Essential Health Benefits Background
Fully insured plans in the individual and small group markets must cover a core set of items and services, known as essential health benefits (EHB). The ACA requires EHBs to reflect the scope of benefits covered by a typical employer-sponsored group health plan and to cover at least the following 10 general categories of items and services:
- Ambulatory patient services (outpatient care)
- Emergency services
- Hospitalization
- Maternity and newborn care
- Mental health and substance use disorder benefits, including behavioral health treatment
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care
The ACA directed HHS to more specifically define the items and services that comprise EHB. HHS developed a state-specific benchmark approach for defining EHB, where each state selects its own benchmark insurance plan from a set of options designated by HHS.
Generally, the items and services included in a state’s benchmark plan comprise the EHB that fully insured health plans in the state’s individual and small group markets must cover. Click here for a CMS webpage with more information on EHB benchmark plans.
Cost-Sharing Limits
The ACA requires non-grandfathered health plans to comply with an overall annual cost-sharing limit with respect to their coverage of EHB, called an out-of-pocket maximum. Once a plan participant meets their out-of-pocket maximum for the year, they cannot be held responsible for additional cost sharing for EHBs for the remainder of the year.
Cost-sharing generally includes any expenditure required by or on behalf of a plan participant with respect to EHB, such as deductibles, copayments, coinsurance, and similar charges, but excludes premiums and spending for non-covered services. Group health plans with provider networks are not required to count a plan participant’s expenses for out-of-network benefits toward the cost-sharing limit.
Health plans that are not required to cover EHB (such as self-funded plans of any size and fully insured large employer group plans) are still required to comply with the out-of-pocket maximum for any covered benefits that fall within the scope of EHB.
Final Rule Prohibition Against Sex-Trait Modification Coverage as EHB
The Final Rule (as well as the proposed rule) prohibits coverage of sex-trait modification procedures as EHB in the individual and small group market, starting with the 2026 plan year. This prohibition, while based in ACA statutory language (according to CMS[1]), also derives from two fairly recent and related Executive Orders (EO) by the Trump Administration:
- An EO, issued on January 20, 2025, requires agencies to “take all necessary steps, as permitted by law, to end the Federal funding of gender ideology.”
- An EO, issued on January 28, 2025, with the stated goal to prohibit or limit gender-affirming care for Americans under 19 years old by withholding federal funding and directing federal agencies to take measures to prevent surgeries, hormone therapy, puberty blockers, and other related services. This EO directs the HHS Secretary to take “regulatory and sub-regulatory actions” (of which this Final Rule is in fact) to achieve its goal. Moreover, HHS also recently rescinded its guidance on gender-affirming care from March 2022 as directed by this EO, stating the 2022 guidance no longer reflects its views.
CMS, in the Final Rule (as well as the proposed rule), acknowledges that two courts have already issued preliminary injunctions relating to both of these EOs and states that “any final rule on this issue would not be effective until PY 2026, and would not be implemented, made effective, or enforced in contravention of any court orders.”
Additionally, the Final Rule extensively references the recent Supreme Court ruling in U.S. v. Skrmetti, upholding a Tennessee state law prohibiting health care providers from administering puberty blockers and hormone treatments to transgender minors, to underscore its legal argument in support of this coverage prohibition.
The Final Rule confirms that health plans may still voluntarily choose to cover sex-trait modification procedures as non-EHB, as consistent with applicable state law. However, non-EHBs are not subject to the cost-sharing limits imposed under EHBs, which will likely increase plan participant out-of-pocket costs to receive such care.
Notably, the Final Rule contains a footnote detailing that currently:
- The EHB-benchmark plans for California, Colorado, New Mexico, Vermont, and Washington specifically include coverage of some sex-trait modification.
- The EHB-benchmark plans of six other states do not expressly include or exclude this coverage, and
- The EHB-benchmark plans of 40 states include language that excludes such coverage.
CMS decided to adopt a definition of “specified sex-trait modification procedure” in the Final Rule to provide “an appropriate and actionable degree of certainty and clarity for consumers, issuers, providers, and other interested parties, while also maintaining flexibility to accommodate changes in medical science and standards of care.”
“Specified Sex-Trait Modification Procedure” Definition
The Final Rule defines specified sex-trait modification procedure as “any pharmaceutical or surgical intervention that is provided for the purpose of attempting to align an individual’s physical appearance or body with an asserted identity that differs from the individual’s sex, either by:
- Intentionally disrupting or suppressing the normal development of natural biological functions, including primary or secondary sex-based traits; or
- Intentionally altering an individual’s physical appearance or body, including amputating, minimizing, or destroying primary or secondary sex-based traits such as the sexual and reproductive organs.
- This term does not include procedures undertaken:
- To treat a person with a medically verifiable disorder of sexual development; or
- For purposes other than attempting to align an individual’s physical appearance or body with an asserted identity that differs from the individual’s sex.”
