap

PBM A says:

“We offer an 87% generic discount.”

PBM B says:

“We offer 82%.”

PBM A appears better.

But:

Discount from what benchmark?

If the underlying benchmark differs or pricing mechanics produce different net costs, the headline percentage may tell you surprisingly little.

Always translate guarantees into:

actual dollars.

---

The “Big Rebate” Trap

Same problem.

PBM A:

$1.5 million rebate guarantee.

PBM B:

$1.2 million.

PBM A looks better.

But if PBM A’s gross drug costs are:

$2 million higher,

the larger rebate isn’t saving you money.

Evaluate:

Total net pharmacy spend.

---

Audit Your Insurance Carrier Too

Vendor accountability shouldn’t stop at pharmacy benefits.

For your medical carrier or TPA examine:

Administrative fees

Network access fees

Claims-processing accuracy

Out-of-network pricing

Care-management fees

Stop-loss coordination

and:

Other vendor compensation.

Ask whether your carrier receives money from vendors connected to your plan.

---

Audit Your Benefits Consultant

Your consultant may recommend:

PBM A

Carrier B

Wellness Vendor C

and:

Navigation Platform D.

Ask:

“Do you receive any compensation from any vendor you’re recommending?”

Then ask for the answer:

in writing.

DOL’s guidance expressly encourages employers to investigate third-party compensation when selecting service providers.

---

Create a Conflict-of-Interest Register

For every benefits vendor record:

Vendor

Service

Direct compensation

Indirect compensation

Affiliates

Referral arrangements

Revenue sharing

Ownership relationships

and:

Potential conflicts.

Review it annually.

This doesn’t mean every conflict requires terminating the vendor.

It means:

You know the conflict exists.

---

Your Annual Vendor Accountability Meeting

Once per year, bring together:

HR

Finance

Legal/compliance

Benefits consultant

and relevant:

Plan fiduciaries.

Review:

What did we pay?

What did employees pay?

What did vendors receive?

What did affiliates receive?

What rebates came back?

What guarantees were achieved?

What changed?

Are the fees still reasonable?

Should we competitively bid any service?

Document the meeting.

---

Documentation Matters

DOL specifically recommends documenting service-provider selection and monitoring processes.

Keep records of:

RFPs

Contracts

Fee disclosures

Audit reports

Meeting minutes

Benchmarking analyses

Vendor responses

and:

Corrective actions.

You want to be able to demonstrate:

“We actively managed this plan.”

Not:

“We renewed whatever our broker recommended.”

---

15 Questions Every PBM Should Answer

Before signing or renewing a PBM contract, ask:

1. Do you use spread pricing?
2. What percentage of manufacturer compensation is returned to our plan?
3. How do you define “rebate”?
4. What other manufacturer payments do you receive?
5. Do affiliates receive compensation related to our claims?
6. Which pharmacies are affiliated with your organization?
7. Are members required or encouraged to use affiliated pharmacies?
8. What do you earn from specialty prescriptions?
9. What post-adjudication pharmacy fees do you receive?
10. Can we see plan-paid versus pharmacy-paid amounts?
11. Can we audit manufacturer compensation?
12. Who can conduct our audit?
13. What restrictions apply to audits?
14. What happens when an audit identifies an underpayment?
15. Will you disclose all direct and indirect compensation attributable to our plan?

If a vendor refuses to answer basic financial questions, that refusal is itself useful information.

---

A Simple PBM Audit Example

Imagine an employer spends:

$5 million annually

on pharmacy benefits.

PBM reports:

Gross pharmacy claims: $5,000,000

Rebates returned: $900,000

Employer assumes net cost:

$4,100,000

An audit then identifies:

$120,000 spread pricing

$90,000 additional manufacturer-related compensation

$75,000 affiliate economics requiring further contract analysis

and:

$50,000 guarantee-calculation discrepancy.

That doesn’t automatically mean the employer is legally entitled to recover every dollar.

The contract determines that.

But without an audit:

the employer may never even know those economic flows exist.

---

Don’t Automatically Assume Fraud

This point is important.

Not every:

rebate

spread

commission

or:

affiliate payment

is illegal.

And not every vendor receiving indirect compensation is acting improperly.

The appropriate questions are:

Was it disclosed?

Does the contract permit it?

Is it reasonable?

Was the employer aware of it?

Was the arrangement prudently evaluated?

Does the plan receive the economic value it was promised?

That is a much more useful framework than labeling every payment a “kickback.”

---

The Employer’s 2026 PBM Audit Checklist

• Obtain the complete PBM contract.
• Obtain all amendments.
• Identify every PBM affiliate.
• Request all direct compensation.
• Request all indirect compensation.
• Review manufacturer rebates.
• Review other manufacturer payments.
• Check rebate definitions.
• Calculate net pharmacy cost.
• Test spread pricing.
• Compare plan-paid and pharmacy-paid amounts.
• Review specialty-drug claims separately.
• Identify affiliated-pharmacy utilization.
• Review potential prescription steering.
• Audit formulary economics.
• Review generic pricing.
• Review prior-authorization performance.
• Examine pharmacy recoupments.
• Recalculate contractual guarantees.
• Review audit-right limitations.
• Benchmark the PBM contract.
• Compare competing vendors periodically.
• Audit broker/consultant compensation.
• Document fiduciary review.
• Track corrective actions.
• Review the arrangement again before renewal.

---

Frequently Asked Questions

What is a PBM?

A Pharmacy Benefit Manager administers prescription-drug benefits for health plans and can perform functions involving pharmacy networks, claims processing, formularies, manufacturer negotiations and specialty-pharmacy services.

Are PBM rebates illegal kickbacks?

Not necessarily. Rebates and other contractual payments can be lawful. Employers should focus on understanding what compensation exists, who receives it, whether it is disclosed and whether contract terms are being followed.

What is PBM spread pricing?

Spread pricing generally refers to an arrangement where the PBM charges the health plan more for a prescription than it reimburses the pharmacy, retaining the difference according to the applicable arrangement.

How much did the FTC identify from spread pricing?

FTC staff estimated the three largest PBMs generated approximately $1.4 billion in spread-pricing income from the specialty generic drugs examined over the study period.

What did the FTC find about specialty generic drugs?

FTC staff reported that affiliated pharmacies of the three largest PBMs generated more than $7.3 billion in dispensing revenue above estimated acquisition costs for the specialty generic drugs analyzed from 2017 through 2022.

Should employers audit their PBMs?

Employers sponsoring ERISA-covered plans should take their service-provider selection and monitoring obligations seriously. DOL recommends reviewing performance, reports and actual fees and maintaining a formal monitoring process.

Should employers audit their insurance brokers?

They should understand broker compensation. DOL specifically advises employers to ask service providers about third-party compensation such as commissions, finder’s fees and revenue sharing.

Are new PBM transparency rules coming in 2026?

The landscape is changing. DOL proposed detailed PBM fee-disclosure requirements in January 2026, while the Consolidated Appropriations Act, 2026 subsequently amended ERISA with PBM-related provisions. DOL extended its proposed-rule comment period to consider those statutory changes.

---

Final Thoughts

For years, employers could treat pharmacy benefits as:

“The PBM handles it.”

That mindset is increasingly difficult to defend.

PBM economics can involve:

manufacturer rebates

spread pricing

specialty-pharmacy margins

affiliate relationships

pharmacy recoupments

and:

other direct and indirect compensation.

FTC findings have demonstrated how substantial some of these financial flows can become. Meanwhile, federal policy in 2026 is pushing PBM compensation further into the transparency spotlight.

The answer isn’t to assume every insurance partner is doing something improper.

It’s to stop relying on assumptions.

Ask.

Document.

Benchmark.

Audit.

Verify.

The most important vendor-accountability question for 2026 may be remarkably simple:

“Show us exactly how you make money from our health plan.”

A partner providing good value should be able to explain its economics clearly.

Quick Takeaway

Calling an HSA a “Medical 401(k)” isn’t a legal or IRS term—but it captures an important feature of the account.

Unlike many health benefits that reset each year, unused HSA money can:

stay in the account, accumulate, potentially be invested and remain with the employee after changing jobs.

The IRS confirms that HSA funds remain in the account until used, earnings can be tax-free, qualified medical distributions may be tax-free, and the account is portable when an employee changes employers or leaves the workforce.

For 2026, the annual HSA contribution limits are:

Self-only coverage: $4,400

Family coverage: $8,750

That creates an opportunity for employers.

Instead of simply offering:

“Here’s our high-deductible health plan.”

they can offer:

“Here’s your HDHP—and we’ll put money into an HSA that belongs to you.”

That second proposition can feel much more like a long-term financial benefit.

---

What Is an HDHP?

HDHP stands for:

High Deductible Health Plan

Traditionally, an HSA-eligible individual generally needs qualifying HDHP coverage and cannot have certain disqualifying health coverage.

For 2026, the IRS defines a qualifying HDHP under the general rules as having at least:

2026 HDHP Limit	Self-Only	Family
Minimum deductible	$1,700	$3,400
Maximum out-of-pocket expenses	$8,500	$17,000

These out-of-pocket limits exclude premiums.

The higher deductible is the part employees usually notice first.

But pairing the plan with an HSA changes the financial picture.

---

What Is an HSA?

An HSA—or Health Savings Account—is a tax-advantaged account available to qualifying individuals.

Money in the account can be used for qualified medical expenses.

Depending on how contributions are made and applicable tax rules, HSAs can offer several federal tax advantages.

The IRS explains that employer HSA contributions may be excluded from an employee’s gross income, earnings can be tax-free, and distributions can be tax-free when used for qualified medical expenses.

This combination is what makes HSAs unusual.

---

Why People Call It a “Medical 401(k)”

The comparison isn’t perfect.

A 401(k) is a retirement plan.

An HSA is designed primarily to help eligible individuals save and pay for qualified healthcare expenses.

But the accounts share several characteristics employees may appreciate.

Both can:

Receive employer contributions

Accumulate balances

Offer investment opportunities depending on the provider

and:

Support long-term financial planning.

The biggest psychological difference between an HSA and many traditional healthcare benefits is simple:

The employee owns the HSA.

The IRS states that employer HSA contributions become the employee’s property and cannot be withdrawn by the employer.

That’s powerful from a benefits perspective.

---

The HSA Doesn’t Disappear When You Leave

Suppose your employer contributes:

$1,500 annually

to your HSA.

After four years, that’s:

$6,000

of employer contributions before considering employee contributions, withdrawals or investment returns.

Then you receive another job offer.

Your employer doesn’t get that HSA balance back.

The HSA stays with you.

That’s fundamentally different from many employer benefits.

Your insurance coverage may end.

Your employer’s wellness program may disappear.

But:

Your HSA remains yours.

The IRS specifically describes HSAs as portable when employees change employers or leave the workforce.

---

Why This Matters for Employee Retention

Consider two hypothetical companies.

Company A

Offers an HDHP.

Employer HSA contribution:

$0

Company B

Offers a comparable HDHP.

Employer contributes:

$1,500 per year

to each eligible employee’s HSA.

After five years, Company B may have contributed:

$7,500

to that employee’s HSA.

Assuming the employee hasn’t spent all of it, the worker can see a tangible balance connected to years of employment.

That’s very different psychologically from:

“Our company paid part of your insurance premium.”

Both are valuable.

But one produces an asset the employee can actually see and retain.

---

Retention Secret #1: Make the Employer Contribution Visible

Employers already spend substantial amounts on healthcare.

But employees don’t always understand how much.

An employer might spend:

$8,000

toward an employee’s annual premium.

Yet the employee mostly notices:

$250 disappearing from each paycheck.

An HSA contribution is different.

The employee can log in and see:

Employer contribution: $1,000

or:

Employer contribution: $2,000.

That visibility can make the employer’s healthcare investment more tangible.

---

Retention Secret #2: Don’t Offer a “Naked” HDHP

This is where employers can get the strategy wrong.

Suppose you replace a:

$1,000 deductible plan

with a:

$3,000 deductible plan

and contribute nothing to employees’ HSAs.

Employees may interpret the change as:

“My employer just transferred $2,000 of healthcare risk to me.”

Technically, you now offer an HSA-compatible strategy.

Emotionally, however, employees may view it as a benefit cut.

A funded HSA changes the conversation.

---

HDHP + Employer HSA Funding

Consider this hypothetical example.

Old PPO

Employee deductible:

$1,000

New HDHP

Employee deductible:

$3,000

At first glance, employees see:

+$2,000 additional deductible exposure.

Now suppose the employer contributes:

$1,500 to the HSA.

The employee can use those employer-funded dollars for qualified medical expenses.

That doesn’t make the plans equivalent.

But it provides employees with a tangible financial resource to help manage the higher deductible.

---

Retention Secret #3: Use a Match

Employers can also think about HSA contributions more like retirement-plan participation incentives.

For example, a hypothetical employer could contribute:

Base employer contribution

$500

plus:

Matching contribution

Dollar-for-dollar on the employee’s first $500

subject to applicable HSA contribution and employer contribution rules.

An employee contributing $500 could then receive:

Employee: $500

Employer: $1,000

Total: $1,500

This encourages employees to participate in their own healthcare savings.

Employers need to structure contributions carefully because HSA comparability and cafeteria-plan rules can apply.

---

The 2026 HSA Limits Give Employers More Room

For 2026, total HSA contributions can generally reach:

$4,400 — Self-only

$8,750 — Family

for eligible individuals, subject to applicable rules.

Importantly, the limit generally includes contributions from:

Employee + employer.

So if an employee with self-only coverage receives:

$1,500 from the employer

the remaining room under a $4,400 annual limit would generally be:

$2,900

assuming the employee is eligible for the full-year limit and there are no other contributions affecting it.

---

Employees Age 55+ Get Additional HSA Room

Eligible individuals age 55 or older can generally make an additional:

$1,000 catch-up contribution.

That can make the HSA particularly interesting for workers approaching retirement.

The closer employees get to retirement, the more likely healthcare costs become an important financial-planning issue.

An HSA can help create a dedicated pool for those future expenses.

---

Retention Secret #4: Teach Employees Not to Think “Use It or Lose It”

Many employees confuse:

HSA

with:

Healthcare FSA.

That’s a costly misunderstanding.

HSA balances generally don’t disappear at year-end.

The IRS explicitly says contributions remain in the account until used.

So an employee who has:

$2,000 left on December 31

can still have that money available the following year.

This rollover characteristic is central to the “Medical 401(k)” concept.

---

Why HSA Education Matters

Imagine an employee receives:

$1,200 from their employer

but assumes the money expires in December.

They may rush to spend it.

Another employee understands:

“I can keep this for future healthcare expenses.”

That person may treat the account very differently.

Employers therefore shouldn’t simply provide an HSA debit card.

Teach employees:

What an HSA is

What expenses qualify

How rollover works

How employer contributions work

How investment features work

and:

What happens when they leave the company.

Education can turn a confusing account into a meaningful benefit.

---

Retention Secret #5: Consider Seed Contributions

Employees can be most financially vulnerable at the beginning of the plan year.

Suppose the HDHP deductible is:

$3,400

and an employee needs an expensive procedure in January.

