Life Insurance: The Most Overlooked Asset in Your Financial Plan

The Internal Revenue Service (IRS) recently released Revenue Procedure 2025-32, which increases the health flexible spending account (FSA) salary reduction contribution limit to $3,400 for plan years beginning in 2026, an increase of $100 from 2025. Thus, for health FSAs with a carryover feature, the maximum carryover amount is $680 (20% of the $3,400 salary reduction limit) for plan years beginning in 2026. When carrying over funds from 2025 to 2026, 20% of the $3,300 salary reduction limit for 2025 is $660.

The Revenue Procedure also contains the cost-of-living adjustments that apply to dollar limitations in certain other sections of the Internal Revenue Code.

Qualified Commuter Parking and Mass Transit Pass Monthly Limit
For 2026, the monthly limits for qualified parking and mass transit are increased to $340 each, an increase of $15 from 2025.

Adoption Assistance Tax Credit Increase
For 2026, the credit allowed for adoption of a child is $17,670 (up $390 from 2025). The credit begins to phase out for taxpayers with modified adjusted gross income in excess of $265,080 (up $5,890 from 2025) and is completely phased out for taxpayers with modified adjusted gross income of $305,080 or more (up $5,890 from 2025).

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) Increase
For 2026, reimbursements under a QSEHRA cannot exceed $6,450 (single) / $13,100 (family), an increase of $100 (single) / $300 (family) from 2025.

Reminder: 2026 HSA Contribution Limits and HDHP Deductible and Out-of-Pocket Limits
Earlier this year, in Rev. Proc. 2025-19, the IRS announced the inflation-adjusted amounts for HSAs and high-deductible health plans (HDHPs).

	2026 (single/family)	2025 (single/family)
Annual HSA Contribution Limit	$4,400 / $8,750	$4,300 / $8,550
Minimum Annual HDHP Deductible	$1,700 / $3,400	$1,650 / $3,300
Maximum Out-of-Pocket for HDHP	$8,500 / $17,000	$8,300 / $16,600

The ACA’s out-of-pocket limits for in-network essential health benefits have also been announced and have increased for 2026. Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit if the family out-of-pocket limit is above $10,600 (2026 plan years). Exceptions to the ACA’s out-of-pocket limit rule are available for certain small group plans eligible for transition relief (referred to as “Grandmothered” plans). While historically CMS has renewed the transition relief for Grandmothered plans each year, it announced in March 2022 that the transition relief will remain in effect until it announces that all such coverage must come into compliance with the specified requirements.

	2026 (single/family)	2025 (single/family)
ACA Maximum Out-of-Pocket	$10,600 / $21,200	$9,200 / $18,400

 ACA Reporting Penalties (Forms 1094-B, 1095-B, 1094-C, 1095-C)
The table below describes late filing penalties for ACA reporting. The 2027 penalty is for returns filed in 2027 for calendar year 2026, and the 2026 penalty is for returns filed in 2026 for calendar year 2025. Note that failure to issue a Form 1095-C when required may result in two penalties, as the IRS and the employee are each entitled to receive a copy.

Penalty Description	2027 Penalty	2026 Penalty
Failure to file an information return or provide a payee statement	$340 for each return with respect to which a failure occurs	$340 for each return with respect to which a failure occurs
Annual penalty limit for non-willful failures	$4,191,500	$4,098,500
Lower limit for entities with gross receipts not exceeding $5M	$1,397,000	$1,366,000
Failures corrected within 30 days of required filing date	$60	$60
Annual penalty limit when corrected within 30 days	$698,500	$683,000
Lower limit for entities with gross receipts not exceeding $5M when corrected within 30 days	$244,500	$239,000
Failures corrected by August 1	$130	$130
Annual penalty limit when corrected by August 1	$2,095,500	$2,049,000
Lower limit for entities with gross receipts not exceeding $5M when corrected by August 1	$698,500	$683,000
Failure to file an information return or provide a payee statement due to intentional disregard	$690 for each return with respect to which a failure occurs (no cap)	$680 for each return with respect to which a failure occurs (no cap)

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About the Author. This alert was prepared for Tooher-Ferraris by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers, or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. Tooher-Ferraris and Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2025 Barrow Weatherhead Lent LLP. All Rights Reserved.

Mid-sized employers often face significant hurdles when trying to control their healthcare expenses.