For clarity, accompanying the definition above, CMS provided the following non-exhaustive examples in the Final Rule to confirm that they may still be covered as an EHB, if otherwise covered under the plan:
- Hormone therapy for cancer, infertility, precocious puberty, or menopause,
- Mastectomies or breast reconstruction after a mastectomy for women with breast cancer,
- Testing to determine disorders of sexual development, including for newborns,
- Nonpharmaceutical and non-surgical mental health and substance use disorder services to treat gender dysphoria[2], and
- Services to reverse the effects of specified sex-trait modification procedures and to treat conditions caused by specified sex-trait modification procedures, such as testing, medication, and care for iatrogenic hypogonadism, osteoporosis, osteopenia, and low testosterone.
Additionally, the Final Rule underscores that coverage of specified sex-trait modification procedures when deemed medically necessary is still permissible, just not as an EHB if they satisfy the definition outlined above.
Other Final Rule Changes Directly Impacting Employer Group Health Plans
Revised Cost Sharing Limits for 2026 Plan Years – The Final rule also updates the methodology used for calculating the ACA’s maximum annual limitation on cost sharing (see section above here), which is adjusted each year for inflation. With this update, the maximum annual limitation on cost sharing is $10,600 for self-only coverage and $21,200 for family coverage for 2026 plan years, reflecting an approximately 15.2% increase from the 2025 limits of $9,200 for self-only coverage and $18,400 for family coverage.
The table below reflects ACA cost-sharing limits for 2023 to 2026 plan years:
|
ACA Cost-Sharing Limits |
2023 |
2024 |
2025 |
2026 |
|---|---|---|---|---|
|
Employee (self) only |
$9,100 |
$9,450 |
$9,200 |
$10,600 |
|
Family |
$18,200 |
$18,900 |
$18,400 |
$21,200 |
NOTE: The ACA mandates that health plans apply an embedded out-of-pocket limit for everyone enrolled in coverage. This means that each plan participant must have an individual out-of-pocket limit on EHBs that is not higher than the ACA’s out-of-pocket maximum for self-only coverage.
- Routine Adult Dental Services as EHB in 2027 – The Final Rule removes the prohibition on providing routine non-pediatric dental services as EHB beginning with the 2027 plan year. This means that for plan years starting in 2027, states may include routine non-pediatric dental services in their EHB-benchmark plans. If added by a state to their benchmark plan, fully insured plans in the small group market in that state would be required to treat these services as EHB.
Employer Group Health Plan Considerations
Now that this Final Rule has been released by CMS, employers sponsoring group health plan coverage should be aware of the potential impacts of its EHB exclusion for sex-trait modification procedures starting in 2026, including:
- Coverage Changes: Group health plans that align their benefits with state benchmark EHB standards may need to revise their coverage policies to exclude coverage of sex-trait modification procedures or voluntarily cover them as non-EHB.
- Employee Relations Concerns: This exclusion raises concerns regarding coverage for medically necessary procedures for employees and their covered dependents seeking sex-trait modification procedures. Depending on the terms and design of the applicable group health plan, these individuals could possibly face higher out-of-pocket costs (as non-EHB) or will have to find alternative coverage options outside of their employer-sponsored group health plan if completely excluded from coverage.
- Cost Implications: Employers might see overall decreases, albeit minimal, in plan premium amounts due to wholesale exclusions of these items and services from EHB coverage.
On a broad level, the Final Rule aims to provide “additional safeguards to protect consumers from improper enrollments and changes to their health care coverage, as well as establish standards to ensure the integrity of the Marketplaces,” according to the CMS Final Rule Fact Sheet here.
Employers should be aware that other provisions of the Final Rule are expected to indirectly impact employer-sponsored group health plans by likely increasing enrollment due to the following changes:
- Ending the availability of the monthly special enrollment period for individuals with household incomes below 150% of the federal poverty level (sunsets at the end of the 2026 plan year);
- Standardizing the annual open enrollment period (OEP) for all individual market coverage.
- Beginning with the OEP for the 2027 plan year, each OEP must start no later than Nov. 1 and end no later than Dec. 31 and cannot exceed nine calendar weeks.
- For Exchanges on the federal platform, the OEP will run from Nov. 1 through Dec. 15 preceding the coverage year, beginning with the OEP for plan year 2027;
- Eliminating eligibility for Deferred Action for Childhood Arrivals (DACA) recipients;
- Requiring Exchanges to determine an individual ineligible for the advance premium tax credit (APTC) if they failed to file their federal income tax return and reconcile APTC for one year (effective for 2026 only);
- Permitting insurers to require payment of past-due premiums before new coverage becomes effective, to the extent permitted by state law; and
- Requiring individuals who are automatically renewed in coverage through a federal platform Exchange with no premium (i.e., consumers who are eligible for APTC that fully cover their premiums) to pay $5 per month until they confirm their eligibility information (effective for 2026 only).
eBen is committed to keeping employers informed and up-to-date. Contact your eBen account team with any questions, or contact us directly here.
[1] In accordance with Section 1302(b)(2) of the ACA, providing the HHS Secretary broad latitude to define EHB, subject to ensuring that EHB is equal in scope to the benefits provided under a typical employer plan.
[2] CMS provided this example in the Final Rule to address commenters’ concerns with respect to the Mental Health Parity and Addiction Equity Act (MHPAEA) since gender dysphoria is a mental health condition defined in the Diagnostic and Statistical Manual of Mental Disorders (DSM–5–TR).
The contents of this article are for general informational purposes only and eBen Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.