If the employer contributes:

$100 per month

the employee may have only $100 available from the employer at that point.

Instead, an employer might consider contributing a larger amount early in the year.

For example:

January

$600

then:

Remaining months

smaller periodic contributions.

This can provide more immediate protection against early-year healthcare expenses.

Employers should evaluate cash flow, contribution rules and workforce considerations before choosing the schedule.

---

Retention Secret #6: Consider the HSA as Part of Total Compensation

Suppose two companies offer an employee:

Company A

Salary: $90,000

Employer HSA contribution: $0

Company B

Salary: $90,000

Employer HSA contribution: $2,000

Assuming comparable health plans and other benefits, Company B’s offer includes an additional employer-funded financial benefit.

Recruiters can communicate:

“We contribute $2,000 annually toward your healthcare savings.”

That’s much easier for candidates to understand than vague language such as:

“Competitive medical benefits.”

---

HSA Contributions Can Receive Favorable Payroll-Tax Treatment

Employer HSA contributions can also be tax-efficient.

The IRS explains that qualifying employer cash contributions to an eligible employee’s HSA can be exempt from:

Federal income-tax withholding

Social Security tax

Medicare tax

and:

FUTA tax

within applicable limits.

That can make employer HSA funding attractive compared with simply providing the same dollar amount as ordinary taxable compensation.

Businesses should still coordinate with payroll and tax professionals to implement contributions properly.

---

The Triple-Tax Advantage

HSAs are often described as having a:

Triple-tax advantage.

At the federal level, this generally refers to:

1. Contributions

Eligible contributions can receive favorable tax treatment.

2. Growth

Earnings within the HSA can be tax-free.

3. Qualified Withdrawals

Distributions for qualified medical expenses can be tax-free.

The IRS confirms these key federal tax characteristics.

State tax treatment can differ, so employees should check the rules applicable where they live.

---

HSA Investing Changes the Conversation

Many employees think an HSA is simply:

A healthcare checking account.

It can be more than that.

Depending on the HSA provider and account requirements, employees may be able to invest part of their balances.

That introduces a long-term strategy:

Contribute → preserve unused funds → potentially invest → use later for qualified healthcare expenses.

Of course, investments can lose value.

Employees should understand:

Fees

Investment risk

Minimum cash-balance requirements

and:

Available investment choices.

---

The Long-Term HSA Strategy

Consider a hypothetical employee who contributes:

$4,000 annually

and spends only:

$1,500

from the account.

That leaves:

$2,500

available to roll forward.

After 10 years, ignoring investment gains and changes in contribution levels, that could represent:

$25,000

accumulated for future healthcare expenses.

This example is purely illustrative.

But it demonstrates why an HSA can become much more meaningful than a simple annual spending account.

---

HSA vs. 401(k): Important Differences

Calling an HSA a Medical 401(k) is useful marketing shorthand—but employees shouldn’t assume they’re identical.

A 401(k):

Is fundamentally a retirement account.

An HSA:

Is fundamentally a tax-advantaged healthcare account.

HSA eligibility depends on health coverage and other requirements.

The contribution limits are different.

Withdrawal rules are different.

Employer rules are different.

And the tax treatment isn’t identical in every situation.

Use the comparison to explain the long-term savings concept, not to imply the accounts are legally equivalent.

---

What Happens After Age 65?

HSAs become particularly flexible later in life.

Qualified medical expenses can continue to receive favorable tax treatment.

And after age 65, distributions for nonmedical purposes generally no longer face the additional 20% tax that can apply to nonqualified distributions at younger ages, although ordinary income tax generally applies to those nonmedical withdrawals.

This creates another retirement-planning dimension.

An employee may view an HSA as:

Healthcare savings first.

Additional retirement flexibility later.

---

Medicare Creates an Important HSA Rule

Employees approaching Medicare eligibility need to pay attention.

The IRS states that someone enrolled in Medicare isn’t eligible to contribute to an HSA.

That doesn’t mean existing HSA money disappears.

The account remains available.

But contribution eligibility changes.

Older employees should coordinate HSA contributions carefully when enrolling in Medicare, especially because Medicare enrollment timing can sometimes have retroactive implications.

---

2026 Makes HSA Eligibility Broader

The One Big Beautiful Bill Act made several significant HSA changes.

IRS guidance explains that the law expanded HSA availability by addressing:

Telehealth

Certain Bronze and Catastrophic individual-market plans

and:

Qualifying direct primary-care arrangements.

For example, starting January 1, 2026, certain Bronze and Catastrophic individual-market plans receive expanded HSA-compatible treatment under the new rules.

That makes 2026 particularly important for HSA education.

---

Telehealth Is More HSA-Friendly

The OBBB also made permanent a rule allowing qualifying HDHPs to provide telehealth and other remote-care services before the deductible without automatically destroying HSA eligibility.

The IRS says this applies for plan years beginning on or after January 1, 2025.

For employers, that’s useful because employees don’t necessarily have to choose between:

HSA eligibility

and:

convenient pre-deductible telehealth access

when the applicable requirements are satisfied.

---

Direct Primary Care Gets New Treatment

Beginning in 2026, the OBBB also allows an otherwise eligible person participating in certain qualifying direct primary-care arrangements to contribute to an HSA.

The IRS further states that HSA funds may be used tax-free to pay qualifying periodic DPC fees.

This creates another potentially interesting employer-benefits combination:

HDHP + HSA + qualifying direct primary care.

Employers should confirm that any particular arrangement satisfies the statutory requirements before assuming HSA compatibility.

---

The Biggest Problem With HDHPs: Affordability

There’s an important counterargument.

High-deductible plans can expose employees to substantial upfront healthcare costs.

Someone living paycheck to paycheck may not care that:

“The HSA is a great long-term investment vehicle.”

They’re thinking:

“Can I afford my MRI this month?”

That’s why an HDHP + HSA retention strategy works much better when employers consider:

Meaningful employer HSA funding

rather than simply offering an empty account.

---

Lower-Paid Employees Need Special Attention

Imagine two employees each face a:

$3,400 deductible.

Employee A earns:

$180,000

Employee B earns:

$45,000

The deductible is the same number.

Its financial impact isn’t remotely the same.

Employers considering an HDHP-heavy benefits strategy should evaluate whether their contribution structure adequately supports lower-paid employees.

Benefits equality doesn’t always produce equal financial impact.

---

Consider Tiered Employer Contributions Carefully

Employers may explore contribution structures designed to provide meaningful support across their workforce.

However, HSA employer contributions are subject to specific rules.

The IRS notes that employer contributions outside a cafeteria plan generally need to satisfy comparability requirements for comparable participating employees. Contributions through cafeteria plans operate under different rules.

Don’t improvise different HSA contributions employee by employee.

Work with qualified benefits and tax advisers when designing the arrangement.

---

Don’t Forget the Health FSA Problem

An employee can unintentionally lose HSA contribution eligibility because of other health coverage.

For example, participation in a general-purpose health FSA can generally interfere with HSA eligibility.

The IRS notes that an employee participating in an HDHP and certain FSAs or HRAs may be disqualified from HSA contributions, while arrangements such as certain limited-purpose or post-deductible FSAs can be compatible.

This matters especially when spouses have benefits through different employers.

Employees should review all coverage—not just their own HDHP.

---

Employer Example: Turning Premium Savings Into Retention

Consider a hypothetical 50-person company.

It currently pays:

$10,000 per employee annually

toward traditional medical-plan premiums.

A new HDHP option reduces the employer’s hypothetical premium cost by:

$1,800 per employee.

Instead of keeping the entire savings, the company contributes:

$1,200

to each eligible employee’s HSA.

Employer retains:

$600 per employee

in hypothetical savings.

Employee receives:

$1,200 in an owned, portable account.

Across 50 employees:

Employer HSA investment:

$60,000

Potential remaining premium savings:

$30,000

Again, these figures are illustrative.

Actual economics depend on the plan and workforce.

---

Turn the Benefit Into a Retention Story

The employer shouldn’t communicate this as:

“We’re switching to a cheaper high-deductible plan.”

Instead, accurately explain the entire benefit.

For example:

“The company will contribute $1,200 annually to your HSA. That money belongs to you, rolls over each year and remains yours if you leave the company.”

That’s a fundamentally different message.

Employees need to understand both:

the higher deductible

and:

the employer-funded asset.

Transparency matters.

---

Should Employers Contribute Monthly or Annually?

There’s no universal answer.

Monthly Contributions

Potential benefits:

Predictable employer cash flow

Regular employee engagement

Reduced risk of large upfront contributions for employees who leave quickly

Upfront Contributions

Potential benefits:

Better protection against early-year medical expenses

Immediate visibility of employer benefit

Potentially stronger employee perception

Some employers may use a hybrid.

The best approach depends on workforce demographics, cash flow and plan design.

---

Build the HSA Into Recruitment

Instead of posting:

“Medical, dental and vision benefits available,”

employers could communicate a specific benefit such as:

“Company-funded Health Savings Account for eligible employees.”

Recruiters can explain:

Annual employer contribution

Ownership

Rollover

and:

Portability.

Specific benefits are easier for candidates to value than generic phrases.

---

Show Employees the Five-Year Value

If your company contributes:

$1,500/year

show employees:

1 year: $1,500

3 years: $4,500

5 years: $7,500

before withdrawals or investment returns.

That’s not a promise that employees will have those balances—the employee may use the money for healthcare.

It’s simply a way to illustrate the cumulative employer contribution.

This makes the benefit tangible.

---

Don’t Promise Investment Returns

If your HSA provider offers investments, employers should avoid messaging such as:

“Your HSA will grow to $50,000.”

Investment returns aren’t guaranteed.

Instead say:

“Unused HSA funds can potentially be invested if your provider offers that feature, subject to fees and investment risk.”

That’s accurate and responsible.

---

HDHP + HSA Isn’t Right for Every Employee

Some workers may prefer:

Higher premiums + lower deductible.

Others may prefer:

Lower premiums + HDHP + HSA.

Employees with:

Frequent specialist care

expensive prescriptions

planned procedures

or:

significant ongoing healthcare needs

should compare total annual costs carefully.

Don’t assume the HSA option automatically wins because it has a lower premium.

---

The Best Employer Strategy May Be Choice

Rather than forcing everyone into one design, an employer might offer:

Option A

Traditional PPO

Option B

HSA-compatible HDHP with meaningful employer HSA contribution.

Employees can then compare:

Premium

Deductible

Out-of-pocket maximum

Employer HSA contribution

Network

and:

Expected healthcare usage.

That can make the HSA option attractive without forcing it on employees who prefer another structure.

---

A Better Comparison Formula

When comparing a PPO against an HDHP, don’t look only at deductibles.

Consider:

Annual Employee Premium

plus:

Expected Out-of-Pocket Spending

minus:

Employer HSA Contribution

and then consider:

Tax benefits + remaining HSA balance.

For example:

PPO annual employee premium: $4,800

HDHP annual employee premium: $3,000

Difference:

$1,800

Employer HSA contribution:

$1,200

Now the HDHP starts with a meaningful financial advantage.

But expected healthcare costs still need to be modeled.

---

2026 Employer HDHP + HSA Checklist

Before positioning your HSA strategy as a retention benefit:

• Confirm the health plan meets applicable HSA rules.
• Review the 2026 contribution limits.
• Decide how much the employer will contribute.
• Determine whether contributions will be upfront, periodic or hybrid.
• Review comparability and cafeteria-plan rules.
• Check FSA/HRA compatibility.
• Explain employee ownership.
• Explain annual rollover.
• Explain portability.
• Explain qualified medical expenses.
• Explain available investment options without promising returns.
• Educate employees approaching Medicare.
• Model low-, moderate- and high-healthcare-use scenarios.
• Compare HDHP costs with your PPO options.
• Consider lower-paid employees’ deductible exposure.
• Make employer HSA funding visible during recruitment.
• Include HSA contributions in total-compensation statements.
• Measure employee participation and satisfaction.

---

Frequently Asked Questions

Is an HSA really a “Medical 401(k)”?

Not technically. “Medical 401(k)” is an informal comparison. An HSA is a tax-advantaged healthcare account, while a 401(k) is a retirement plan. But HSAs can accumulate funds over time, may offer investment options and are portable.

What is the HSA contribution limit for 2026?

The 2026 limits are $4,400 for self-only coverage and $8,750 for family coverage.

What are the 2026 HDHP limits?

Under the general HDHP rules, the minimum deductible is $1,700 for self-only coverage and $3,400 for family coverage. Maximum annual out-of-pocket expenses are $8,500 and $17,000, respectively.

Does my employer own the money it contributes?

No. The IRS says employer HSA contributions become the employee’s property and can’t be withdrawn by the employer.

Does HSA money expire every December?

No. HSA funds remain in the account until used.

What happens if I change jobs?

Your HSA stays with you. The IRS describes HSAs as portable.

Can my employer contribute to my HSA?

Yes, assuming applicable eligibility and contribution requirements are satisfied. Employer contributions can also receive favorable federal tax treatment.

Can I invest my HSA?

Many HSA custodians offer investment options, although availability, minimum balances, fees and investment choices vary by provider.

Can I contribute to an HSA after enrolling in Medicare?

Generally no. Medicare enrollment makes an individual ineligible to make HSA contributions. Existing HSA funds remain available.

---

Final Thoughts

The real retention opportunity isn’t:

HDHP alone.

It’s:

HDHP + meaningful employer-funded HSA + employee education.

An unfunded high-deductible plan can feel like:

more financial risk.

A properly designed HDHP accompanied by employer HSA funding can feel very different:

lower-premium coverage + employer healthcare dollars + employee ownership + rollover + portability + potential long-term savings.

And 2026 makes the strategy particularly relevant.

The annual HSA limits have risen to $4,400 for self-only coverage and $8,750 for family coverage, while federal changes have expanded HSA eligibility in several areas.

For employers, the lesson isn’t that every worker should be pushed into an HDHP.

It’s that an HSA shouldn’t be treated merely as:

an account attached to a high-deductible plan.

Designed and communicated properly, it can become a visible part of an employee’s financial benefits package—one that continues accumulating value long after the annual Open Enrollment presentation is forgotten.

Quick Takeaway

The headline is alarming:

Healthcare costs are approaching a 9% trend.

But employers should understand exactly what that number means.

Mercer’s employer survey projects the average total health-benefit cost per employee to rise 6.7% in 2026, after employers’ planned cost-management actions. Earlier projections found costs would have risen nearly 9% without employer intervention.

Meanwhile, PwC’s latest medical-cost analysis has revised its 2026 group medical cost trend to 9.0% and projects another 9% trend for 2027.

Those numbers don’t mean every company’s insurance renewal will increase exactly 9%.

Your renewal depends on factors including:

Claims experience, workforce demographics, geography, plan design, carrier pricing, pharmacy utilization and funding arrangement.

But the message is clear:

Employers can no longer rely on annual carrier negotiations alone.

Controlling costs in 2026 increasingly means changing where employees receive care, how they pay for it, how expensive claims are managed and how the plan itself is financed.

