Hotchkiss Insurance · Employee Benefits Intelligence
The Benefits Brief
For CFOs and HR leaders who don't have time for filler. A monthly read on the regulatory shifts, market moves, and money on the table.
Inside This Issue · The Open Enrollment Audit
01
The Tobacco Surcharge Time Bomb. Your Open Enrollment Materials Are Being Read By Two Audiences.
PG. 02
02
Your GLP-1 Coverage Math Just Reset. Re-Run the 2027 Numbers Before Communications Ship.
PG. 05
03
Five Deadlines Between Now and December 31. In Order of Consequence.
PG. 07
04
Following Up · What changed since September
PG. 08
05
On My Radar · Three stories worth tracking
PG. 09
01
The Benefits Brief · October 2026Story 01 · Wellness Litigation
Story 01 · The Tobacco Surcharge Time Bomb
Your Open Enrollment Materials Are Being Read By Two Audiences.
On August 26, EBSA, HHS, and Treasury issued FAQ Part 74 clarifying wellness program disclosure rules. It landed in the middle of dozens of active class-action lawsuits challenging employer tobacco surcharges. The materials your team is finalizing this month are one of those two audiences' primary exhibits.
Tobacco Reward Cap
50%
Maximum wellness reward as percent of employee-only coverage cost for tobacco cessation programs
Active Lawsuits
50+
Class actions filed since 2024 challenging tobacco surcharge program disclosure and administration
FAQ Released
Aug 26
FAQ Part 74 clarifies retroactive-reward and disclosure requirements for health-contingent programs
Here is what changed and why timing matters. Under HIPAA and ACA wellness rules, health-contingent programs must offer a reasonable alternative standard so an employee who cannot meet the primary target can still qualify for the reward. Plaintiffs argued that employees who complete the cessation program mid-year are entitled to a retroactive refund of surcharges paid earlier in the plan year. The August 26 FAQ said no. Employers can stop the surcharge going forward.
Why This Reads as Relief and Acts as Exposure
The FAQ resolved the retroactive-reward question. It also reinforced a disclosure rule most employers overlook. Any plan material describing the terms of a health-contingent wellness program must include notice of the reasonable alternative standard, with contact information and a personal-physician accommodation statement. Materials that merely mention the program's existence do not trigger the notice requirement. Get one document wrong and you supply the plaintiffs their pleading.
02
The plaintiffs' pattern is now well-established. A class-action firm identifies an employer with a tobacco surcharge, obtains the open enrollment materials through discovery or a former employee, and points to any participant-facing document that describes program terms without the required alternative-standard disclosure. The theory is that a single non-compliant document invalidates the entire wellness program, entitling the class to disgorgement of every surcharge collected during the limitations period. Recent settlements have ranged from mid-six-figures to eight figures depending on workforce size.
The August FAQ narrows the plaintiffs' path on retroactive refunds. It does not narrow the disclosure path. If anything, the FAQ's explicit reinforcement of the disclosure requirement gives plaintiffs' counsel a clearer rule to cite. The right response is not to feel safer. The right response is to treat this month's open enrollment cycle as the audit window.
The Three Documents to Audit This Week
The disclosure lives or dies at the document level. Look at three things: (1) your open enrollment guide, (2) your benefits enrollment portal screens, (3) your summary plan description language on the wellness program. Every document that describes program terms needs the reasonable-alternative-standard disclosure, contact information for obtaining the alternative, and the personal-physician accommodation statement. Passing mentions of the program's existence do not. The distinction matters, and it is not obvious to a non-lawyer reviewer.
Do Now
Pull every participant-facing document that references your wellness program. For each one, ask: does this describe program terms or merely note the program's existence? If it describes terms, confirm the three required elements are present. This is a one-week exercise. It happens before communications ship, not after.
Document
At your next fiduciary committee meeting, minute the wellness program disclosure review. "The committee reviewed all participant-facing wellness program materials for compliance with FAQ Part 74 requirements." The minute is the defense. Missing minutes here are the same problem as missing minutes on PBM oversight.
Consider
The disclosure fix is not the strategic question. The strategic question is whether the surcharge is worth the litigation exposure at all. Employers running tobacco surcharges below 20 percent of covered lives are increasingly finding the risk-adjusted return does not justify the program. Model it before the next renewal.
03
There is a second-order question worth surfacing before it lands on your desk. The wellness litigation wave is following the same structural template as the PBM litigation covered in May and June. The plaintiffs' bar identifies a compliance obligation employers have long treated as administrative, finds a documentation gap, and builds a class action around it. The pattern is now visible enough to name. Tobacco surcharges are the current example. Biometric screening programs and outcome-based wellness incentives are next. Employers who treat this as a one-time fix are missing the arc.
