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
01
Your PBM Contract Just Became Evidence. Plan Sponsors Are the Next Defendants.
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A $3 Million Drug Just Walked Into Your Health Plan. Does Your Stop-Loss Know That?
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The ACA Subsidy Cliff Already Happened. Your Talent Market Is Still Adjusting.
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On My Radar · Three stories worth tracking
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The Benefits Brief · May 2026Story 01 · ERISA Litigation
Story 01 · ERISA Litigation
Your PBM Contract Just Became Evidence. Plan Sponsors Are the Next Defendants.
Two class actions — Lewandowski v. Johnson & Johnson and Navarro v. Wells Fargo — are rewriting fiduciary duty for prescription drug benefits. The theory: signing a PBM contract you didn't audit is a breach. The plaintiffs' bar agrees.
PBM Market Control
80%
of US prescription claims processed by the top three PBMs — Caremark, Express Scripts, OptumRx
Annual Rebate Flow
$200B
in PBM rebates moving through the system each year — most retained, not passed through
Alleged Markup
100×
what the Lewandowski complaint alleges J&J's plan paid versus the cash-pay price for specific drugs
For two decades, plan sponsors treated PBM management as an outsourced problem. The broker negotiated. The PBM administered. The CFO signed. Nobody pulled the actual contract apart. That worked until February 2024, when employees of Johnson & Johnson sued the company under ERISA Section 404(a), alleging J&J overpaid for prescription drugs by an order of magnitude — and that the overpayment was a breach of fiduciary duty. The complaint cited specific drugs where the plan paid more than 100 times the cash-pay price. In July 2024, Wells Fargo became the second named defendant in a similar class action filed by Schlichter Bogard — the firm that built modern 401(k) fee litigation into a billion-dollar plaintiffs' practice.
"The PBM industry has operated on the assumption that plan sponsors don't read their contracts. That assumption is now being tested in court."
— Plaintiffs' Counsel, ERISA Fiduciary Class Actions
The legal theory is novel but not exotic. ERISA fiduciaries are required to act prudently and in the sole interest of plan participants. If your plan paid a 1,000% PBM markup — or your PBM kept rebates that should have flowed to participants — and you didn't ask why, the plaintiffs' argument is that you weren't acting prudently. You were acting like the broker's customer, not the participants' fiduciary.
The Frame Nobody Used To Say Out Loud
What plan sponsors used to call "letting the broker handle it" is now called "failing to monitor service provider compensation." The DOL says it's been your job since 1974. The plaintiffs' bar just figured out how to enforce it. For employers signing renewals in 2026: brokers are no longer a defense, pass-through pricing is moving from preferred to required, and documentation is no longer optional.
Do Now
Pull your PBM contract. Look for spread pricing language, rebate retention clauses, and minimum guaranteed rebate floors. If you can't explain the economics in 10 minutes, that's the gap the plaintiffs are arguing.
Ask This
Ask your benefits committee: "When did we last formally review PBM compensation, and where are the minutes?" If the answer is unclear, start documenting now. Going forward, every quarterly review goes in writing.
Track
Schlichter Bogard, Wenzel Fenton Cabassa, and other ERISA plaintiffs' firms are actively recruiting plan participants. Expect more named defendants through 2026. Self-funded employers with $50M+ in plan spend should assume they're potential targets.
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The Benefits Brief · May 2026Story 02 · Stop-Loss
Story 02 · Stop-Loss & Catastrophic Risk
A $3 Million Drug Just Walked Into Your Health Plan. Does Your Stop-Loss Know That?
Gene therapies priced between $2M and $4M per patient are now FDA-approved and in broader clinical use. Most stop-loss policies were written before they existed. That gap is your problem.
Million-Dollar Claims
+29%
increase in $1M+ claims per million covered employees, 2024 vs. 2023
Plan Sponsors Hit
49%
of self-funded plan sponsors had a claimant over $1M in the last two policy years
FDA Pipeline
50+
cell and gene therapies expected to reach FDA approval by 2030
Let's be specific. Lyfgenia, for sickle cell disease: over $3 million per patient. Elevidys, for Duchenne muscular dystrophy: north of $3 million. These aren't experimental treatments buried in Phase II trials. They are FDA-approved, commercially available, and increasingly being prescribed to your employees' family members. The stop-loss market is responding — but not fast enough, and not uniformly. Stop-loss premiums rose 8.8% to 10.5% in 2025 alone. Major carriers including Cigna, Voya, and Sun Life reported rough claims experience in late 2024; Voya's 2025 renewals came in at double their 2024 rate.
The Trap Most Employers Don't See Coming
Many stop-loss policies written before 2023 have exclusions or laser provisions for gene therapies. A laser means the carrier sets a dramatically higher individual deductible for a specific high-risk employee — sometimes making the coverage effectively worthless for that person. If you haven't reviewed your stop-loss contract language against the current gene therapy landscape, you are likely exposed.