---

Why Group Health Insurance Is Getting More Expensive

Health-insurance costs aren’t rising because of one single problem.

Mercer points to both higher healthcare prices and greater utilization, while expensive advances in areas such as cancer treatment and weight-management drugs are adding additional pressure.

PwC highlights several additional cost drivers, including:

Hospital inflation

Provider consolidation

Pharmacy spending

Behavioral-health utilization

and:

Higher reimbursement pressures.

Employers therefore face a difficult equation:

Higher medical prices + more utilization + expensive therapies = higher claims

and ultimately:

higher employer health-plan costs.

---

The Old Solution: Increase the Deductible

For years, one of the easiest ways to control employer premiums was:

Raise the deductible.

For example:

Old deductible: $1,500

New deductible: $2,500

The insurer takes less first-dollar risk, potentially reducing premium pressure.

But employees take on more financial exposure.

Employers can also increase:

Copays

Coinsurance

Employee premium contributions

or:

Out-of-pocket maximums.

These tactics can reduce employer spending.

But they don’t necessarily reduce the underlying cost of healthcare.

They frequently just change:

who pays the bill.

---

Cost Shifting Is Returning—but It Has Limits

Mercer’s 2026 benefits-strategy research found 51% of large employers were likely or very likely to make plan-design changes that shift more costs to employees, such as higher deductibles or out-of-pocket limits.

That’s understandable during a difficult renewal.

But repeatedly increasing employee costs creates another problem:

Healthcare affordability.

Employees may delay:

Doctor visits

Prescriptions

Diagnostic testing

or:

Follow-up treatment

because they can’t comfortably afford their share.

That can create larger health and financial problems later.

A more sustainable strategy tries to reduce the price and unnecessary utilization of healthcare, rather than simply transferring costs.

---

Strategy #1: High-Performance Provider Networks

Not every hospital or physician delivers identical:

Quality

or:

Cost efficiency.

High-performance networks attempt to direct employees toward providers that demonstrate better combinations of:

quality + outcomes + cost.

Instead of giving every provider identical financial treatment, employers can design benefits that encourage employees to use higher-value providers.

Mercer reports that roughly a third of employers offer nontraditional medical-plan strategies, including high-performance networks, while additional employers are considering them.

This represents a fundamental change.

Old strategy:

“Use healthcare wherever you want.”

New strategy:

“We’ll make higher-value healthcare financially easier to use.”

---

Strategy #2: Consider a Narrow-Network Option

Broad networks sound attractive.

Employees like knowing they can access a huge number of providers.

But broad networks may include:

very expensive hospitals

and:

providers with widely varying efficiency.

A carefully constructed narrower network may negotiate better economics by concentrating utilization among selected providers.

The trade-off is:

Lower potential cost vs. reduced provider choice.

That’s why employers don’t necessarily need to replace every plan.

They might offer:

Broad-network PPO

plus:

Lower-cost narrow-network option.

Employees can then decide whether provider flexibility is worth the additional premium.

---

Strategy #3: Variable Copay Plans

This is one of the more interesting developments in employer health benefits.

Instead of employees facing:

Deductible + coinsurance + uncertain final costs,

a variable-copay plan can assign more predictable copays to different providers or services.

Higher-value providers may carry:

Lower copays.

Higher-cost providers may carry:

Higher copays.

Mercer specifically identifies variable-copay plans as one of the nontraditional plan approaches gaining employer interest.

This creates a direct financial incentive:

Choose better-value care → pay less.

---

Strategy #4: Centers of Excellence

Some medical procedures are:

Expensive

complex

and:

highly variable in quality.

Examples can include:

Joint replacement

Spine surgery

Cancer care

Cardiac procedures

and certain other specialty treatments.

A Centers of Excellence strategy directs qualifying patients toward carefully selected facilities or provider organizations.

The employer may provide incentives such as:

Reduced cost-sharing

Travel reimbursement

or:

Dedicated care coordination.

Why?

Because a successful procedure performed correctly the first time can potentially be much less expensive than:

poor outcome → complications → readmission → revision procedure.

---

Strategy #5: Attack High-Cost Claims Directly

One employee with a complicated medical condition can generate hundreds of thousands—or occasionally millions—of dollars in claims.

That’s why high-cost claim management deserves attention.

Mercer’s research identifies managing high-cost claims as one of employers’ top health-program priorities.

Potential strategies include:

Specialty case management

Centers of Excellence

Second-opinion programs

Care navigation

Specialty-pharmacy management

and:

Stop-loss optimization for self-funded employers.

The objective isn’t denying necessary treatment.

It’s making sure expensive treatment is:

appropriate + coordinated + delivered efficiently.

---

Strategy #6: Reevaluate Your Pharmacy Benefit

Prescription drugs have become one of the most important employer cost-management areas.

Mercer says prescription-drug benefit costs are rising around 9% in 2026, with expensive GLP-1 utilization among the factors contributing to pharmacy spending growth.

Employers should understand:

PBM contract terms

Rebate arrangements

Specialty-drug pricing

Formulary strategy

Prior authorization

Site-of-care rules

and:

Manufacturer assistance where legally appropriate.

Don’t treat pharmacy as a small component of the medical plan anymore.

For many employers, it’s a major cost center.

---

Strategy #7: Manage GLP-1 Coverage Instead of Automatically Cutting It

GLP-1 medications create a difficult benefits problem.

Completely excluding them can reduce immediate spending.

But these drugs may be clinically important for some employees and have expanding medical uses.

Unlimited access without appropriate clinical management can create substantial costs.

A middle-ground strategy might include:

Evidence-based eligibility criteria

Prior authorization

Clinical monitoring

Appropriate prescribing

and:

Ongoing evaluation of outcomes.

The objective should be:

Pay for appropriate care—not simply more care.

---

Strategy #8: Encourage High-Value Primary Care

Emergency rooms are expensive.

Many urgent-care encounters are also more expensive than ordinary primary care.

Meanwhile, employees who lack convenient access to primary care may delay treatment until a problem becomes worse.

Employers can investigate:

Virtual primary care

Advanced primary-care models

On-site/near-site clinics

Direct primary care

or:

Enhanced telehealth access.

The economic theory is straightforward:

Better early intervention may prevent some expensive downstream care.

But employers should evaluate actual utilization and outcomes rather than assuming every wellness or primary-care vendor automatically saves money.

---

Strategy #9: Virtual Care—But Don’t Buy Five Overlapping Apps

Employers have accumulated digital health vendors rapidly.

You may already provide:

Telemedicine

Mental-health app

Musculoskeletal program

Diabetes program

Weight-management program

Sleep program

and:

Care-navigation platform.

Individually, each may sound valuable.

Collectively, you might be paying multiple vendors to reach the same employees.

Conduct a:

Vendor-overlap audit.

Ask:

How many employees actually use this program?

What does it cost per engaged member?

Does another vendor already provide the same function?

Is there measurable healthcare-cost impact?

A benefit doesn’t create value simply because it’s available.

---

Strategy #10: Invest in Behavioral Health Strategically

Cutting mental-health coverage to reduce premiums can be shortsighted.

Mercer reports that improving access to behavioral healthcare remains a major employer priority even amid rising healthcare costs.

Employers can evaluate:

Virtual behavioral health

Employee Assistance Programs

Therapy networks

Psychiatric access

and:

Substance-use support.

But again:

Measure results.

Look at:

Utilization

access times

employee satisfaction

clinical outcomes where appropriately measured

and:

total program cost.

---

Strategy #11: Use an HSA-Compatible Plan More Strategically

HSA-compatible health plans can reduce premium costs compared with richer traditional plans in some situations.

For 2026, the IRS HSA contribution limits are:

Self-only: $4,400

Family: $8,750.

The general 2026 HDHP minimum deductibles are:

$1,700 self-only

$3,400 family.

The applicable maximum out-of-pocket limits under the general HDHP rules are:

$8,500 self-only

$17,000 family.

But don’t simply introduce a high deductible and call it innovation.

Consider using some employer savings to fund employees’ HSAs.

---

Example: Premium Savings + HSA Contribution

Suppose:

Traditional PPO

Employer annual premium cost per employee:

$12,000

HSA-Compatible Option

Employer premium cost:

$10,000

Potential premium difference:

$2,000

Instead of keeping all $2,000, the employer could hypothetically contribute:

$1,000

to the employee’s HSA.

Employer still potentially saves:

$1,000

while the employee receives money to help manage the deductible.

This can produce a more balanced strategy than simply increasing employee cost exposure.

---

Strategy #12: Consider Self-Funding

Traditionally, many small and midsize employers purchase:

Fully insured coverage.

The employer pays a fixed premium and the insurer bears the claims risk according to the policy.

Larger employers often use:

Self-funded plans.

The employer pays claims while typically purchasing stop-loss insurance to protect against catastrophic exposure.

Potential advantages include:

Greater claims-data visibility

More plan-design control

Greater vendor flexibility

and potentially:

Reduced insurer risk/profit charges.

But self-funding introduces genuine financial risk.

It isn’t automatically cheaper.

---

Strategy #13: Level Funding Can Be a Middle Ground

Smaller businesses interested in self-funding may investigate:

Level-funded arrangements.

These typically combine elements such as:

Expected claims funding

Administrative fees

and:

Stop-loss protection

into relatively predictable monthly payments.

Depending on the arrangement, favorable claims experience may provide financial advantages compared with conventional fully insured coverage.

But contracts vary significantly.

Employers need to understand:

Maximum liability

Stop-loss attachment points

Run-out claims

renewal methodology

and:

surplus/refund provisions.

Never buy level funding based solely on a low first-year quote.

---

Strategy #14: Review Stop-Loss Insurance Carefully

For self-funded employers, stop-loss insurance can protect against catastrophic claims.

But the cheapest stop-loss premium isn’t automatically the best deal.

Review:

Specific deductible

Aggregate protection

Contract basis

Lasers

Exclusions

Renewal terms

and:

Claims reimbursement procedures.

A badly structured stop-loss contract can create significant financial exposure.

---

Strategy #15: Consider ICHRA for the Right Workforce

Some employers—particularly smaller or geographically distributed companies—may consider moving away from traditional group coverage toward an:

Individual Coverage Health Reimbursement Arrangement (ICHRA).

The employer establishes a reimbursement allowance while employees obtain qualifying individual health coverage.

This can provide:

More predictable employer contributions

and:

Greater employee plan choice.

But it isn’t automatically cheaper.

Employers need to model:

Individual-market premiums

employee locations

ACA affordability

employee demographics

and:

administrative requirements.

ICHRA should be evaluated as an alternative benefits structure—not a guaranteed savings hack.

---

Strategy #16: Audit Spousal Coverage

Some employers subsidize family coverage heavily even when an employee’s spouse has access to employer-sponsored insurance elsewhere.

Businesses sometimes use:

Spousal surcharges

or:

Spousal carve-outs

when alternative employer coverage is available.

But these policies can create employee-relations and compliance considerations.

Analyze:

actual savings

versus:

workforce impact

before implementing them.

---

Strategy #17: Dependent Eligibility Audits

Employers occasionally continue paying for people who no longer meet their plan’s dependent-eligibility requirements.

Periodic eligibility verification can identify situations such as:

Ineligible former spouses

or:

Dependents who no longer satisfy applicable plan rules.

This should be handled carefully and consistently.

The objective isn’t aggressive claim denial.

It’s ensuring the employer pays only for people legitimately enrolled under the plan’s terms.

---

Strategy #18: Make Employees Better Healthcare Shoppers

Employees often have no idea that the same service can cost dramatically different amounts depending on:

Hospital

Imaging center

Laboratory

or:

Site of care.

Benefits navigation tools can help employees compare:

Cost

Quality

Network status

and:

Provider options.

But information alone isn’t enough.

Employees need an incentive to use it.

For example:

Lower employee cost-sharing for higher-value providers.

That’s where transparency can begin affecting behavior.

---

Strategy #19: Move Care to the Right Site

Some healthcare services can be provided in different settings.

Depending on clinical appropriateness, an employer’s plan may pay very different prices for care delivered through:

Hospital outpatient departments

versus:

Independent facilities

or other settings.

This can apply to services such as:

Imaging

Infusions

Lab work

and certain:

Outpatient procedures.

Site-of-care management can therefore be a meaningful cost strategy.

Clinical appropriateness must remain central.

---

Strategy #20: Stop Paying for Benefits Employees Don’t Value

Benefits packages grow over time.

Companies add:

Apps

Programs

discount platforms

wellness tools

and:

voluntary benefits.

Few benefits ever disappear.

Eventually the employer may have:

25 programs employees barely understand.

Conduct a benefits inventory.

For every program ask:

What does it cost?

How many employees use it?

Does it duplicate another benefit?

What outcome does it produce?

Mercer notes that voluntary benefits can be useful when aligned to employees’ actual life-stage needs rather than broad demographic assumptions.

Redirecting low-value spending toward:

medical premiums

HSA contributions

or:

high-value healthcare programs

may produce more employee value.

---

Don’t Automatically Cut Benefits

Suppose your renewal comes back:

+9%.

The instinctive response may be:

Raise deductible.

Increase employee contributions.

Cut benefits.

But first ask:

Where is the increase actually coming from?

Is it:

Pharmacy?

Hospital claims?

A few catastrophic cases?

Specialty medications?

Emergency-room utilization?

Out-of-network care?

Behavioral health?

Cancer treatment?

Without that information, you’re solving:

“healthcare costs are high”

instead of solving:

the specific reason your healthcare costs are high.

---

A Better 2026 Cost-Management Framework

Consider dividing spending into four categories.

1. Unit Price

What are you paying for healthcare services?

Possible tools:

Network negotiation + high-performance networks + Centers of Excellence.

2. Utilization

How much healthcare is being consumed?

Possible tools:

Primary care + navigation + clinical management.

3. High-Cost Claims

Where are catastrophic expenses coming from?

Possible tools:

Case management + specialty care + stop-loss.

4. Pharmacy

What’s driving prescription spending?

Possible tools:

PBM review + formulary management + specialty-pharmacy strategy + GLP-1 management.

Now your cost strategy becomes much more targeted.

---

Example: A 100-Employee Company

Suppose the company’s current annual healthcare spending is:

$1,500,000

A hypothetical 9% increase would add:

$135,000

bringing projected cost to:

$1,635,000.

Management could simply pass a large portion to employees.

But instead, imagine the company identifies potential savings through:

Network strategy: $35,000

Pharmacy management: $30,000

Vendor consolidation: $15,000

Site-of-care management: $20,000

Plan-design changes: $20,000

Hypothetical total:

$120,000

That would offset most of the projected increase.

These numbers are purely illustrative—not guaranteed savings.

The point is that:

Multiple smaller strategies can sometimes be more sustainable than one giant deductible increase.

---

Measure Cost Per Employee, Not Just Premium

Employers should track:

Total health-benefit cost per employee.

That includes more than the insurance premium.

Consider:

Employer premiums

Employer HSA funding

Vendor fees

Claims

Pharmacy spending

Administrative costs

and:

Stop-loss premiums.

A program that increases one budget line might still lower overall healthcare spending.