The Pattern to Name in Your Next Committee Meeting
Three separate litigation waves now follow the same playbook. PBM cases exploit gaps in fiduciary oversight of prescription drug contracts. Benefit exclusion cases (from our June issue) exploit gaps in ACA Section 1557 documentation. Wellness surcharge cases exploit gaps in HIPAA disclosure. Each began with a small number of test cases, then scaled as plaintiffs' firms built repeatable templates. The employers who catch the pattern early close the documentation gaps before their name shows up in a caption. The gap-closing exercise is the same each time: pull the contracts and communications, verify the required documentation, minute the review.
The One Question for Your October Board Meeting
"What is our process for auditing participant-facing benefit communications against current federal disclosure requirements before they ship each year?" If the answer is "our TPA handles it" or "we send it to legal," that is not an answer. It is a delegation. The fiduciary duty runs to the plan sponsor, not the vendor. A documented internal process, however light, moves the answer from delegation to oversight.
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The Benefits Brief · October 2026Story 02 · Pharmacy Math
Story 02 · The GLP-1 Coverage Reset
Your GLP-1 Coverage Math Just Reset. Re-Run 2027 Before Communications Ship.
Two developments in the last 60 days changed the 2027 GLP-1 conversation. On October 1, CVS Caremark added Zepbound back to its standard formulary as a preferred option. Novo Nordisk announced unified $675 pricing for Ozempic, Wegovy, and Rybelsus effective January 1, 2027. If you finalized 2027 pharmacy budgets in Q3, the assumptions have moved.
CVS Formulary
Oct 1
Zepbound returned to Caremark's standard commercial formulary as a preferred option, reversing the 2025 exclusion
Novo Unified Price
$675
List price for Ozempic, Wegovy, and Rybelsus effective January 1, 2027 (down as much as 50 percent)
Still Dropping
10%
of large employers covering GLP-1s for weight management plan to drop coverage in 2027 (BGH)
The July issue covered CVS pulling Zepbound. That story just reversed. Effective October 1, Caremark added Zepbound back to standard commercial formularies as an additional preferred option alongside Wegovy. Employers whose PBM is Caremark and who redirected utilization based on the July exclusion are now looking at a formulary they did not plan for. Members who were switched to Wegovy will likely stay put. New starts will have both options. That changes utilization projections, and utilization projections drive stop-loss underwriting.
The Pricing Shift Nobody Has Modeled Yet
Novo Nordisk's unified $675 list price for Ozempic, Wegovy, and Rybelsus takes effect January 1, 2027. For plans that cover the weight-management indications, this is a per-fill reduction of hundreds of dollars against 2026 pricing. Rebate and net-cost math changes. PBM spread pricing math changes. The competitive pressure on Eli Lilly to respond changes. If your 2027 pharmacy budget assumed 2026 net costs, it is now optimistic. That sounds like good news, and it is, unless you also assumed the savings in your renewal pitch to your board.
05
The 10 percent of large employers still planning to drop GLP-1 weight-management coverage for 2027 (per Business Group on Health) are making that decision against a moving cost baseline. Dropping coverage that was going to cost 40 percent less next year is a different decision than dropping coverage at current pricing. The financial case may still hold. It may not. Employers who committed to the 2027 drop before the Novo announcement should verify the math still supports the decision. Communications go out this month. Reversals get harder next month.
There is a specific action for employers on Caremark whose plans excluded Zepbound after the July change. The October 1 reinstatement is a template formulary change. Your employer-specific formulary customization may or may not have followed. Confirm in writing with your PBM whether Zepbound is on your plan's formulary as of October 1, and whether members previously routed to Wegovy have a formulary alternative if they wish to switch back. The answer determines what your open enrollment communications need to say.
Do Now
Ask your PBM two questions in writing. (1) Is Zepbound on our plan's formulary as of October 1, 2026, and at what tier? (2) How will the January 1, 2027 Novo Nordisk pricing change flow through to our plan's net cost, including any rebate or DIR adjustments? If the answers arrive vague, that is the finding.
Re-Model
Refresh your 2027 GLP-1 spend projections with three assumptions: (1) the Novo pricing change, (2) any Lilly competitive response, and (3) utilization changes from the Caremark formulary reset. The three-scenario range is your negotiation posture with your broker on renewal, not just an internal number.
Communicate
Open enrollment communications need to reflect current formulary status. A member who reads your 2027 enrollment guide, sees Wegovy listed, and does not see Zepbound may make the wrong decision if Zepbound is actually available. The communication accuracy question is downstream of the PBM answer, not upstream.
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The Benefits Brief · October 2026Story 03 · Q4 Compliance
Story 03 · The Year-End Compliance Cliff
Five Deadlines Before December 31. In Order of Consequence.
