As we move through 2026, several major regulatory shifts are reshaping the employee benefits landscape. From California’s aggressive new mental health parity enforcement to the federal “One Big Beautiful Bill” (OBBB), plan sponsors must act now to ensure compliance and take advantage of new tax-advantaged savings limits.

1. California Leads the Way on Mental Health Parity

Effective June 26, 2025, and recently reinforced by the California Department of Insurance, new rules have been implemented to enforce mental health and substance use disorder (SUD) parity. These rules align with Senate Bill 855 and Assembly Bill 988.

Why this matters: Even for self-funded plans, these rules are critical if you use California as your “model state” for Essential Health Benefits (EHBs).

Expanded Coverage Requirements: Insurers and plan sponsors must now cover:

• Behavioral health crisis stabilization and emergency/urgent care.
• Residential and inpatient treatment for all SUD and mental health conditions.
• Gender dysphoria treatments (following WPATH standards).
• Coordinated specialty care for early psychosis.

New Prohibitions:

• No “Visit Limits”: You may not impose annual visit or dollar limits on mental health services.
• No Prior Auth for Crises: Prior authorization is prohibited for emergency services or crisis stabilization.
• NQTL Parity: Nonquantitative treatment limitations (such as medical necessity reviews) cannot be applied more stringently than they are for physical health.

2. The “One Big Beautiful Bill” (OBBB) & HSA/FSA Updates

Signed into law on July 4, 2025, the One Big Beautiful Bill (OBBB) brings long-awaited relief to health savings and dependent care accounts.

Dependent Care FSA Limit Increase

For the first time since 1986, the permanent limit for Dependent Care FSAs has increased.

• New Limit: $7,500 per year (up from $5,000).
• Effective Date: Plan years starting on or after January 1, 2026.
• Note: This limit is not indexed for inflation, so plan documents should be updated specifically to this new amount.

HSA Eligibility & Direct Primary Care (DPC)

The OBBB expands who can contribute to an HSA and how those funds can be spent:

• Direct Primary Care: Individuals with a DPC arrangement (fixed monthly fees up to $150/individual) are now HSA-eligible. Furthermore, DPC fees are now considered “qualified medical expenses.”
• Marketplace Expansion: Bronze and Catastrophic plans on the ACA Marketplace are now officially treated as HSA-qualified High Deductible Health Plans (HDHPs).
• Permanent Telehealth Relief: The OBBB retroactively restored and made permanent the ability for HDHPs to cover telehealth services before the deductible is met without disqualifying HSA eligibility.

3. Mandatory HIPAA Privacy Notice Updates

Deadline: February 16, 2026

All group health plan sponsors must update their HIPAA Notice of Privacy Practices (NPP) by mid-February. This update focuses on Part 2 records (Substance Use Disorder treatment records).

What you need to do:

1. Revise Language: Include new disclosures regarding the prohibition of using SUD records in legal proceedings without consent.
2. Digital Posting: The updated NPP must be posted on your plan’s website by February 16.
3. Annual Mailing: Include the revised notice (or an explanation of how to find it) in your next regular annual participant mailing.

Legal Alert: While earlier drafts included reproductive health care privacy language, a Texas federal court recently vacated those requirements. Do not add reproductive health language to your NPP at this time.

Next Steps for Plan Sponsors

Keeping up with these overlapping state and federal changes can be a challenge. To stay ahead of the February and 2026 deadlines, we recommend:

• Reviewing your Summary Plan Description (SPD) for the new FSA limits.
• Drafting your updated HIPAA NPP language immediately.
• Evaluating your mental health network adequacy to meet California’s new standards.

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