December 2025 Health Insurance & Benefits Roundup: PBM Reform Momentum, BCBS Consolidation, and the Most Aggressive Plan Redesigns in Years

December is always the month when the health insurance industry holds its breath. Open enrollment deadlines close, compliance teams race to finalize plan documents for January 1, and the legislative calendar delivers its final surprises before Congress adjourns. This past December proved no exception. From Capitol Hill to the California statehouse, from Pittsburgh boardrooms to San Francisco startup offices, the final weeks of 2025 produced a cascade of developments that will shape employer benefits strategy, carrier economics, and individual coverage options well into 2026 and beyond.

The month's biggest story was arguably the bipartisan PBM reform legislation that gained unprecedented traction in both chambers of Congress, a development that builds on the state-level pharmacy benefit manager transparency laws that had been gathering steam throughout the fall. But PBM reform was far from the only headline. Blue Cross Blue Shield's consolidation wave accelerated with a major affiliation announcement, a venture-backed AI-native health benefits platform pulled in over $134 million to serve the underserved small business market, California committed $190 million in state funds to cushion the blow of expiring federal ACA subsidies, and employers signaled that 2026 would bring the most aggressive plan design changes the industry has seen in years. Meanwhile, the ongoing federal mental health parity enforcement pause continued to create compliance confusion, and a growing number of states expanded gold card prior authorization laws that promise to cut administrative red tape for physicians and patients alike.

Bipartisan PBM Reform Bills Gain Unprecedented Congressional Momentum

For years, pharmacy benefit manager reform has been one of those rare policy issues where lawmakers on both sides of the aisle agree something needs to change but cannot quite agree on what. December may have broken that logjam. On December 4, Senate Finance Committee Chairman Mike Crapo (R-ID) and Ranking Member Ron Wyden (D-OR) introduced the PBM Price Transparency and Accountability Act (S.3345), a sweeping bill that arrived with 19 bipartisan co-sponsors including Senate Majority Leader John Thune. That kind of co-sponsor list is not cosmetic. When both the chairman and ranking member of the tax-writing committee align with the majority leader and a deep bench of senators from Chuck Grassley to Raphael Warnock, the legislation carries genuine procedural momentum.

The Senate bill targets the structural misalignments that have long allowed PBMs to profit from opacity. At its core, S.3345 delinks PBM compensation from the rebates they negotiate with manufacturers, removing the financial incentive for middlemen to steer formularies toward higher-priced drugs that generate larger rebate checks. The bill also expands PBM reporting requirements to Medicare Part D plan sponsors and the Department of Health and Human Services, empowers plan sponsors to audit PBMs for contract compliance, and reinforces "any willing pharmacy" requirements that protect independent pharmacies in rural communities from practices that have contributed to widespread closures. For Medicaid, the legislation mandates PBMs pass payments directly to pharmacies and requires retail community pharmacies to participate in the National Average Drug Acquisition Cost survey, ensuring states and taxpayers see accurate drug pricing data.

Over in the House, a companion effort materialized just days later. Representatives Jake Auchincloss (D-MA), Diana Harshbarger (R-TN), and House Oversight Committee Chairman James Comer (R-KY) reintroduced the Pharmacists Fight Back Act (H.R.6609), which the National Community Pharmacists Association praised as the most comprehensive PBM reform in federal health plans introduced this Congress. The House bill takes a slightly different but complementary approach: it benchmarks pharmacy reimbursement to drug acquisition costs plus dispensing fees, bans patient steering to PBM-owned pharmacies, and redirects a portion of PBM rebates to patients and plan sponsors. The legislation covers Medicare, Medicaid, and the Federal Employees Health Benefits Program, giving it broad reach across government-sponsored coverage.

Together, these two bills represent the most serious legislative threat to the current PBM business model in over a decade. For employers, particularly those operating self-funded plans, the implications are significant. Greater transparency into rebate flows and pharmacy reimbursement could reshape PBM contract negotiations and give plan sponsors the audit rights they have long sought. For individual consumers, the promise is simpler: lower prices at the pharmacy counter and fewer situations where a preferred medication gets dropped from a formulary because it generates smaller rebates.

Blue Cross Blue Shield Consolidation Accelerates with Highmark-Blue KC Affiliation

The Blue Cross Blue Shield system, which covers roughly one in three Americans, continued its steady march toward consolidation in December. On December 11, Highmark Inc. and Blue Cross and Blue Shield of Kansas City (Blue KC) announced an affiliation agreement that would combine their memberships to serve nearly eight million members nationwide. Under the deal, Blue KC retains its local governance, not-for-profit status, and Kansas City brand identity while gaining access to Highmark's administrative capabilities, technology infrastructure, and operational scale. Highmark, already the nation's fifth-largest Blue plan, picks up more than one million Blue KC members and extends its footprint deeper into the Midwest.

The affiliation follows a familiar playbook in the BCBS universe: a smaller regional plan partners with a larger system to gain technology and back-office efficiencies it could not build on its own, while preserving the local decision-making and community ties that distinguish Blues plans from national carriers. Regulatory approval is expected to take six months or more, with customary closing conditions still ahead.

