Life Insurance Awareness Month: The Coverage Gap Facing 102 Million Americans

Q4 is when ACA compliance failures become expensive. The fourth quarter is the deadline window for year-end compliance actions, and it is also when HR teams are most stretched, managing open enrollment, processing plan changes, and supporting employees through benefits decisions while closing out the plan year’s administrative obligations. Compliance items that get deferred in September and October have a habit of becoming enforcement problems in January. Here are seven ACA compliance items every mid-sized employer should complete before December 31, 2026.

1. Verify Your Plan Meets the 2026 ACA Affordability Threshold

The ACA requires applicable large employers (those with 50 or more full-time equivalent employees) to offer coverage that is affordable to full-time employees. For plan years beginning January 1, 2026, the affordability threshold is 9.02% of household income. Coverage is affordable if the employee’s required contribution for the lowest-cost, minimum-value plan option does not exceed 9.02% of the federal poverty level for a single individual.

Employers who have adjusted plan contributions since their last affordability analysis, or who have not recalculated since the threshold changed, should verify that their current contribution structure satisfies the 2026 threshold. An employer whose plan fails the affordability test and who has full-time employees who purchase subsidized coverage through the ACA marketplace may be subject to the employer shared responsibility payment, which for 2026 is $4,020 per full-time employee who receives a subsidy (excluding the first 30 employees).

2. Update HSA Contribution Limits in Payroll and Plan Communications

The IRS increased HSA contribution limits for 2026 to $4,400 for individual coverage and $8,750 for family coverage, with a $1,000 catch-up contribution available for participants age 55 and older. Employers who administer HSA programs through payroll deduction must update their payroll systems to reflect the new limits. More commonly missed: employee communications, enrollment materials, and benefits administration platforms that still display 2025 limits need to be updated before open enrollment closes.

High-deductible health plan (HDHP) minimum deductible and out-of-pocket maximum limits have also been adjusted for 2026. HDHP minimum deductibles are $1,650 for self-only coverage and $3,300 for family coverage. Out-of-pocket maximums are $8,300 for self-only and $16,600 for family. Plans that do not meet these thresholds cannot be paired with an HSA, which means employees enrolled in what they believe to be an HSA-compatible plan may be ineligible to contribute to their HSA if the plan design has not been updated.

3. Confirm Electronic Filing Requirements Are Met

The IRS now requires electronic filing for employers submitting 10 or more information returns, including Forms 1094-C and 1095-C. Employers who previously filed on paper because they were below the old 250-return threshold should confirm their 2026 filing approach and ensure they have access to an IRS-approved electronic filing system or are working with an ACA reporting vendor who files electronically on their behalf. Paper filings from employers required to file electronically are treated as late filings.

 

4. Audit Machine-Readable Files for Transparency in Coverage

The Transparency in Coverage rules require most non-grandfathered group health plans to make machine-readable files containing in-network rates and out-of-network allowed amounts publicly available. The files must be updated monthly and accessible without registration or login. Employers should confirm that their carrier or third-party administrator is maintaining the files and that the public link works.

5. Complete Nondiscrimination Testing for 401(k) and Cafeteria Plans

Section 125 cafeteria plans and 401(k) plans have nondiscrimination requirements designed to prevent benefits from disproportionately favoring certain employees. The tests and definitions differ by plan type, so employers should review each plan separately. For 2026 retirement plan testing, the highly compensated employee compensation threshold remains $160,000. Employers whose workforce or benefit elections have changed should arrange testing in time to evaluate any needed corrections.

The appropriate correction depends on the plan and the test that failed. Reviewing results before year end may give employers more options to address a potential failure.

6. Prepare COBRA Administration Records for Year-End Review

Year end is a useful time to audit COBRA records. Confirm that qualifying events were reported, election notices were sent, elections were administered and premium payment records are current. Generally, an employer has 30 days to notify the plan administrator of certain qualifying events, and the plan administrator has 14 days after receiving that notice to send an election notice. Different timing can apply when the employer is also the plan administrator. The Department of Labor’s COBRA guide for employers explains these responsibilities.