---

The Employee Affordability Test Still Matters

Cost management doesn’t exist in isolation from ACA requirements.

For 2026, the ACA employer-sponsored coverage affordability percentage is 9.96%, up from 9.02% in 2025.

Applicable employers need to consider ACA employer shared-responsibility rules when determining employee contributions.

Simply transferring large premium increases to employees can create:

affordability

as well as:

retention

problems.

---

What Small Businesses Should Do Before Renewal

Start earlier than you think.

Ideally, don’t wait until:

30 days before renewal.

Give yourself time to evaluate:

Claims

Pharmacy

Alternative carriers

Network options

Funding arrangements

ICHRA

HSA strategies

and:

Plan-design alternatives.

Once renewal deadlines are close, your negotiating options shrink dramatically.

---

Questions to Ask Your Broker or Benefits Consultant

Ask:

What’s driving our increase?

How much is medical versus pharmacy?

What are our largest claim categories?

Are expensive hospitals driving our claims?

What network alternatives exist?

Can we evaluate high-performance networks?

What would self-funding or level funding look like?

How would stop-loss work?

Should we consider an ICHRA?

What is our PBM actually earning?

Which vendors have measurable ROI?

What happens if we make no changes?

That final question is particularly important.

You want to know the:

unmanaged trend.

---

2026 Group Health Cost Checklist

Before accepting your renewal:

• Obtain the renewal increase.
• Ask for the underlying cost drivers.
• Separate medical from pharmacy spending.
• Analyze high-cost claims.
• Review hospital utilization.
• Review specialty-drug spending.
• Examine GLP-1 utilization.
• Compare network alternatives.
• Consider high-performance networks.
• Evaluate Centers of Excellence.
• Investigate variable-copay options.
• Review telehealth utilization.
• Audit overlapping digital-health vendors.
• Review PBM terms.
• Evaluate HSA-compatible options.
• Consider employer HSA contributions.
• Model fully insured vs. level funded.
• Consider self-funding where appropriate.
• Review stop-loss protection.
• Model ICHRA if appropriate.
• Audit dependent eligibility.
• Review employee affordability.
• Measure total cost per employee.
• Model employee impact before increasing cost-sharing.
• Get competitive proposals.
• Start renewal planning early.

---

Frequently Asked Questions

Are group health-insurance costs really increasing 9% in 2026?

The exact number depends on the measurement. Mercer projects average employer health-benefit cost growth of 6.7% in 2026 after planned cost-reduction measures, while its earlier analysis estimated costs would rise nearly 9% if employers made no changes. PwC’s latest analysis has revised the 2026 group medical cost trend to 9.0%.

Does a 9% medical trend mean my premium will rise 9%?

No. Medical-cost trend isn’t the same as an individual employer’s renewal increase. Your result depends on claims, carrier, geography, workforce, plan design and other factors.

What’s the easiest way to reduce premiums?

Increasing employee cost-sharing can sometimes reduce employer premiums, but it mainly transfers financial exposure. Longer-term strategies focus more on provider prices, networks, pharmacy spending, utilization and high-cost claims.

Are narrow networks worth considering?

Potentially. A well-designed network may steer members toward higher-value providers in exchange for reduced provider choice. Employers should evaluate both savings and employee access.

Can an HSA plan reduce employer costs?

Potentially. HSA-compatible plans can have lower premiums than richer plans in some situations. Employers may also contribute part of the savings to employee HSAs.

What are the 2026 HSA contribution limits?

The IRS limits are $4,400 for self-only coverage and $8,750 for family coverage.

Should a small business consider an ICHRA?

Potentially, particularly when employees are geographically distributed or individual-market options are competitive. But ICHRA isn’t automatically cheaper than group insurance and should be modeled carefully.

Is self-funded health insurance cheaper?

It can be, but it isn’t guaranteed. Self-funding gives employers greater control and access to claims information while exposing them to claims risk. Stop-loss protection is therefore an important consideration.

---

Final Thoughts

The 9% trend isn’t a 9% destiny.

Healthcare inflation is real, and employers face one of the toughest benefits environments in years. Mercer reports that 2026 employer health-benefit cost growth is running at a 15-year high even after planned cost-management actions.

But simply responding with:

higher deductible + higher employee contribution

isn’t the only option.

The strongest 2026 strategies increasingly combine:

Better networks

Smarter pharmacy management

High-cost claim intervention

HSA strategies

Alternative plan designs

Funding-model analysis

Care navigation

and:

Benefits measurement.

The objective shouldn’t merely be:

“How do we make employees pay more?”

It should be:

“How do we purchase healthcare more intelligently?”

Employers that answer that question have a much better chance of bending the cost curve while maintaining benefits employees actually value.

Important 2026 Accuracy Update

There’s a major misconception behind this topic that small-business owners need to understand before making benefit decisions:

The final One Big Beautiful Bill Act did not rename ICHRAs as “CHOICE Arrangements.”

The House-passed version of H.R. 1 contained provisions that would have codified Individual Coverage Health Reimbursement Arrangements (ICHRAs) as Custom Health Option and Individual Care Expense—or “CHOICE”—Arrangements. It also proposed a new employer tax credit and changes involving cafeteria-plan treatment.

However, those provisions were not included in the Senate version and did not become part of the final law signed on July 4, 2025. The enacted Public Law 119-21 instead contains other health-related provisions, including expanded HSA eligibility for certain individual-market Bronze and Catastrophic plans.

So in 2026:

ICHRA is still ICHRA.

“CHOICE Arrangement” should not be presented to business owners as a new federal replacement for ICHRA created by the enacted OBBB.

That distinction is essential for an accurate insurance guide.

---

What Is an ICHRA?

ICHRA stands for:

Individual Coverage Health Reimbursement Arrangement

Instead of a company selecting one traditional group health insurance plan for employees, an employer can establish an ICHRA and provide employees with a defined amount of employer-funded money.

Employees then obtain qualifying individual health insurance coverage, subject to the ICHRA rules.

The employer reimburses eligible premiums and potentially other qualified medical expenses according to the arrangement.

CMS describes ICHRAs as an alternative to traditional group coverage that allows employers to reimburse employees for individual health-insurance premiums while retaining favorable tax treatment.

In simple terms:

Traditional Group Plan

Employer chooses insurance → employees enroll.

ICHRA

Employer establishes reimbursement benefit → employees choose qualifying individual coverage.

That distinction explains much of ICHRA’s appeal to small businesses.

---

Where Did “CHOICE Arrangement” Come From?

The term wasn’t invented by insurance marketers.

Congress considered legislation that would have formally established:

Custom Health Option and Individual Care Expense Arrangements

or:

CHOICE Arrangements.

The proposal largely sought to codify the existing regulatory framework that permits ICHRAs.

The House version of the 2025 reconciliation legislation included this proposal.

It would have treated references to CHOICE Arrangements as including ICHRAs for purposes of existing federal rules.

So articles written while the legislation was moving through Congress understandably discussed:

ICHRA → CHOICE Arrangement.

But legislation can change dramatically before becoming law.

That’s exactly what happened here.

---

House-Passed OBBB vs. Final OBBB

This distinction deserves a simple comparison.

Proposal	House-Passed OBBB	Final Enacted Law
Codify ICHRA framework as CHOICE Arrangements	Yes	No
CHOICE employer tax credit	Yes	No
Special cafeteria-plan provision for CHOICE participants	Yes	No
Expand HSA treatment for certain Bronze/Catastrophic plans	Proposed separately in process	Yes
Became federal law July 4, 2025	—	Yes — P.L. 119-21

The Congressional Research Service comparison specifically showed the House CHOICE provisions alongside “No provision” in the Senate draft.

The final statute’s enacted health-tax provisions don’t contain those House CHOICE sections.

---

What Was the Proposed CHOICE Employer Tax Credit?

This is another area where outdated articles can create confusion.

The House proposal would have created a temporary federal tax credit for qualifying employers establishing a CHOICE Arrangement.

The proposed credit was:

First year

$100 per employee per month

and:

Second year

50% of that amount, subject to the proposal’s rules.

The proposal targeted employers that weren’t applicable large employers under the relevant ACA definition.

For example, under the proposal, 10 qualifying enrolled employees could theoretically have generated:

10 × $100 × 12 = $12,000

during the first year.

That sounds attractive.

But small businesses must understand:

This proposed CHOICE credit did not become law through the final OBBB.

Don’t build your 2026 benefits budget assuming this federal credit exists.

---

What Actually Changed for ICHRAs in 2026?

Here’s where the story gets more interesting.

Although OBBB didn’t create CHOICE Arrangements, one enacted provision can interact favorably with ICHRA coverage.

The final law expanded HSA eligibility.

Beginning in 2026, qualifying individual-market:

Bronze plans

and:

Catastrophic plans

available through an ACA Exchange can receive favorable treatment as high-deductible health plans for HSA purposes under the new statutory rules.

And the IRS addressed the ICHRA interaction directly.

---

ICHRA + Bronze Plan + HSA: A Significant 2026 Development

IRS Notice 2026-5 answers an especially useful question.

Could an eligible individual-market Bronze or Catastrophic plan lose its new HSA-compatible treatment simply because an employer ICHRA is used to purchase it?

The IRS answer is:

No.

The IRS explains that an eligible Bronze or Catastrophic individual-market plan doesn’t fail to receive the new HDHP treatment merely because an employer-sponsored ICHRA—or QSEHRA—is used to purchase the coverage.

That could make ICHRAs more interesting for certain employers and employees in 2026.

But there’s an important caveat.

---

An ICHRA Can Still Affect HSA Eligibility

Don’t translate the new rule into:

“Every employee with an ICHRA can now contribute to an HSA.”

That’s too broad.

HSA eligibility has additional requirements.

The design of the HRA itself can matter because reimbursement of certain medical expenses before the applicable deductible may constitute disqualifying coverage.

Employers interested in combining:

ICHRA + HSA

should therefore structure the arrangement carefully and obtain benefits/tax guidance where appropriate.

The plan being HSA-compatible is only one piece of the eligibility analysis.

---

Why Small Businesses Use ICHRAs

Traditional group health insurance can be challenging for a small company.

The employer may face:

Premium increases

Participation concerns

Limited plan choices

Administrative complexity

and:

Employees wanting different provider networks.

An ICHRA changes the structure.

Instead of promising:

“We’ll buy everyone this insurance policy,”

the employer can essentially establish:

“We’ll provide a defined reimbursement amount, and employees obtain qualifying individual coverage.”

That gives employers greater control over their benefits budget.

---

Advantage #1: Predictable Employer Costs

Imagine a small company with 15 employees.

Rather than absorbing unpredictable percentage increases in a traditional group premium, the employer establishes an ICHRA allowance under the applicable rules.

Suppose the hypothetical employer allocates:

$500 per month per eligible employee.

For 15 employees:

15 × $500 = $7,500/month

Maximum annual employer allocation:

$90,000

subject to actual participation, reimbursement and arrangement design.

This defined-contribution approach can make budgeting easier.

---

Advantage #2: Employees Can Choose Individual Coverage

A traditional group plan often requires employees with very different needs to share the same limited set of choices.

One employee may want:

low premium.

Another wants:

a broad provider network.

Another prioritizes:

prescription coverage.

Another may prefer:

an HSA-compatible plan.

With an ICHRA, qualifying employees can choose individual-market coverage that better matches their circumstances, subject to the applicable ICHRA rules.

---

Advantage #3: The Employer Isn’t Picking Everyone’s Doctors

Consider two employees.

Employee A

Needs access to a specific cardiologist.

Employee B

Rarely uses healthcare and prioritizes low premiums.

A single group plan may not satisfy both preferences.

An ICHRA can shift more plan-selection control to employees.

But employees must actually compare:

Networks

Formularies

Deductibles

and:

Total costs.

More choice isn’t automatically better if employees don’t understand their options.

---

Advantage #4: Employer Contributions Can Receive Favorable Tax Treatment

Properly structured HRA reimbursements can receive favorable federal tax treatment.

That’s one reason ICHRAs can be more attractive than simply increasing an employee’s taxable salary and telling the employee to buy insurance independently.

But businesses need to follow the applicable:

HRA

ACA

ERISA

tax

and:

notice

requirements.

Don’t treat an ICHRA as an informal monthly health-insurance stipend.

---

The “Just Give Employees $500” Mistake

A business owner might think:

“Why create an ICHRA? I’ll simply give everyone $500 for health insurance.”

That isn’t necessarily equivalent.

An informal reimbursement arrangement can create tax and benefits-compliance problems.

ICHRA is a formally structured employer health benefit operating under specific federal rules.

Small employers should establish it correctly rather than improvising.

---

Which Businesses Can Offer an ICHRA?

Employers of different sizes can potentially offer ICHRAs.

This distinguishes ICHRAs from Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), which have specific small-employer eligibility requirements.

CMS describes ICHRAs as an employer option for reimbursing employees who obtain individual coverage.

However, applicable large employers must also consider their responsibilities under the ACA’s employer shared-responsibility provisions.

---

ICHRA vs. QSEHRA

Small businesses frequently confuse these arrangements.

ICHRA

Can generally be used by employers regardless of size, subject to applicable rules.

There isn’t the same statutory annual contribution cap structure applicable to QSEHRAs.

QSEHRA

Designed specifically for qualifying small employers.

It has statutory contribution limits and eligibility requirements.

A company shouldn’t simply choose whichever acronym sounds easier.

Compare both structures.

---

Can You Offer an ICHRA and a Traditional Group Plan?

Potentially—but classification rules matter.

Employers can offer different coverage structures to permissible classes of employees.

For example, existing ICHRA rules may permit an employer to offer:

Traditional group coverage to one permissible employee class

and:

ICHRA to another permissible class.

But an employer generally can’t simply offer each individual employee in the same class:

“Choose either our group plan or the ICHRA.”

CRS explains that existing ICHRA rules prevent employers from offering the same employee a choice between an ICHRA and a traditional employer-sponsored group plan in this manner.

This is one reason professional benefits administration can be valuable.

---

Employee Classes Matter

ICHRA regulations permit certain employee classifications.

Depending on the circumstances, distinctions may involve categories such as:

Full-time employees

Part-time employees

Seasonal employees

Employees in particular geographic areas

and other permitted classes.

The employer must follow the applicable classification and minimum-class-size rules where they apply.

You can’t simply create arbitrary classes designed around individual employees’ health conditions.

---

ICHRA and ACA Premium Tax Credits

This is one of the most important employee issues.

An employee offered an ICHRA may have their eligibility for the ACA Marketplace Premium Tax Credit affected.

For 2026, CMS states that an ICHRA is considered affordable when the employee’s cost for the applicable lowest-cost Silver self-only Marketplace plan, after the employer’s ICHRA contribution, is no more than 9.96% of the employee’s applicable household-income measure under the affordability rules.

If an affordable ICHRA is offered, the employee generally can’t simply decline it and receive a Marketplace Premium Tax Credit.

---

What If the ICHRA Is Unaffordable?

The situation changes.

CMS explains that an employee may potentially qualify for Marketplace Premium Tax Credit assistance if:

the employee opts out of the ICHRA

and:

the ICHRA is considered unaffordable, assuming the employee otherwise satisfies the tax-credit eligibility rules.