Traditional fully-insured plans often mean relinquishing control and transparency, leading to unpredictable premium hikes.

However, with innovative self-funding strategies, mid-sized businesses can gain significant leverage. This approach, when properly managed and supported by comprehensive workers’ compensation insurance services and astute employment practices insurance, allows companies to tailor benefits, control costs, and invest in employee well-being.

The Self-Funding Advantage: Control and Transparency

 

 

Self-funding fundamentally shifts the paradigm of healthcare benefits. Instead of paying a fixed premium to an insurance carrier regardless of claims, employers directly assume the financial responsibility for employee healthcare claims. This direct payment model offers unparalleled transparency into claims data. Access to this granular data empowers employers to identify spending patterns, pinpoint areas for cost containment, and design plans that truly meet their workforce’s needs. For instance, data might reveal a high prevalence of a specific chronic condition, allowing the employer to implement targeted wellness programs or negotiate better rates with specialized providers.

Furthermore, self-funded plans are typically exempt from state premium taxes, which can range from 2-3% of premium value, and are not subject to state-mandated benefits. This federal preemption under ERISA provides immense flexibility in plan design, allowing businesses to create highly customized benefit packages that align with their budget and employee demographics.

Innovative Plan Designs: Tailoring Benefits for Impact

Gone are the days of one-size-fits-all healthcare. Self-funded employers can implement innovative plan designs that maximize value and engagement. Options include:

Reference-Based Pricing: Instead of relying on traditional network contracts, employers pay providers a multiple of Medicare rates, encouraging cost-effective care. This can lead to substantial savings, with some reports indicating potential cost reductions of 10-30%.

Direct Provider Contracts: Bypassing traditional networks altogether, employers can contract directly with healthcare providers for specific services, often at a negotiated, lower rate.

Wellness-Focused Programs: Leveraging claims data, employers can design wellness initiatives that address specific health risks within their employee population, leading to healthier employees and reduced long-term costs. Incentivizing preventative care and healthy behaviors can significantly impact overall healthcare expenditures.

Group Medical Captives: For mid-sized employers, joining a group medical captive offers the benefits of self-funding with reduced risk. By pooling resources with other like-sized businesses, companies share risk and gain greater purchasing power, often receiving a return of unspent premiums. This makes self-funding accessible to companies with as few as 25 employees.

Stop-Loss Considerations: Mitigating Catastrophic Risk

While self-funding offers significant advantages, it also entails assuming greater financial risk. This is where stop-loss insurance becomes a critical safeguard. Stop-loss insurance protects employers from unexpectedly high or catastrophic claims that could otherwise devastate their finances. There are two main types:

Specific Stop-Loss: This protects against high claims from a single individual. For example, if an employee’s medical bills exceed a predetermined deductible (e.g., $50,000), the stop-loss policy covers the excess.

Aggregate Stop-Loss: This protects against the total claims for all employees exceeding a certain threshold over a policy period.

Employment Practices Insurance and Workers’ Compensation Insurance Services

Beyond healthcare, mid-sized employers must also consider other critical insurance needs. Self-funding often means a greater focus on internal processes and employee relations. Therefore, Employment Practices Insurance (EPLI) is essential. EPLI protects businesses from claims arising from wrongful termination, discrimination, harassment, and other employment-related allegations. As employers take on more direct control of benefits, the potential for such claims can increase, making EPLI a vital layer of protection.

Similarly, comprehensive workers’ compensation insurance services remain fundamental. While self-funded healthcare deals with general health claims, workers’ compensation specifically covers injuries or illnesses sustained by employees in the course of their employment. Some employers may even explore self-insured workers’ compensation plans, often with excess insurance to mitigate catastrophic injury costs. A coordinated approach to all these insurance needs ensures holistic risk management for mid-sized employers.

By embracing innovative plan designs, strategically utilizing stop-loss insurance, and leveraging predictive modeling, businesses can create highly effective and sustainable healthcare programs. When combined with critical protections like Employment Practices Insurance and comprehensive workers’ compensation insurance services, self-funding becomes a cornerstone of a resilient and rewarding employment strategy.

Tooher-Ferraris Insurance Group provides comprehensive insurance services, including workers’ compensation insurance and Employment Practices Insurance. Partner with us today to learn more about our tailored insurance solutions.