7. Update Plan Documents and Summary Plan Descriptions

Review plan documents and summary plan descriptions (SPDs) against the changes planned for January 1, 2027. Under ERISA, an updated SPD or summary of material modifications (SMM) generally must be furnished within 210 days after the end of the plan year in which a material change was adopted. Shorter notice rules can apply to certain reductions in health benefits or changes affecting a summary of benefits and coverage. Employers should coordinate the required notices with their open enrollment materials and plan documents.

Tooher-Ferraris helps employers navigate ACA compliance obligations, review benefit plan design and coordinate with ERISA counsel on documentation requirements. Learn more about our HR compliance and legal resources and employee benefits strategy and consulting services.

For additional guidance, visit the IRS retirement plans resources and the Department of Labor’s Employee Benefits Security Administration.

Ready to complete your year-end ACA compliance checklist? The team at Tooher-Ferraris has been helping employers navigate benefits compliance since 1932. Contact us today to schedule a no-obligation consultation — https://toofer.com/contact-us/

Frequently Asked Questions

What is the ACA affordability threshold for 2026?

The ACA affordability threshold for plan years beginning January 1, 2026 is 9.02% of household income. Coverage is considered affordable if the employee’s required contribution for the lowest-cost, minimum-value single plan option does not exceed 9.02% of the applicable federal poverty level for a single individual. Applicable large employers whose plans fail this threshold and who have full-time employees purchasing subsidized marketplace coverage may be subject to employer shared responsibility payments.

What are the 2026 HSA contribution limits?

The IRS increased HSA contribution limits for 2026 to $4,400 for self-only coverage and $8,750 for family coverage. The catch-up contribution limit for participants age 55 and older remains $1,000. HSA-compatible HDHP minimum deductibles are $1,650 for self-only and $3,300 for family, with out-of-pocket maximums of $8,300 and $16,600 respectively.

Which employers are required to file ACA information returns electronically?

Employers filing 10 or more information returns, including Forms 1094-C and 1095-C, are required to file electronically with the IRS. This threshold was reduced from 250 returns in prior years. Employers who previously filed on paper should confirm whether they now exceed the 10-return threshold and arrange electronic filing through an IRS-approved system or ACA reporting vendor.

Mental health parity compliance is the employee benefits compliance issue most likely to generate enforcement action against a mid-sized employer in the fourth quarter of 2026 and most employers are not prepared for it. The Mental Health Parity and Addiction Equity Act requires that the limitations placed on mental health and substance use disorder benefits be no more restrictive than those placed on medical and surgical benefits. The 2026 plan year brings full documentation requirements into force, and the Department of Labor has elevated scrutiny of employer compliance as a specific enforcement priority.

The enforcement mechanism that makes this particularly urgent is the DOL’s authority to request a plan’s comparative analysis at any time, without advance notice and without a specific complaint triggering the request. An employer that cannot produce a compliant comparative analysis within 45 days of a DOL request is subject to enforcement action. According to compliance guidance published in 2026, the majority of employer-sponsored plans that have been reviewed by the DOL have required remediation. Here are five things every employer must know and act on before December 31.

1. Understand What the Comparative Analysis Actually Requires

The non-quantitative treatment limitation (NQTL) comparative analysis is a detailed, written document that compares the factors, evidentiary standards, and processes used to determine mental health and substance use disorder benefit limitations against those used for medical and surgical benefits. It is not a summary. It is not a checkbox. It requires a specific, reasoned explanation of each NQTL applied to mental health benefits, the comparable limitation applied to medical/surgical benefits, and the basis for concluding that the limitations are equivalent.

NQTLs include prior authorization requirements, step therapy protocols, network admission standards, reimbursement rate methodologies, and fail-first requirements. Each of these must be evaluated and documented on both the mental health and medical/surgical side of the plan. The analysis must be plan-specific. A generic template from a carrier or TPA does not satisfy the requirement unless it is customized to the specific plan’s design and the specific limitations in place.

2. Know Who Is Responsible for Producing It

For fully insured plans, the insurance carrier is required to conduct and provide the comparative analysis to the plan sponsor upon request. The employer’s obligation is to request it from the carrier, review it for completeness, and retain it. “My carrier handles compliance” is not a valid response to a DOL request. The plan sponsor remains responsible for ensuring that a compliant analysis exists and can be produced.