This is why employees shouldn’t simply compare:

Employer contribution vs. Marketplace premium.

The formal affordability calculation matters.

---

Example: $500 Monthly ICHRA

Suppose an employee’s applicable lowest-cost Silver self-only premium is:

$700/month.

The employer offers:

$500/month

through the ICHRA.

Employee’s remaining premium:

$200/month.

That figure is then considered under the applicable affordability framework.

The answer isn’t simply:

“$500 is generous, therefore the ICHRA is affordable.”

Affordability depends on the applicable federal calculation.

---

The 2026 Affordability Percentage

For 2026, the relevant ACA affordability percentage is:

9.96%.

CMS specifically uses that percentage in its 2026 ICHRA employee guidance.

Employers subject to ACA employer-mandate considerations should pay particular attention to affordability calculations.

CMS also publishes a 2026 ICHRA Employer Lowest Cost Silver Plan Premium Look-Up Table to assist employers with these calculations.

---

ICHRA Doesn’t Mean Employees Can Buy Anything

An employee generally needs qualifying individual health-insurance coverage—or Medicare where permitted under the applicable ICHRA framework—to participate.

An ICHRA isn’t simply:

$500 of unrestricted healthcare cash.

Employers need procedures for substantiating that participating employees have appropriate coverage.

---

Employees Need Clear Notice

ICHRA rules include employee-notice requirements.

This is important because accepting an ICHRA can affect:

Marketplace subsidy eligibility

and:

How an employee obtains coverage.

Employees need enough information to understand the consequences before making enrollment decisions.

Businesses shouldn’t introduce an ICHRA by sending:

“We’re changing health insurance next month. Good luck.”

Implementation and communication matter.

---

Why 2026 Makes ICHRA Education More Important

The individual health-insurance market is becoming increasingly intertwined with:

Employer reimbursement arrangements

Marketplace coverage

HSA eligibility

and:

ACA affordability rules.

The final OBBB’s expansion of HSA eligibility for certain Bronze and Catastrophic individual-market plans adds another variable.

That means an employee may potentially need to compare:

ICHRA allowance + individual premium + deductible + HSA eligibility + network + prescriptions.

This is more flexible than a one-size-fits-all group plan.

But it can also be more complicated.

---

Example: 12-Person Digital Agency

Consider a hypothetical small digital agency with 12 employees.

Employees live across:

Texas

Florida

Georgia

and:

North Carolina.

A traditional group plan may not provide equally attractive local networks for everyone.

The employer considers an ICHRA.

It establishes a defined monthly contribution.

Employees then shop for qualifying individual coverage available where they live.

One employee chooses a plan emphasizing:

low premium.

Another chooses:

better specialist access.

Another chooses an eligible Bronze plan and investigates whether an HSA strategy works with the employer’s ICHRA design.

This is the type of workforce where the flexibility of an ICHRA can become particularly attractive.

---

But ICHRA Isn’t Automatically Cheaper

Businesses shouldn’t adopt an ICHRA because someone claims:

“It always saves 30%.”

There is no universal savings percentage.

The result depends on:

Employee locations

Ages

Individual-market premiums

Employer contribution

Current group-plan costs

Administrative fees

and:

Employee healthcare needs.

Model the actual numbers.

---

Employee Experience Matters

A traditional group plan may be easier for employees:

Here is your plan. Enroll here.

ICHRA asks employees to make more decisions.

That can be positive for financially engaged workers.

It can be overwhelming for others.

Employers considering an ICHRA should think about providing:

Enrollment support

Plan-comparison tools

Clear explanations

and:

Access to knowledgeable assistance.

---

What the OBBB Actually Did for Health Accounts

Although the final OBBB didn’t enact the House CHOICE Arrangement provisions, it did make meaningful changes involving HSAs.

Among the enacted provisions were:

Expanded HSA treatment for qualifying Bronze and Catastrophic Exchange plans

and:

Changes involving direct primary care arrangements.

For small businesses using ICHRAs, the Bronze/Catastrophic provision may be especially relevant because individual-market coverage is central to the ICHRA model.

---

Don’t Use “CHOICE Arrangement” on Employee Documents Yet

Unless and until applicable law changes, employers should be cautious about rebranding their ICHRA as a federally established:

CHOICE Arrangement.

The enacted OBBB didn’t make that change.

Use the legally recognized terminology applicable to your arrangement:

Individual Coverage Health Reimbursement Arrangement (ICHRA)

This avoids confusing:

employees

brokers

payroll providers

tax professionals

and:

Marketplace enrollment systems.

---

A Better Title for the 2026 Conversation

Instead of saying:

“OBBB replaced ICHRAs with CHOICE Arrangements,”

the accurate story is:

“Congress considered turning ICHRAs into statutory CHOICE Arrangements—but the proposal was removed before final enactment.”

Meanwhile:

“ICHRA remains available in 2026, and separate OBBB HSA changes may make certain individual-market strategies more attractive.”

That is the distinction small businesses need.

---

Should Your Small Business Consider an ICHRA in 2026?

ICHRA may deserve consideration if your business:

• Wants more predictable healthcare-benefit spending.
• Has employees in multiple states or regions.
• Finds traditional group premiums difficult to manage.
• Wants employees to choose their own individual health plans.
• Has employees with substantially different insurance needs.
• Wants a defined-contribution benefits strategy.
• Can provide appropriate enrollment assistance.
• Is prepared to administer the arrangement correctly.

A traditional group plan may remain preferable when employees highly value:

One simple plan

A strong group network

Predictable enrollment

or:

Employer-managed plan selection.

---

Questions to Ask an ICHRA Administrator

Before implementing an arrangement, ask:

How will employee eligibility be handled?

How are reimbursements substantiated?

How will affordability be calculated?

How will employee classes be structured?

How are new hires handled?

How will employees shop for coverage?

How are Marketplace subsidies explained?

Can the arrangement be structured appropriately for employees interested in HSAs?

How are notices delivered?

What happens when an employee loses individual coverage?

What administrative fees apply?

What reporting responsibilities remain with the employer?

---

2026 Small-Business ICHRA Checklist

Before replacing traditional group insurance:

• Compare current annual group-plan costs.
• Model individual-market premiums where employees live.
• Determine proposed employer ICHRA contributions.
• Review permissible employee classes.
• Analyze ACA affordability.
• Use current 2026 lowest-cost Silver premium information.
• Review employer shared-responsibility requirements if applicable.
• Compare ICHRA with QSEHRA.
• Examine HSA-compatible plan opportunities.
• Verify HSA compatibility of the HRA design.
• Establish coverage-substantiation procedures.
• Prepare required employee notices.
• Provide plan-shopping assistance.
• Explain Premium Tax Credit interactions.
• Coordinate payroll and benefits administration.
• Review ERISA and other compliance responsibilities.
• Consult qualified benefits/tax professionals when necessary.
• Don’t assume the proposed federal CHOICE tax credit became law.

---

Frequently Asked Questions

Did the OBBB rename ICHRAs as CHOICE Arrangements?

No. The House-passed version proposed codifying ICHRAs as CHOICE Arrangements, but those provisions were omitted from the Senate version and didn’t appear in the final enacted Public Law 119-21.

What does CHOICE stand for?

Custom Health Option and Individual Care Expense.

It was the name proposed for the statutory arrangement in the House legislation.

Do ICHRAs still exist in 2026?

Yes. CMS continues to provide ICHRA guidance and publishes a 2026 ICHRA Employer Lowest Cost Silver Plan Premium Look-Up Table.

Did the OBBB create a $100-per-month ICHRA employer tax credit?

No. The House proposal included a CHOICE Arrangement employer credit of $100 per qualifying employee per month during the first year and half that amount during the second year, subject to its conditions. It was not included in the final enacted law.

Can small businesses still offer ICHRAs?

Yes, subject to the applicable federal rules.

Can an ICHRA affect an employee’s ACA subsidy?

Yes. An affordable ICHRA offer can affect Premium Tax Credit eligibility. CMS states that for 2026 the affordability calculation uses a 9.96% threshold.

Can an employee decline an unaffordable ICHRA and get a Marketplace subsidy?

Potentially. CMS explains that when an ICHRA is unaffordable, an employee who opts out may qualify for a Premium Tax Credit if the employee satisfies the other eligibility requirements.

Did OBBB change HSA rules?

Yes. Among other changes, the enacted law expanded HSA treatment for qualifying Bronze and Catastrophic individual-market Exchange plans beginning in 2026.

Can an employee use an ICHRA to purchase one of those plans?

Yes. IRS Notice 2026-5 specifically says an eligible Bronze or Catastrophic individual-market plan doesn’t lose that HDHP treatment merely because an ICHRA or QSEHRA is used to purchase it. Other HSA eligibility rules still apply.

---

Final Thoughts

The 2026 ICHRA story is a good example of why business owners should distinguish between:

Proposed legislation

and:

Enacted law.

The House version of the One Big Beautiful Bill contained a significant ICHRA package.

It would have:

Codified ICHRAs as CHOICE Arrangements

Created a temporary employer tax credit

and:

Changed cafeteria-plan rules.

Those provisions didn’t survive into the final law.

So your small business shouldn’t plan its 2026 health benefits around a nonexistent federal CHOICE Arrangement credit.

But that doesn’t make ICHRAs irrelevant.

Quite the opposite.

ICHRA remains an important alternative to traditional group insurance, particularly for small and geographically distributed businesses seeking:

Predictable employer costs + employee plan choice.

And the OBBB changes that actually became law—particularly expanded HSA treatment for certain individual-market Bronze and Catastrophic plans—add another reason for businesses to reassess how an ICHRA could fit into their 2026 benefits strategy.

The key is to evaluate the arrangement using:

actual 2026 law, actual employee locations and actual insurance costs—not headlines written while the bill was still changing.

Quick Takeaway

Yes—AI can make health-plan shopping considerably easier.

A good chatbot can help you organize complicated information about:

Premiums, deductibles, copays, coinsurance, provider networks, prescriptions, HSA eligibility and out-of-pocket limits.

It can also model different healthcare-use scenarios and explain insurance terminology in plain English.

But there’s an important limitation:

AI should be your comparison assistant—not your final source of truth.

Health plans are highly specific to your ZIP code, household, income, doctors, medications and enrollment eligibility. HealthCare.gov itself provides 2026 plan information and estimated pricing based on location, while final prices and enrollment require Marketplace application information.

The best 2026 strategy is therefore:

AI analysis + authoritative current plan data + your personal priorities + final verification.

---

Why Health Insurance Is Perfect for AI Assistance

Shopping for health insurance isn’t like choosing a television.

A television comparison might involve:

Price + screen size + features.

A health-plan comparison can involve:

Premium

Deductible

Copay

Coinsurance

Out-of-pocket maximum

Provider network

Drug formulary

Prior authorization

HSA eligibility

Metal tier

Subsidy eligibility

and:

Expected healthcare utilization.

Humans naturally struggle when dozens of variables must be compared simultaneously.

That’s exactly where AI can be useful.

---

What Can a Health-Insurance Chatbot Actually Do?

Imagine you tell an AI assistant:

“I’m comparing four plans. My family visits the doctor about 12 times per year, my spouse sees a specialist quarterly, and we take three regular prescriptions.”

You then provide the plan details.

AI can organize those plans and compare:

Annual premiums

Expected routine costs

Deductible exposure

Prescription costs

Maximum financial exposure

and potentially:

HSA advantages.

It can then explain why one plan might make more sense under different scenarios.

That’s far more useful than simply asking:

“Which plan has the cheapest premium?”

---

AI Advantage #1: Translating Insurance Language

One of AI’s strongest uses is translating insurance terminology.

Suppose your plan says:

“30% coinsurance after deductible.”

A chatbot can explain:

You generally pay applicable costs until you’ve satisfied the deductible, after which you pay 30% of the plan’s applicable covered amount while the insurer pays its share, subject to the policy’s rules and out-of-pocket maximum.

The same approach works with:

Prior authorization

Formulary

Allowed amount

Embedded deductible

Out-of-network coinsurance

and:

Cost-sharing reduction.

This can make intimidating plan documents much easier to understand.

---

AI Advantage #2: Comparing Total Annual Cost

This is potentially the biggest benefit.

HealthCare.gov specifically advises consumers to compare estimated total yearly costs, rather than looking only at premiums. Total cost can include premiums, deductibles, copayments and coinsurance.

AI is well suited to performing those calculations.

For example:

Plan A

Premium: $350/month

Deductible: $6,000

Plan B

Premium: $525/month

Deductible: $2,000

Looking at premiums alone:

Plan A appears cheaper.

Annual premiums are:

Plan A:

$4,200

Plan B:

$6,300

Difference:

$2,100

But suppose you expect substantial healthcare usage.

The chatbot can model how much of Plan A’s premium advantage might disappear because of its higher cost-sharing.

---

The Three-Scenario AI Method

Ask your chatbot to model:

Low Healthcare Use

Preventive care + a few routine visits + prescriptions.

Moderate Healthcare Use

Routine visits + specialists + tests + medications.

High Healthcare Use

Hospitalization, surgery or another expensive medical year.

Then compare the plans under all three scenarios.

HealthCare.gov’s own comparison process similarly lets consumers estimate yearly costs based on low, medium or high expected healthcare use.

That’s a useful framework for AI-assisted analysis.

---

AI Advantage #3: Finding the Hidden Expensive Plan

Suppose one plan costs only:

$325/month.

Another costs:

$425/month.

The cheaper plan looks attractive.

But AI notices:

Higher deductible

Higher specialist coinsurance

Higher prescription costs

and:

Higher out-of-pocket maximum.

If you have significant healthcare needs, the apparently cheap plan might become expensive.

AI can flag this immediately.

---

AI Advantage #4: Comparing HSA Plans

This is especially useful during employer Open Enrollment.

Suppose you’re comparing:

HSA-eligible plan

against:

Traditional PPO.

The chatbot can incorporate:

Annual premiums

Employer HSA contribution

Deductible

Out-of-pocket maximum

and:

Expected healthcare spending.

That makes it easier to calculate:

Premium + expected healthcare costs − employer HSA contribution

rather than comparing deductibles alone.

---

AI Advantage #5: Comparing Provider Networks

This is where things become more complicated.

AI can help organize provider information—but only if it has current, authoritative data.

CMS’s Marketplace API can provide applications with information about plans available by location and household composition, whether specific providers and drugs are covered, estimated yearly costs and other plan details.

That’s powerful.

But a generic chatbot without current plan data shouldn’t simply tell you:

“Dr. Smith is definitely in-network.”

Provider-network information can change.

Always verify directly through the current insurer or authoritative Marketplace information before enrolling.

---

AI Advantage #6: Prescription Comparison

This could potentially save consumers substantial money.

Imagine you take:

Medication A

Medication B

and:

Medication C.

A chatbot working with reliable plan data can help compare whether each medication appears covered and identify differences that require further investigation.

CMS’s Marketplace API specifically supports determining whether Marketplace plans cover particular drugs.

But formulary placement isn’t the whole story.