The emerging fix is a dedicated gene therapy carve-out — a standalone reinsurance product specifically underwritten for cell and gene therapy claims. PAI and others are offering these at around $4/employee/month. That's roughly $48/year per covered employee to protect against a claim that could exceed your entire annual benefits budget in a single event. The math is not complicated. The conversation with your broker should be.
Do Now
Pull your stop-loss contract and confirm gene therapies are not excluded or lasered. This is a 30-minute exercise that could save your organization millions.
Ask This
At renewal, ask your stop-loss carrier directly: "How are you pricing gene and cell therapy risk in our 2027 renewal?" If they can't answer, find a carrier who can.
Opportunity
If your plan has positive claims history, use it. Clean experience is leverage. Don't walk into a renewal without benchmarking your stop-loss pricing against the Aegis Risk annual survey data.
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The Benefits Brief · May 2026Story 03 · ACA & Talent
Story 03 · ACA Subsidies & Talent Market
The ACA Subsidy Cliff Already Happened. Your Talent Market Is Still Adjusting.
Enhanced ACA subsidies expired December 31, 2025. Average marketplace premiums for subsidized enrollees more than doubled overnight. Congress hasn't fixed it. Your candidates are feeling it — and some of them are headed straight for your benefits package.
Premium Jump
+114%
average out-of-pocket marketplace premiums rose from $888 to $1,904/year, overnight
Added Annual Cost
~$2K
what a 40-year-old earning $50,000 now pays more, just to stay covered
High-Cost States
20%+
of income a 60-year-old in a high-cost state could now spend on premiums alone
Since 2021, enhanced premium tax credits kept marketplace health insurance affordable for millions — gig workers, part-timers, small business owners, and early retirees. Congress failed to extend those credits before the deadline; they expired January 1, 2026. This is not a political story. It's a talent market story. People who previously cobbled together individual coverage are now looking at a $150–200/month increase in personal healthcare costs. Employer-sponsored coverage just became significantly more valuable as a recruiting tool, overnight, at no cost to you.
"Workers who cannot afford ACA coverage without the enhanced subsidies may seek to change jobs to get employer-sponsored health coverage."
— Ogletree Deakins, December 2025
But the story has a second edge. Employers with large part-time or contractor workforces — manufacturing, healthcare, hospitality — are facing pressure from workers who can no longer afford to go without coverage. Workers who can't piece together individual market coverage will look harder for full-time roles that include benefits. If you're not offering coverage to that population, you're going to feel it in turnover.
The ICHRA Complication
Some employers were planning to shift employees to ICHRAs — a monthly allowance to buy individual market coverage. The ACA subsidy collapse destabilized that math. When individual market premiums spike, a fixed ICHRA allowance buys a lot less coverage than it did in 2025. If you have an ICHRA strategy, revisit the math now.
Opportunity
If you offer strong employer-sponsored coverage, make it visible in your job postings. Candidates are now actively pricing health benefits as a dollar value. "We cover 80% of your family premium" lands differently in 2026 than it did in 2025.
Exposure
If you have a significant part-time or contractor population that doesn't qualify for your plan, model what marketplace premium increases are doing to their total compensation picture. The turnover cost of doing nothing is real.
Watch
Congressional negotiations are ongoing; a House vote on subsidy reinstatement is possible in 2026. If credits are restored, the talent dynamic shifts again. Don't build a 3-year strategy around a policy that could change in a reconciliation bill.
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The Benefits Brief · May 2026On My Radar
On My Radar
Three stories worth tracking before they become your problem.
Not yet ready for full coverage. But each of these will shape someone's renewal in 2027 — and the employers who see them coming get the cheaper outcome.
01
Self-Funding
Self-funded and level-funded plans now cover nearly 70% of US workers.
In 2025, 37% of covered workers at companies with 10–199 employees were in level-funded plans — a structural shift, not a rounding error. The opportunity isn't whether to self-fund; it's whether your existing plan gives you control or just the illusion of it. Mid-market employers doing it right are saving 8–10% annually. With 2026 costs projected to rise 10% — the sharpest increase in a decade — getting this structure right is no longer optional.
02
Mental Health Parity
DOL is enforcing the MHPAEA Final Rule. Quietly.
The 2024 Mental Health Parity and Addiction Equity Act Final Rule took effect for plan years beginning January 1, 2025. NQTL comparative analyses are required documentation — and DOL audits are happening. If your TPA hasn't given you a current NQTL analysis, you have a documentation gap, not a coverage gap. Both are problems.
03
Treasury & HSA
2026 HSA limits are up. The strategy hasn't caught up.
2026 contribution limits: $4,300 self-only, $8,550 family; catch-up still $1,000. Most employers haven't updated employee education or seed contribution strategy to match — which means employees under-contribute and the tax-advantaged compounding never compounds. If you offer an HDHP/HSA, the cheapest engagement lift this year is updating the open enrollment communication.
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Get In Touch
Questions about what you just read? Let's talk.
No sales pitch. No pressure. Just an honest conversation about where your benefits strategy stands — and where it could go.
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