For self-funded plans, the employer or the third-party administrator is responsible for producing the analysis. TPAs vary significantly in the quality and completeness of the comparative analysis documentation they provide. An employer whose TPA has provided a generic template rather than a plan-specific analysis may believe they are compliant when they are not. Reviewing the analysis with qualified ERISA counsel before a DOL request arrives is the only way to know whether the documentation would survive scrutiny.

 

3. Understand What Non-Compliance Actually Costs

An employer that receives a DOL request for a comparative analysis and cannot produce one within 45 days must notify plan participants that the plan is not in compliance with MHPAEA. This is more than a theoretical consequence. It can create reputational risk, potential litigation from plan participants who were denied mental health benefits that would have been available under a compliant plan, and continued DOL enforcement activity until compliance is achieved.

Litigation risk from plan participants is a less-publicized but potentially more financially significant consequence of MHPAEA non-compliance. Employees who were denied mental health benefits, or who were required to pay higher out-of-pocket costs than they would have for comparable medical benefits, may have a private right of action under ERISA. Courts have permitted retrospective benefit claims in some cases, meaning non-compliance identified in 2026 could result in liability for benefits that were improperly denied in prior plan years.

4. Complete These Three Actions Before Year End

Request the comparative analyses in writing. Ask your carrier or third-party administrator (TPA) for the plan’s documented analyses of its nonquantitative treatment limitations, such as prior authorization and provider network standards. Keep the request, the response and any follow-up questions. If the materials do not address your plan’s practices, identify what is missing and ask how it will be supplied. Federal law continues to require these analyses even though the Departments have paused enforcement of the new provisions in the 2024 MHPAEA final rule. U.S. Department of Labor

Have qualified ERISA counsel review the materials. Counsel can assess whether the analyses address the plan’s actual limitations, identify missing information and advise on the requirements that currently apply. This is particularly useful while the Departments reconsider the 2024 final rule. U.S. Department of Labor

Examine access to mental health providers. Ask for evidence about the plan’s network standards and members’ ability to obtain care, including whether listed providers accept new patients and how long members wait for appointments. Compare relevant mental health and substance use disorder access measures with medical and surgical access, and have counsel advise how the findings should be addressed in the applicable comparative analyses. The DOL’s MHPAEA self-compliance tool provides a starting point for this review. dol.gov

5. Prepare for the 2027 Plan Year Now

MHPAEA compliance is an ongoing responsibility. Use the fourth quarter of 2026 to obtain the analyses, resolve missing information and set a process for reviewing plan changes and network practices in 2027. The Departments’ current enforcement statement makes an important distinction: the pause applies to new provisions of the 2024 final rule, while MHPAEA’s statutory obligations, including the comparative analysis requirement, remain in effect. U.S. Department of Labor

Tooher-Ferraris can help employers organize a benefits compliance review and coordinate with the appropriate advisers. Explore our HR compliance and legal support and employee benefits strategy and consulting services.

Ready to review your plan’s MHPAEA documentation? Contact Tooher-Ferraris to schedule a consultation.

Frequently Asked Questions

What is an NQTL comparative analysis and who is required to have one?

A non-quantitative treatment limitation comparative analysis is a written document required under MHPAEA that compares the limitations placed on mental health and substance use disorder benefits against comparable limitations on medical and surgical benefits. All employer-sponsored group health plans that offer both medical and mental health benefits are required to have a current, plan-specific comparative analysis available for DOL review.

How quickly must an employer respond to a DOL request for an MHPAEA comparative analysis?

Employers have 45 business days to respond to a DOL request with a compliant comparative analysis. If the plan cannot produce one within that period, the employer must notify plan participants of the non-compliance. The DOL may then require corrective action and continue enforcement until a compliant analysis is in place.

What happens if our plan is found non-compliant with MHPAEA?

Consequences include mandatory participant notification, DOL-required corrective action, potential plan disqualification, and private litigation from plan participants who were denied benefits under non-compliant plan terms. Courts have allowed retrospective benefit claims, creating liability for prior-year benefit denials that resulted from non-compliant NQTL applications.