You should also verify:

Drug tier

Copayment

Coinsurance

Deductible

Prior authorization

Step therapy

and:

Quantity limits.

---

The Dangerous Question: “Which Plan Should I Buy?”

This is where consumers need caution.

A chatbot may produce a confident answer such as:

“Plan B is clearly your best option.”

But what information did it actually have?

Did it know:

Your doctors?

Your prescriptions?

Your expected surgery?

Your household income?

Your HSA eligibility?

Your preferred hospital?

Your tolerance for a $7,000 deductible?

If not, the recommendation may be mathematically neat but practically wrong.

---

AI Doesn’t Know Your Priorities Unless You Tell It

Two people can look at the same plans and reasonably choose differently.

Person A

Prioritizes:

Lowest monthly premium.

Person B

Prioritizes:

Predictable medical bills.

Person C

Prioritizes:

Access to a specific specialist.

Person D

Prioritizes:

HSA savings.

Person E

Prioritizes:

Best prescription coverage.

There isn’t always one objectively “best” plan.

There’s often a:

best plan for your circumstances.

---

The Better Prompt to Give a Chatbot

Instead of asking:

“What’s the best health insurance plan?”

provide structured information:

• ZIP code
• Household size
• Ages
• Expected healthcare usage
• Regular prescriptions
• Important doctors and hospitals
• Planned procedures
• Preferred monthly budget
• Whether employer coverage is available
• Whether HSA eligibility matters
• Whether out-of-network coverage matters

Then ask:

“Compare my available plans under low-, moderate- and high-use healthcare scenarios. Show annual premiums, expected costs, worst-case in-network exposure, network concerns and prescription concerns. Don’t recommend a winner until you’ve identified missing information.”

That’s a much safer way to use AI.

---

Don’t Give a Random Chatbot Your Entire Medical Record

You don’t need to upload every medical document simply to compare insurance.

Share only the information necessary for the task and understand the privacy practices of the service you’re using.

For example, a comparison might need to know:

“I see a cardiologist four times per year.”

It probably doesn’t need:

your complete cardiology records.

Likewise, avoid unnecessarily sharing:

Social Security numbers

insurance member IDs

full medical records

or:

financial-account information.

Data minimization is a sensible rule:

Give the tool what it needs—not everything you have.

---

Hallucinations Are the Biggest AI Risk

Generative AI can sometimes produce information that sounds plausible but is incorrect.

For health insurance, that could be costly.

Imagine an AI says:

“Your preferred hospital is in-network.”

You enroll.

Then you discover the information was outdated.

Or it says:

“This prescription is covered.”

But the drug actually requires prior authorization your circumstances don’t satisfy.

This is why important plan facts must be verified.

---

AI Should Never Invent a Health Plan

If you’re comparing actual 2026 Marketplace options, the chatbot should work from:

Current Marketplace data

or:

Plan documents you’ve supplied.

It shouldn’t generate plausible-sounding plans from memory.

HealthCare.gov provides actual 2026 plan data, and its Marketplace API is designed to keep applications synchronized with Marketplace information.

---

The “Source Check” Rule

Whenever AI makes an important claim, ask:

“Where did that information come from?”

For critical facts such as:

Premium

Deductible

Out-of-pocket maximum

Provider network

Drug formulary

or:

Coverage exclusions,

the answer should ultimately trace back to an authoritative source such as:

HealthCare.gov

CMS

the insurer

or:

the actual plan documents.

If the chatbot can’t identify a source, don’t treat the claim as verified.

---

Summary of Benefits and Coverage Still Matters

AI doesn’t eliminate traditional insurance documents.

The Summary of Benefits and Coverage (SBC) remains an important standardized source for understanding and comparing health plans.

CMS explains that the SBC provides plain-language information about key plan features, including benefits, cost-sharing, limitations and exceptions.

A useful AI workflow is:

Give AI the SBC → ask for a structured explanation → verify important numbers against the original SBC.

That’s much safer than asking AI to recall plan details from general knowledge.

---

AI Can Find Questions You Forgot to Ask

This may be one of its most valuable roles.

You provide two plans.

The chatbot notices you haven’t supplied:

Prescription formulary information.

It asks:

“Do you take regular medications?”

Or it notices one plan is an HMO and another is a PPO.

It asks:

“Do you need out-of-network coverage?”

Or it sees a large family deductible.

It asks:

“Is this an aggregate or embedded family deductible?”

Good AI doesn’t merely answer.

It identifies missing variables that could change the answer.

---

Chatbot vs. HealthCare.gov

This shouldn’t be viewed as:

AI versus HealthCare.gov.

The two can complement each other.

HealthCare.gov provides official Marketplace plan information and lets consumers preview plans and prices.

AI can help you:

interpret

organize

calculate

and:

compare

that information.

Think of it as:

HealthCare.gov = authoritative plan data

AI = analysis assistant

That’s a much stronger combination than relying entirely on either generic search results or an ungrounded chatbot.

---

Chatbot vs. Human Broker or Navigator

AI also doesn’t automatically replace human assistance.

A licensed insurance professional or trained Marketplace assister may help when your circumstances involve:

Complicated household eligibility

Employer coverage interactions

Medicare transition

COBRA

Multiple dependents

Immigration-related eligibility issues

or:

Complex subsidy questions.

AI can help you prepare better questions before speaking with a professional.

That alone can make the conversation more productive.

---

AI Is Already Part of Insurance

AI isn’t hypothetical for the insurance industry.

The NAIC notes that insurers already use AI in areas including:

Underwriting

Pricing

Customer service

Claims handling

Marketing

and:

Fraud detection.

It specifically identifies AI-powered chatbots as one way insurers provide basic information and customer assistance.

So consumers are increasingly likely to encounter AI on both sides of the insurance transaction.

---

What AI Should NOT Decide for You

Be particularly cautious about allowing a chatbot to make final decisions involving:

Whether to drop existing coverage

Whether a treatment is medically appropriate

Whether a specific provider is definitely covered

Whether a drug will definitely be approved

Whether you’re legally eligible for a subsidy

or:

Whether you should intentionally change financial decisions solely to obtain insurance assistance.

AI can explain and model.

Important medical, legal, tax and final enrollment decisions deserve authoritative verification.

---

The 2026 AI Health-Plan Shopping Workflow

A safe approach is:

Step 1 — Find Actual Available Plans

Use authoritative Marketplace, employer or insurer information.

Step 2 — Collect Plan Documents

Gather SBCs, formularies and network information.

Step 3 — Give AI the Numbers

Provide premiums, deductibles, copays, coinsurance and out-of-pocket maximums.

Step 4 — Describe Your Expected Healthcare Use

Include routine visits, specialists, medications and known procedures.

Step 5 — Run Three Scenarios

Low use.

Moderate use.

High use.

Step 6 — Identify Non-Financial Differences

Networks, prescriptions, referrals and HSA eligibility.

Step 7 — Ask AI to Identify Missing Information

Don’t request a winner yet.

Step 8 — Verify Critical Facts

Check current insurer/Marketplace information.

Step 9 — Compare Finalists

Reduce 10 plans to perhaps two or three.

Step 10 — Make the Final Decision

Choose based on verified coverage and your priorities.

---

Example: How AI Could Find a Better Plan

Imagine Lisa is comparing three hypothetical plans.

Bronze

Premium: $350/month

Deductible: $7,000

Silver

Premium: $475/month

Deductible: $3,000

Gold

Premium: $575/month

Deductible: $1,000

Lisa initially chooses Bronze because:

$350 is cheapest.

But she tells the chatbot she:

sees a specialist monthly

takes three medications

and:

expects an outpatient procedure next year.

The AI models estimated total annual costs.

Suddenly Silver or Gold might become more competitive.

The chatbot didn’t magically discover cheaper insurance.

It helped Lisa evaluate the plans using the right metric.

---

The Metric That Matters: Total Cost

HealthCare.gov defines total cost estimates around the combination of:

Premium + deductible + out-of-pocket expenses + copayments/coinsurance.

That’s what an AI shopping assistant should optimize.

Not:

Lowest premium.

But:

Best combination of cost, coverage and access for your expected needs.

---

2026 AI Health Insurance Shopping Checklist

Before accepting an AI recommendation:

• Confirm the plan actually exists in your area.
• Verify the current premium.
• Verify subsidy assumptions.
• Verify the deductible.
• Verify the out-of-pocket maximum.
• Confirm your doctors are in-network.
• Confirm your preferred hospital.
• Check every regular prescription.
• Check prior-authorization requirements.
• Review out-of-network rules.
• Confirm HSA eligibility when relevant.
• Compare total annual costs.
• Run low-, moderate- and high-use scenarios.
• Read the SBC.
• Ask the chatbot to disclose assumptions.
• Ask what information is missing.
• Verify important claims against authoritative sources.
• Don’t provide unnecessary sensitive information.
• Never enroll based solely on an unverified chatbot response.

---

Frequently Asked Questions

Can AI actually find me cheaper health insurance?

Potentially. AI can compare available plans and identify options that may produce lower total costs based on your expected healthcare usage. But it needs accurate, current plan data.

Can ChatGPT tell me which health plan to buy?

AI can help analyze plans you provide and explain trade-offs, but important details such as current premiums, provider networks, formularies and eligibility should be verified through authoritative sources before enrollment.

Can AI check whether my doctor is in-network?

A system connected to current authoritative provider-network data may be able to help. CMS’s Marketplace API supports provider-coverage information for Marketplace plans. Still, confirm critical provider participation before enrolling.

Can AI compare prescription coverage?

Yes, when current formulary information is available. The Marketplace API can support checks of whether plans cover particular drugs. Cost-sharing and utilization restrictions should also be verified.

Should I upload my medical records to a chatbot?

Usually not merely to compare plans. Provide only information necessary for the comparison and consider the service’s privacy practices.

Is the cheapest Marketplace plan usually best?

No. HealthCare.gov specifically recommends considering total yearly costs, including premiums and costs when you receive care.

Will AI replace insurance brokers?

AI can automate a significant amount of comparison and explanation, but complex eligibility, coverage and personal situations can still benefit from qualified human assistance.

---

Final Verdict: Can AI Find You a Better Health Plan?

Yes—but “better” requires good data.

AI can be extremely useful for:

Reading complicated plan information

Comparing multiple options

Calculating annual costs

Running healthcare-use scenarios

Explaining insurance terminology

and:

Identifying questions you forgot to ask.

But a chatbot becomes dangerous when:

old data + incomplete information + confident language

are mistaken for verified insurance advice.

The winning strategy for 2026 isn’t:

“Let AI choose my insurance.”

It’s:

“Let AI help me understand and compare my real options—then verify the winner.”

Used that way, AI can turn health-plan shopping from a confusing stack of insurance documents into a much more manageable financial decision.

Quick Takeaway

GLP-1 medications are no longer simply a “weight-loss drug” story.

Depending on the specific medication, GLP-1-based therapies may have FDA-approved uses involving type 2 diabetes, cardiovascular risk reduction, sleep apnea, and other conditions, while the Medicare rules for coverage can differ depending on why a medication is prescribed.

That distinction matters enormously in 2026.

CMS specifically notes that Medicare Part D can cover GLP-1 medications when they’re prescribed for a medically accepted indication other than weight loss or weight management. One example CMS gives is reducing major adverse cardiovascular events in adults with established cardiovascular disease and overweight or obesity.

And beginning July 1, 2026, eligible Medicare beneficiaries gained another route: the Medicare GLP-1 Bridge, which provides certain qualifying GLP-1 medications for weight management at a $50 monthly copayment for eligible Part D beneficiaries who meet specified clinical criteria.

So the question in 2026 isn’t simply:

“Does my insurance cover weight-loss drugs?”

A better question is:

“Does my plan cover this specific medication for my specific FDA-approved or medically accepted indication?”

---

GLP-1s Have Moved Beyond the Weight-Loss Conversation

For several years, medications such as GLP-1 receptor agonists became household names primarily because of their effects on body weight.

But that simplified description can hide an important insurance distinction.

A drug can have:

One active ingredient

but potentially:

multiple medically accepted uses.

Insurance coverage may therefore depend heavily on the diagnosis and indication attached to the prescription.

For example, Medicare historically excludes drugs when they’re used specifically for weight loss. But CMS explains that the same general category of medication may be covered under Part D when prescribed for another medically accepted indication.

That difference can determine whether your pharmacy claim is:

Approved

or:

Denied.

---

Why the Diagnosis Code Matters

Imagine two people receive prescriptions for a GLP-1 medication.

Patient A

The medication is prescribed solely for:

Weight management.

Patient B

The medication is prescribed for an indication recognized for coverage, such as:

Type 2 diabetes

or, for an appropriately indicated drug:

Cardiovascular risk reduction.

They may be asking for drugs from the same broad medication class.

But their insurance coverage can be completely different.

That’s why consumers should never assume:

“My friend’s plan covered it, so mine will too.”

The relevant variables can include:

Medication + diagnosis + FDA indication + formulary + plan rules + prior authorization.

---

Cardiovascular Health Is a Major Coverage Development

One of the most significant developments involving GLP-1 medications has been their expanding role in cardiovascular medicine.

CMS specifically identifies Wegovy used to reduce the risk of major adverse cardiovascular events in adults with established cardiovascular disease and overweight or obesity as an example of an indication that can be covered through Medicare Part D rather than being treated simply as excluded weight-loss use.

This distinction is critical.

A prescription aimed only at:

losing weight

can be treated differently from one prescribed for:

an independently coverable cardiovascular indication.

---

What About Kidney Health?

Kidney disease makes the 2026 GLP-1 conversation even more interesting.

The relationship between GLP-1 medications, diabetes and chronic kidney disease has become increasingly important in clinical treatment.

But from an insurance perspective, don’t assume that simply having kidney disease means:

“Every GLP-1 must now be covered.”

Coverage still depends on:

the specific drug

the approved or medically accepted indication

the patient’s diagnosis

and:

the insurance plan’s formulary and utilization-management rules.

However, chronic kidney disease also appears directly in the eligibility criteria for Medicare’s new GLP-1 Bridge.

---

The Medicare GLP-1 Bridge Changes the 2026 Picture

A particularly important development took effect on:

July 1, 2026

CMS launched the Medicare GLP-1 Bridge.

It is a temporary nationwide demonstration scheduled to operate through December 31, 2027.

Eligible Medicare beneficiaries with Part D drug coverage can receive certain GLP-1 medications for weight management for a:

$50 monthly copayment.

This is not simply a normal Part D formulary benefit.

CMS says the Bridge operates outside the Part D benefit’s normal payment and coverage flow.

---

Which GLP-1 Drugs Are Included?

As of August 2026, CMS lists these medications under the Bridge:

Foundayo

Wegovy — injection and tablets

and:

Zepbound — KwikPen formulation.

CMS notes that the list may be updated during the program.

That means readers should always verify the current list rather than relying on an older article.

---

Chronic Kidney Disease Can Help Qualify for the Bridge

The eligibility rules are more nuanced than:

“Medicare now covers weight-loss medication.”