Q4 is where compliance calendars quietly compound. Every year, employers miss one or two of these and discover it in the next audit. Priority order for calendar-year plans, ranked by consequence if missed.
#DeadlineWhat It IsMiss Cost
01
Dec 31
Gag Clause
Annual GCPCA filing with DOL, HHS, and Treasury certifying plan contracts contain no gag clauses. Applies to all group health plans. Covered in September, Story 02.
HighFalse attestation is litigation evidence.
02
Oct 15
Part D Notice
Creditable coverage notice to all Medicare-eligible plan participants and dependents. Required annually before October 15. Applies whether coverage is creditable or non-creditable.
HighMissing notice triggers participant penalties.
03
Oct 3
ICHRA / QSEHRA
90-day pre-plan-year notice to eligible employees for 2027 ICHRAs and QSEHRAs. First-time offerings in 2027 need notice by early October.
MediumDelayed notice limits enrollment.
04
Rolling
MLR Rebates
Medical loss ratio rebates from fully insured carriers arrived in Q3. Sponsors have 90 days to allocate to participants or apply against premium, per ERISA rules.
MediumImproper handling is a fiduciary breach.
05
Q1 2027
RxDC + 1095
Prep, not deadlines. RxDC data prep begins in Q4 for June 1, 2027 filing. Form 1094-C/1095-C prep begins in Q4 for March 31 electronic filing.
PrepLate prep drives late filing.
The highest-consequence items are the easiest to miss because they feel routine. Add all five to your Q4 committee agenda. Minute the completion of each.
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The Benefits Brief · October 2026Following Up
Following Up
What changed since September.
Three open loops from last issue. One reversed a July call. One is producing better board conversations than expected. One is quieter, but the quiet is the story.
CVS put Zepbound back on formulary October 1.
In July we flagged CVS Caremark's decision to drop Zepbound from its standard commercial formulary effective July 1, 2026. That decision has now been reversed. Effective October 1, 2026, Caremark added Zepbound back as an additional preferred option alongside Wegovy. Story 02 of this issue covers the full implications for 2027 pharmacy budgeting. For CFOs who accepted the July formulary change and adjusted communications accordingly, the October reversal creates a communication accuracy problem that lands right at open enrollment.
Early Wins
September, Story 01
The cost defense frame is landing in board rooms.
Early feedback from readers who used the September three-lever framework in October board meetings: the specific-and-quantified format is changing the conversation. Boards are asking follow-up questions about site-of-care redirect and PBM contract review that they were not asking six months ago. The follow-up questions surface additional structural opportunities. If you have not yet had that October board meeting, the September package still applies. If you have, the follow-up cycle is the next opportunity.
Quieter
September, Story 02
Most sponsors are still not auditing their gag clause exposure.
The December 31 GCPCA deadline is now 90 days out. Based on conversations across the September issue's readership, most plan sponsors are still planning to sign the attestation without a fresh audit of downstream contracts. The pattern is unchanged from prior years: sponsors sign on TPA assurance without independent verification. The wellness litigation arc covered in Story 01 of this issue suggests why that pattern will not hold indefinitely. A false attestation is the same category of document as a non-compliant wellness disclosure.
08
The Benefits Brief · October 2026On My Radar
On My Radar
Three stories worth tracking before they become your problem.
Not yet ready for full coverage. Each one will shape someone's 2027 renewal — and the employers who see them coming get the cheaper outcome.
01
Fertility Final Rule
The proposed rule is still proposed. HSA question still unresolved.
The May 13 excepted fertility benefits proposed rule remains in Departmental review post-July 13 comment deadline. No final rule yet. The HSA coordination question we flagged in July is still open, which means employers with meaningful HDHP populations still cannot commit to a 2027 program design. Realistically, this now looks like a 2028 plan year benefit, not 2027. Employers evaluating fertility offerings for 2027 should look at existing excepted benefit HRA structures instead.
02
California MCO Tax
Restructured MCO tax expected to lift group health premiums.
California's Managed Care Organization tax was restructured in 2026 to raise additional revenue for the state's Medi-Cal program. The tax is imposed on health plans rather than employers, but plans will pass it through. For multistate employers with meaningful California workforces, 2027 fully insured renewal quotes will reflect the pass-through. Self-funded plans are less directly exposed but not immune, since carriers use blended rate assumptions across their book.
03
Wellness Litigation
Article III standing question moving through the courts.
Several tobacco surcharge cases are working through appellate review on Article III standing, following the pattern of PBM cases. If appellate courts narrow standing, the litigation wave slows. If they expand it, the pattern accelerates. Watch for a circuit-level ruling in Q1 2027.
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