For example, one qualifying pathway requires:

BMI of at least 30

plus at least one specified condition, including:

Stage 3a or higher chronic kidney disease

Heart failure with preserved ejection fraction

or:

Uncontrolled hypertension

under CMS’s specified definition.

Another pathway permits eligibility at:

BMI of at least 27

when accompanied by conditions including:

Prediabetes

Previous heart attack

Previous stroke

or:

Symptomatic peripheral artery disease.

A BMI of at least 35 can also qualify under the Bridge’s criteria.

---

There’s an Important Catch

The Medicare GLP-1 Bridge is specifically intended to expand access when eligible GLP-1 medications are being prescribed to:

reduce excess body weight and maintain weight reduction.

CMS distinguishes this from uses already eligible for ordinary Part D coverage.

For example, CMS identifies conditions such as:

Type 2 diabetes

moderate-to-severe obstructive sleep apnea

and certain other independently coverable indications

as situations where beneficiaries should seek applicable GLP-1 coverage through their Part D plan, not through the Bridge.

---

Heart Disease Creates an Interesting Overlap

Suppose a Medicare beneficiary has:

BMI ≥27

and:

a previous heart attack.

That person may satisfy one of the Bridge’s clinical pathways when the medication is being prescribed for weight management.

But what if Wegovy is actually being prescribed to:

reduce cardiovascular risk?

CMS says that when a GLP-1 is prescribed to reduce the risk of major adverse cardiovascular events, the prescription should be routed through the beneficiary’s Part D plan, rather than the Bridge.

That illustrates how important the medical indication has become.

---

Medicare Coverage: Think in Two Lanes

A useful way to understand 2026 is:

Lane 1 — Part D

The medication is prescribed for a medically accepted indication that can be covered by Medicare Part D.

Examples can include appropriate uses for:

Type 2 diabetes

or:

cardiovascular risk reduction.

Your Part D plan’s formulary and utilization-management rules apply.

Lane 2 — Medicare GLP-1 Bridge

The medication is being used for:

weight reduction/maintenance

and you meet the Bridge’s clinical eligibility requirements.

Eligible beneficiaries can access qualifying medications through the temporary demonstration for a $50 monthly copayment.

Understanding which lane your prescription belongs in can save considerable confusion.

---

What About Employer Health Insurance?

Employer-sponsored health plans don’t all cover GLP-1 medications the same way.

Your plan might:

Cover certain GLP-1s for diabetes

but:

Exclude weight-management medications.

Another employer might provide broader coverage.

And another might cover weight-management drugs but impose:

Prior authorization

BMI requirements

Lifestyle-program participation

Step therapy

or:

Other clinical criteria.

Never assume that because your employer provides excellent health insurance, every GLP-1 medication is automatically covered.

---

Marketplace Plans Can Differ Too

ACA Marketplace plans also use formularies.

That means a medication can be:

Preferred

Non-preferred

Specialty tier

or:

Not on the formulary.

Even when a medication is listed, coverage may require:

Prior authorization

or:

Step therapy.

When comparing Marketplace plans during Open Enrollment, someone expecting to use a GLP-1 should search the plan’s current formulary for the exact drug.

Don’t search merely:

“GLP-1.”

---

Ozempic vs. Wegovy: Why the Brand Can Matter

Consumers sometimes think:

“They’re both semaglutide, so insurance should treat them identically.”

Not necessarily.

Insurance decisions can depend on each product’s:

FDA-approved indications

formulary status

and:

prescribed use.

A plan might cover one product for a particular diagnosis while rejecting another request.

Never substitute one medication for another without guidance from the prescribing healthcare professional.

---

Prior Authorization Is Likely to Matter

GLP-1 medications can be expensive, so insurers frequently use utilization-management requirements.

Your clinician may need to document:

Diagnosis

BMI

Relevant medical conditions

Previous treatments

and potentially:

Treatment response.

The insurer may also request medical records.

A prescription from your doctor doesn’t necessarily mean:

automatic insurance approval.

---

“Covered” Doesn’t Mean “Cheap”

Suppose your insurer approves a GLP-1.

You still need to ask:

What tier is it on?

Your cost could involve:

Copayment

or:

Coinsurance.

And the amount can vary depending on:

Deductible status

Drug tier

Pharmacy

and:

Plan design.

The important question isn’t simply:

“Is it covered?”

Ask:

“What will I actually pay each month?”

---

The Medicare Bridge Has a Predictable $50 Copay

For qualifying beneficiaries, the Medicare GLP-1 Bridge is unusually straightforward on this point:

$50 per monthly supply.

But there’s another detail worth understanding.

CMS says that because the Bridge operates outside the normal Part D benefit flow, the $50 copay does not count toward Part D true out-of-pocket (TrOOP) costs, and the Part D deductible doesn’t apply to the Bridge medication.

That’s an important distinction for people tracking annual Part D spending.

---

What If Your Claim Is Denied?

Don’t immediately assume:

“My insurance doesn’t cover GLP-1s.”

Find out exactly why the claim was denied.

Possible reasons include:

Wrong diagnosis information

Prior authorization missing

Drug isn’t on formulary

Clinical criteria weren’t documented

Step therapy requirement

or:

The medication was submitted for an excluded indication.

Ask for the denial reason in writing.

---

Formulary Exceptions May Be Available

Suppose your doctor believes a particular medication is medically necessary, but your Part D plan doesn’t normally cover it.

CMS specifically notes that Part D plans must continue to follow their existing formulary exception processes for relevant GLP-1 requests.

That doesn’t guarantee approval.

But:

Not on formulary

doesn’t always mean:

End of discussion.

Follow the plan’s exception and appeal procedures.

---

Your Doctor’s Documentation Can Matter

A vague prescription request may not give the insurer everything needed to evaluate coverage.

Depending on the plan and indication, supporting documentation may need to establish:

Specific diagnosis

Relevant medical history

BMI

Cardiovascular disease

Kidney disease

Diabetes

or other qualifying criteria.

That’s especially important when the same medication has multiple clinical uses.

---

Don’t Change the Diagnosis to Get Coverage

There’s an important ethical and legal line here.

You should never ask a clinician to:

change

invent

or:

misrepresent

a diagnosis simply to make an insurance claim payable.

Coverage should reflect the patient’s legitimate medical condition and the medication’s appropriate clinical use.

If a claim is denied incorrectly, use:

prior authorization + exception + appeal

rather than inaccurate documentation.

---

A 2026 GLP-1 Insurance Checklist

Before enrolling in a health plan or filling a GLP-1 prescription:

• Check the exact medication on the formulary.
• Check the exact prescribed indication.
• Ask whether prior authorization is required.
• Ask whether step therapy applies.
• Check the medication’s drug tier.
• Calculate your monthly copay or coinsurance.
• Check whether your deductible applies.
• Ask what clinical documentation is required.
• Verify whether coverage changes for weight management versus another indication.
• Medicare beneficiaries should determine whether the prescription belongs under ordinary Part D coverage or the GLP-1 Bridge.
• Keep copies of prior-authorization decisions.
• Learn the formulary-exception process.
• Review appeal rights after a denial.
• Recheck coverage during Open Enrollment because formularies and plan rules can change.

---

Frequently Asked Questions

Does health insurance cover GLP-1 drugs in 2026?

Some plans do, but coverage depends on the medication, medical indication, formulary and plan rules. A plan may cover a GLP-1 for diabetes or another approved indication while restricting or excluding its use solely for weight management.

Does Medicare cover GLP-1 drugs for weight loss in 2026?

Beginning July 1, 2026, eligible Medicare Part D beneficiaries can access certain GLP-1 drugs for weight management through the temporary Medicare GLP-1 Bridge if they meet CMS clinical criteria. The copay is $50 per month.

Does Medicare cover Wegovy for cardiovascular disease?

CMS recognizes Wegovy’s indication for reducing major adverse cardiovascular events in qualifying adults as potentially coverable under Part D. Coverage remains subject to the Part D plan’s applicable rules.

Can chronic kidney disease qualify someone for the Medicare GLP-1 Bridge?

Potentially. One clinical pathway includes BMI ≥30 plus stage 3a or higher chronic kidney disease, subject to all of the program’s requirements.

Which drugs are currently available through the Medicare GLP-1 Bridge?

CMS currently lists Foundayo, Wegovy injections/tablets, and Zepbound KwikPen. The list may change.

Does a prescription guarantee insurance coverage?

No. Formulary placement, diagnosis, prior authorization, step therapy and other plan requirements can affect coverage.

What should I do if my GLP-1 claim is denied?

Ask for the exact reason. Then work with your healthcare provider and insurer to determine whether additional documentation, prior authorization, a formulary exception or an appeal is appropriate.

---

Final Thoughts

The GLP-1 insurance conversation has changed.

In 2026, these medications can no longer be viewed solely through the lens of:

“Will insurance pay for a weight-loss drug?”

Depending on the medication and patient, the relevant medical issue may involve:

Diabetes

Cardiovascular risk

Kidney disease

Sleep apnea

or:

Weight management.

For Medicare beneficiaries, the distinction is particularly important because a qualifying prescription may be handled either through:

ordinary Part D coverage

or:

the new Medicare GLP-1 Bridge.

The best question to ask your insurer is therefore very specific:

“Is this exact medication covered for my documented medical indication, and what prior authorization and cost-sharing requirements apply?”

That question will tell you far more than simply asking whether your plan “covers GLP-1s.”

Quick Takeaway

If you’re staring at two options during Open Enrollment—a lower-premium HSA-eligible plan and a traditional PPO—don’t choose based on the deductible alone.

The real calculation is:

Annual premiums + expected healthcare spending − employer HSA contributions − potential HSA tax advantages.

For 2026, the HSA contribution limit is $4,400 for self-only coverage and $8,750 for family coverage. The general HSA-compatible HDHP thresholds are a minimum deductible of $1,700 for self-only coverage or $3,400 for family coverage, with maximum qualifying out-of-pocket expenses of $8,500 and $17,000 respectively.

There is also an important 2026 change: all Bronze and Catastrophic Marketplace plans are now HSA-compatible, expanding the number of consumers who can potentially use an HSA.

But there’s an important terminology issue first.

An HSA and a PPO Aren’t Actually Opposites

This is the most important point in the entire comparison.

An HSA is a Health Savings Account.

A PPO is a Preferred Provider Organization, which describes a health plan’s provider-network structure.

A PPO generally allows you to use both in-network and out-of-network providers, although you usually pay more outside the network.

An HSA, meanwhile, is a tax-advantaged account you can use to pay qualified medical expenses when you meet the eligibility requirements.

Therefore, a health plan can potentially be:

HSA-eligible AND a PPO.

When employers say:

“HSA vs. PPO,”

they often really mean:

HSA-eligible high-deductible health plan

versus

traditional lower-deductible PPO plan.

That’s the comparison we’ll use throughout this guide.

---

HSA vs. PPO at a Glance

Feature	HSA-Eligible Plan	Traditional PPO
Monthly premium	Often lower	Often higher
Deductible	Usually higher	Often lower
HSA eligibility	Yes, if eligibility rules met	Only if plan itself is HSA-eligible
Tax-advantaged savings	Yes	Not automatically
Employer HSA contribution	Sometimes	Generally not applicable without HSA eligibility
Provider flexibility	Depends on plan network	Usually broad
Out-of-network care	Depends on plan	Usually available at higher cost
Upfront medical expenses	Potentially higher	Often lower
Long-term savings opportunity	Strong	Limited without HSA
Best for	Often lower users/savers	Often frequent healthcare users—but not always

The important word throughout this table is:

Often.

Actual plan design wins over generalizations.

---

What’s New for HSAs in 2026?

2026 is an unusually important year for HSA comparisons.

HealthCare.gov says that all 2026 Bronze and Catastrophic Marketplace health plans are eligible to work with HSAs. Other plan categories can also be HSA-eligible when they satisfy applicable requirements.

That means considerably more Marketplace shoppers can consider combining their health coverage with an HSA.

For employer coverage, however, don’t assume that a plan qualifies simply because it has a large deductible.

Verify that it is specifically:

HSA eligible.

---

The 2026 HSA Numbers

Here are the important federal numbers for 2026.

HSA Contribution Limits

Self-only: $4,400

Family: $8,750

The IRS sets these annual limits on HSA contributions.

People age 55 or older who remain HSA-eligible can generally make an additional $1,000 catch-up contribution.

General HDHP Minimum Deductibles

Self-only: $1,700

Family: $3,400

General HDHP Maximum Out-of-Pocket Expenses

Self-only: $8,500

Family: $17,000.

These maximums don’t include premiums.

---

Why the HSA Gets So Much Attention

The attraction isn’t simply having another bank account.

An HSA can provide powerful federal tax advantages.

Eligible contributions can generally be:

Pre-tax or tax-deductible.

Money in the account can potentially grow:

tax-free.

And distributions used for qualified medical expenses can generally be:

tax-free.

HealthCare.gov also notes that unused HSA balances roll over from year to year rather than disappearing at year-end.

That’s fundamentally different from the familiar:

“use it or lose it”

structure associated with many Flexible Spending Accounts.

---

Your HSA Money Belongs to You

Another major advantage:

The HSA is portable.

If you:

Change employers

Change health plans

Become self-employed

or:

Retire,

the existing HSA balance remains yours.

You may lose the ability to make new contributions if you no longer meet HSA eligibility requirements, but the money already accumulated in the account doesn’t disappear.

---

The PPO Advantage: Lower Friction When You Need Care

Traditional PPO plans often appeal to people who want:

Lower deductibles

Predictable office-visit copays

and:

Broader provider flexibility.

A PPO generally lets members receive care outside its network without needing a referral, although out-of-network care typically costs more.

For someone who regularly sees:

Specialists

Therapists

Physical therapists

or:

Out-of-network physicians,

that flexibility can be valuable.

But PPO doesn’t automatically mean:

low deductible.

Always examine the actual plan.

---

The Math Battle: Stop Comparing Deductibles

Suppose your employer gives you two choices.

HSA Plan

Premium: $200/month

Deductible: $3,000

Employer HSA contribution: $1,000/year

PPO Plan

Premium: $400/month

Deductible: $1,000

At first glance:

$1,000 deductible beats $3,000.

So PPO wins?

Not necessarily.

Calculate premiums.

HSA Plan Annual Premium

$200 × 12 =

$2,400

PPO Annual Premium

$400 × 12 =

$4,800

The PPO costs:

$2,400 more per year

just to maintain coverage.

Then the employer contributes:

$1,000

to the HSA.

Before either person receives much healthcare, the HSA option has a significant financial head start.

That’s why deductible-only comparisons can be misleading.

---

Scenario 1: Almost No Healthcare

Imagine Sarah is 32 and generally healthy.

During the year she receives:

Preventive care

and:

one minor medical visit.

Using our hypothetical plans:

HSA

Annual premium: $2,400

Employer HSA money: -$1,000

Net fixed cost:

$1,400

plus applicable healthcare spending.

PPO

Annual premium:

$4,800

Sarah may spend substantially more in premiums simply to maintain the PPO.

Likely Winner

HSA plan

assuming provider networks and other benefits are comparable.

---

Scenario 2: Moderate Healthcare Use

Now suppose Sarah needs:

Several doctor visits

Blood tests

An MRI

and:

Physical therapy.

Her HSA plan’s higher deductible becomes much more noticeable.

But don’t compare:

$3,000 deductible

against:

$1,000 deductible

in isolation.

Remember:

The HSA plan already saved Sarah $2,400 in annual premiums and received $1,000 from her employer in this hypothetical example.

You need to compare:

total annual spending.

---

Scenario 3: Major Medical Year

Now suppose Sarah needs surgery.

Both plans could generate substantial cost-sharing.

This is when the:

out-of-pocket maximum

becomes extremely important.

Imagine:

HSA

Annual premium: $2,400

Maximum in-network out-of-pocket: $7,500

Employer HSA contribution: $1,000

Potential simplified high-use exposure:

$8,900

PPO

Annual premium: $4,800

Maximum in-network out-of-pocket: $5,000

Potential simplified high-use exposure:

$9,800

Despite having a higher deductible and out-of-pocket maximum, the hypothetical HSA option could still come out ahead because of:

lower premiums + employer HSA contribution.

This won’t always happen.

But it demonstrates why you need to do the math.

---

The Formula You Should Use During Open Enrollment

For each plan calculate:

Step 1 — Annual Premium

Paycheck deduction × number of pay periods

Then calculate:

Step 2 — Expected Healthcare Spending

Estimate:

Doctor visits + prescriptions + specialists + labs + imaging + therapy + procedures

Then subtract:

Step 3 — Employer HSA Contribution

If your employer contributes:

$500

$1,000

or:

$2,000

to your HSA, treat that as real economic value.

Then consider:

Step 4 — HSA Tax Benefit

Your own eligible HSA contributions can potentially reduce federal taxable income.

Finally:

Estimated Net Cost

Annual premiums + healthcare expenses − employer HSA contribution − estimated tax benefit

Now compare plans.

---

Don’t Count Your Own HSA Contribution as a Healthcare “Cost”

This is another common comparison mistake.

Suppose you contribute:

$4,000

to your HSA.

You haven’t necessarily spent $4,000.

You moved money:

from your checking/paycheck

into:

an account you own.

If you don’t use it this year, it remains available for future qualified medical expenses.

That makes an HSA contribution very different from an insurance premium.

A premium paid to the insurance company is generally gone.

Unused HSA money remains yours.

---

Example: The Employer Contribution Changes Everything

Consider two plans:

Plan A — HSA

Premium: $3,000/year

Employer HSA contribution:

$1,500

Plan B — PPO

Premium:

$4,500/year

The difference isn’t merely:

$1,500.

The employer is also putting:

$1,500

into your HSA.

Economically, the HSA plan begins with approximately:

$3,000 of combined premium savings/employer funding advantage

before accounting for differences in healthcare spending.

That can significantly alter the decision.

---

But Don’t Automatically Choose the HSA

The HSA option isn’t automatically superior.

Imagine you have:

Weekly therapy

Monthly specialist appointments

Expensive medications

Regular imaging

and:

A planned surgery.

A traditional PPO with:

Lower deductible

Lower copays

and:

Lower out-of-pocket exposure

might produce lower total annual costs.

Run your own numbers.

---

Prescription Drugs Can Flip the Winner

This is especially important.

Suppose your traditional PPO charges:

$30

for a prescription before the deductible.

Your HSA-eligible plan may require you to pay substantially more toward the medication until its deductible is satisfied, depending on the plan’s design and applicable rules.

If you take several medications every month, the difference can add up quickly.

Check:

Formulary

Drug tier

Deductible

Copay

Coinsurance

and:

Preferred pharmacy.

Don’t assume both plans cover prescriptions identically.

---

Specialist Care Can Flip It Too

Someone who sees a specialist twice per year has a very different cost profile from someone receiving:

weekly physical therapy

or:

monthly specialist treatment.

Compare actual prices and cost-sharing.

Don’t use:

“I’m healthy.”

as your entire calculation.

Use:

“What healthcare am I reasonably likely to use next year?”

---

Planned Surgery Makes the Calculation Easier

Suppose you already know you’ll need:

Knee replacement

Childbirth

Shoulder surgery

or another major procedure in 2026.

Your healthcare spending is more predictable.

Estimate each plan’s:

Facility costs

Physician costs

Deductible

Coinsurance

and:

Out-of-pocket maximum.

Then add annual premiums.

A high-premium PPO may sometimes win.

But a low-premium HSA plan can still win if the premium difference is large enough.

---

Family Coverage Changes the Equation

Families need to investigate whether the plan has:

Individual deductibles embedded within the family deductible

or:

One aggregate family deductible.

This can make a major difference.

Suppose one child requires substantial medical treatment while everyone else remains healthy.

How quickly benefits begin depends partly on how the plan’s deductible structure works.

Don’t assume:

$6,000 family deductible

means exactly the same thing under every plan.

---

The HSA Can Become a Long-Term Asset

Here’s where the HSA option becomes particularly interesting.

Suppose you’re able to:

Contribute money

while:

Paying current medical expenses from ordinary cash flow.

The HSA balance can potentially remain invested for future qualified healthcare expenses.

Over many years, that creates the possibility of substantial tax-advantaged growth.

HealthCare.gov confirms that unused HSA funds roll over from year to year and can earn interest or other earnings.

For someone who rarely needs healthcare and can afford the higher deductible, this can be a powerful long-term strategy.

---

HSAs Can Be Useful in Retirement

Healthcare doesn’t suddenly become free when you retire.

HSA balances can potentially help pay qualified medical expenses later in life.

That makes an HSA useful not merely as:

this year’s medical spending account

but potentially as:

a long-term healthcare reserve.

This is one reason financially comfortable employees sometimes intentionally maximize HSA contributions even when they don’t expect major current medical expenses.

---

But Cash Flow Matters

Suppose your HSA plan has a:

$4,000 deductible.

Your child breaks an arm in February.

Can your household comfortably absorb a substantial medical bill early in the year?

If not, the theoretical long-term HSA advantage may matter less than practical:

cash-flow risk.

A PPO with higher premiums but smaller bills throughout the year can sometimes provide better budgeting predictability.

The financially optimal plan on a spreadsheet isn’t necessarily the most comfortable plan for every household.

---

Build an HSA Emergency Buffer

If you choose an HSA-eligible plan, consider building your HSA balance over time toward at least:

your deductible

and eventually potentially:

your out-of-pocket maximum

if your finances allow.

That creates a dedicated reserve for a serious healthcare year.

Employer contributions can help accelerate that process.

---

HSA Eligibility Has Rules

Having a high deductible isn’t enough by itself.

To make HSA contributions, you must satisfy applicable IRS eligibility requirements.

Generally, you need qualifying HSA-compatible coverage and cannot have certain disqualifying additional health coverage.

You also generally can’t contribute if you’re:

enrolled in Medicare

or:

claimed as another person’s tax dependent.

Always verify eligibility before contributing.

---

Your Spouse’s Coverage Can Matter

Suppose you enroll in an HSA-compatible plan.

But your spouse’s employer provides additional coverage that also covers you.

Depending on the nature of that coverage, it could potentially affect your eligibility to contribute to an HSA.

The same concern can arise with certain:

Flexible Spending Accounts.

Don’t assume:

“My own plan says HSA, therefore I can definitely contribute.”

Consider your complete coverage situation.

---

Medicare and HSAs Require Special Attention

Once enrolled in Medicare, you generally can’t continue contributing to an HSA.

However, you can continue using money already accumulated in the account for qualifying expenses.

People approaching age 65 should be especially careful because Medicare enrollment can sometimes have retroactive implications depending on circumstances.

Consult Medicare and tax guidance before making contributions around your enrollment date.

---

PPO’s Biggest Strength: Provider Choice

A traditional PPO may be worth paying more for if you rely on:

Specific specialists

Major academic medical centers

Out-of-state providers

or:

Out-of-network professionals.

PPO plans generally allow out-of-network care, although at higher cost.

If the HSA alternative uses a restrictive:

HMO

or:

EPO network,

the comparison isn’t only about dollars.

It’s also about:

access.

---

But Remember: An HSA Plan Can Also Be a PPO

This point is worth repeating.

You may see:

HSA PPO

on your employer’s benefits portal.

That’s completely normal.

The plan can have:

PPO network rules

while also satisfying:

HSA eligibility requirements.

In that situation, you may get:

broad PPO provider access + HSA tax advantages.

So compare the actual plans rather than assuming HSA means narrow network.

---

A Simple Open Enrollment Scorecard

Give each plan a score from 1–5.

Factor	HSA Plan	PPO
Annual premium	⭐⭐⭐⭐⭐	⭐⭐⭐
Deductible	⭐⭐	⭐⭐⭐⭐
Employer contribution	⭐⭐⭐⭐⭐	—
Tax advantages	⭐⭐⭐⭐⭐	⭐⭐
Provider flexibility	Depends	⭐⭐⭐⭐⭐
Predictable bills	⭐⭐	⭐⭐⭐⭐
Long-term savings	⭐⭐⭐⭐⭐	⭐⭐
Heavy healthcare use	Depends	Often stronger
Low healthcare use	Often stronger	Depends

Don’t use these stars as universal rankings.

Replace them with the actual characteristics of the plans offered to you.

---

The Three Numbers That Often Determine the Winner

If you have only five minutes during Open Enrollment, calculate:

1. Premium Difference

How much more does one plan cost annually?

2. Employer HSA Contribution

How much free HSA money does your employer provide?

3. Maximum Annual Exposure

Calculate approximately:

Annual premium + in-network out-of-pocket maximum − employer HSA contribution

for each option.

This gives you a useful comparison for a very expensive healthcare year.

---

Example: Family of Four

Imagine:

HSA Plan

Annual employee premium: $5,400

Family deductible: $4,000

Out-of-pocket maximum: $10,000

Employer HSA contribution: $2,000

PPO

Annual employee premium: $8,400

Family deductible: $2,000

Out-of-pocket maximum: $7,000

Low-Use Year

The HSA could potentially win because:

$3,000 lower premium

plus:

$2,000 employer contribution

creates a substantial advantage.

Catastrophic Healthcare Year

Simplified HSA maximum:

$5,400 + $10,000 − $2,000 =

$13,400

Simplified PPO maximum:

$8,400 + $7,000 =

$15,400

Surprisingly:

the HSA still wins in this hypothetical worst-case comparison.

Again, that’s why you need the math.

---

When the PPO Could Win

Change the numbers.

Suppose the PPO premium difference is only:

$500 per year

and its out-of-pocket maximum is:

$4,000 lower.

Now someone expecting major healthcare expenses could reasonably find the PPO much more attractive.

There is no universal winner.

---

HSA May Be Better If You…

• Rarely use healthcare.
• Want lower monthly premiums.
• Receive a meaningful employer HSA contribution.
• Can comfortably handle the deductible.
• Want to reduce taxable income through eligible contributions.
• Want to build long-term healthcare savings.
• Have access to the doctors you need.
• Are comfortable comparing healthcare prices.
• Want unused healthcare money to remain yours.

---

PPO May Be Better If You…

• Expect frequent healthcare use.
• See multiple specialists.
• Have expensive ongoing prescriptions.
• Prefer lower deductibles.
• Want more predictable copays.
• Need broad provider access.
• Regularly use out-of-network providers.
• Expect pregnancy, surgery or ongoing treatment.
• Would struggle financially with a large early-year deductible.

---

Neither Plan Automatically Wins for Chronic Conditions

People sometimes assume:

Chronic illness = PPO automatically.

Not necessarily.

A person with predictable high spending may reach the HSA plan’s out-of-pocket maximum quickly.

If the HSA plan has dramatically lower premiums and a generous employer contribution, it could still win mathematically.

Calculate both.

---

Don’t Forget Payroll Contributions

If your employer allows HSA contributions through a qualifying cafeteria plan, payroll contributions can provide additional tax advantages compared with making ordinary after-tax contributions and claiming a deduction later.

The exact tax consequences depend on your circumstances.

This is another reason to understand how your employer funds and administers its HSA benefit.

---

2026 Open Enrollment Worksheet

Write down these numbers for each plan:

Annual premium: $____

Deductible: $____

Coinsurance: ____%

Primary-care copay: $____

Specialist cost: $____

Prescription cost: $____

Out-of-pocket maximum: $____

Employer HSA contribution: $____

Your planned HSA contribution: $____

Expected healthcare spending: $____

Are your doctors in-network? Yes / No

Are your medications covered? Yes / No

Then calculate:

Low-Use Scenario

Premium + routine costs − employer contribution

Moderate-Use Scenario

Premium + expected medical costs − employer contribution

High-Use Scenario

Premium + applicable out-of-pocket maximum − employer contribution

Now compare.

That’s your real:

HSA vs. PPO math battle.

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Frequently Asked Questions

Is an HSA better than a PPO in 2026?

Not automatically. An HSA is an account, while a PPO is a network structure. When people say “HSA vs. PPO,” they usually mean an HSA-eligible higher-deductible plan versus a traditional PPO. The better option depends on premiums, healthcare usage, employer HSA contributions, provider networks and tax circumstances.

What is the HSA contribution limit for 2026?

The limit is $4,400 for self-only coverage and $8,750 for family coverage.

What is the HSA catch-up contribution?

Eligible individuals age 55 or older can generally contribute an additional $1,000.

Can a PPO qualify for an HSA?

Yes. PPO describes a provider-network structure. A PPO can also be HSA-compatible if it satisfies applicable HSA eligibility requirements.

Are all high-deductible plans HSA eligible?

No. Don’t assume a plan qualifies simply because its deductible looks high. Verify that it is specifically HSA-compatible under applicable rules.

What changed with HSAs in 2026?

One significant Marketplace change is that all Bronze and Catastrophic Exchange plans are treated as HSA-compatible beginning in 2026, expanding HSA access.

Does HSA money expire at the end of the year?

No. Unused HSA funds roll over from year to year.

Can I use HSA money for insurance premiums?

Generally, HSA funds can’t be used tax-free for ordinary health-insurance premiums, although specific exceptions exist under federal tax law. HealthCare.gov notes that HSA funds generally aren’t used for premiums.

Can I contribute to an HSA after enrolling in Medicare?

Generally no. Medicare enrollment makes you ineligible to make new HSA contributions, although existing HSA money remains available for eligible expenses.

---

Final Verdict: Which Wins the 2026 Math Battle?

For a healthy employee who receives a generous employer HSA contribution, has enough emergency savings to handle the deductible and wants to build long-term tax-advantaged healthcare savings:

HSA-eligible coverage can be extremely compelling.

For someone expecting substantial healthcare use, needing frequent prescriptions, wanting lower upfront costs or relying heavily on broad provider access:

A traditional PPO may provide better value and predictability.

But don’t make the decision based on:

Premium alone.

And definitely don’t make it based on:

Deductible alone.

Calculate:

Premiums + healthcare costs − employer HSA money − applicable HSA tax advantages

Then run the calculation under:

Low-use + moderate-use + high-use scenarios.

That’s how you determine which plan actually wins your 2026 Open Enrollment math battle.