What makes the Highmark-Blue KC deal notable is how it fits into a broader pattern of BCBS consolidation that accelerated throughout 2025. In November, Independent Health announced plans to join MVP Health Care's family of companies, a combination that would serve nearly one million members across the Northeast with $7 billion in annual revenue. Priority Health, the insurance arm of Michigan-based Corewell Health, completed its acquisition of Group Health Cooperative of Eau Claire, expanding into its fourth state. And UCare, a Minnesota-based nonprofit, began winding down operations and selling its Medicaid and ACA assets to Medica, a move affecting roughly 250 employees.

These transactions reflect a health insurance landscape where standalone regional plans face mounting pressure from rising medical costs, technology investment demands, and regulatory complexity. Scale delivers bargaining power with providers, amortizes technology spend across larger membership bases, and supports the data analytics capabilities that modern plan administration requires. For brokers and employers, the consolidation wave means fewer but potentially more capable plan options in local markets, though it also raises questions about competition and pricing power in regions where a single Blues affiliate dominates.

Angle Health Raises $134 Million for AI-Native SMB Benefits Platform

While legacy carriers consolidate, a different kind of health plan is raising serious capital to challenge them. On December 3, San Francisco-based Angle Health announced a $134 million oversubscribed Series B round led by Portage, with participation from Blumberg Capital, Mighty Capital, PruVen Capital, SixThirty Ventures, TSVC, Wing VC, and Y Combinator. The round brings total funding to nearly $200 million and positions the company to scale its vertically integrated, AI-native health benefits platform to a much larger share of the 62 million Americans employed by small and mid-sized businesses.

Angle Health now serves more than 3,000 employers across 44 states, and CEO Ty Wang has been blunt about the company's thesis: "Legacy technology can't deliver on the efficiencies and savings unlocked by AI." The platform integrates medical and pharmacy data to predict risks, streamline underwriting, and deliver personalized care recommendations. Its AI models, trained on millions of de-identified patient records, power everything from faster quoting and underwriting to claims administration and member engagement. The result, according to the company, is lower cost increases and stronger retention rates compared to traditional carriers.

The timing of the raise is not coincidental. According to Mercer's latest survey, employer health benefit costs are projected to exceed $18,500 per employee in 2026, the steepest increase in 15 years. Small and mid-sized employers, who lack the bargaining power and administrative infrastructure of Fortune 500 companies, bear a disproportionate share of that pain. A technology-first platform that can automate underwriting, reduce administrative waste, and surface cost-saving opportunities through AI has an obvious value proposition in that environment. Whether Angle Health and similar AI-native platforms can sustain their cost advantages as they scale remains to be seen, but the venture capital community is clearly betting on the thesis that the SMB benefits market is ripe for disruption.

California Deploys $190 Million to Cushion the Federal Subsidy Cliff

As December's enrollment deadline approached, California confronted a challenge that most other states simply could not match with their own resources. With enhanced federal Affordable Care Act premium subsidies expiring on December 31, 2025, the state committed $190 million in state-funded tax credits to keep premiums at 2025 levels for the lowest-income enrollees, specifically those earning up to 165 percent of the federal poverty level. The investment was designed to prevent a financial shock for the hundreds of thousands of Californians who had relied on enhanced federal support since the American Rescue Plan first expanded subsidies in 2021.

The numbers tell the story of both the program's reach and its limitations. More than 364,000 Californians enrolled with state subsidies by the December deadline, and 92 percent of all Covered California enrollees receive some form of premium assistance. Nearly half of enrollees qualify for plans costing $10 per month or less in 2026, a remarkable figure that reflects how aggressively California has deployed both state and remaining federal dollars. Yet the California Health Care Foundation noted that the $190 million state investment, while meaningful, comes nowhere close to filling the $2.1 billion hole left by the expiration of enhanced federal subsidies. Covered California projects that up to 400,000 people could become uninsured as a result of the subsidy cliff, a number that would represent a significant reversal of the coverage gains achieved over the past four years.

California's response stands out partly because so few other states have the fiscal capacity or political will to fill the gap with their own funds. The state's decision is being watched closely as a test case for how subnational governments can backstop federal coverage programs when Washington changes course. For employers in California, the downstream effects matter: when individuals lose marketplace coverage, some will seek employer-sponsored insurance for the first time, while others will join the ranks of the uninsured and shift uncompensated care costs onto provider networks that employers ultimately finance through commercial premiums.

Employers Make the Most Aggressive Plan Design Changes in Years

If there was one theme that cut across every benefits advisory firm's December research, it was that employers are no longer content to absorb rising costs passively. The Brown & Brown 2026 Employer Health and Benefits Strategy Survey, released December 8, found that 59 percent of employers are making cost-cutting plan design changes for 2026, up sharply from 48 percent in 2025 and 44 percent in 2024. Those changes generally involve raising deductibles, increasing copayments, and tightening cost-sharing provisions, all of which shift financial exposure toward employees at the point of care.

The urgency is driven by relentless cost trend data. Mercer's survey data projects that total health benefit cost per employee will exceed $18,500 in 2026, with a median cost trend of 9 percent before plan changes, which employers hope to compress to roughly 7.6 percent through design modifications. Even after those adjustments, the projected 6.5 to 6.7 percent net increase represents the highest employer health cost growth since 2010.

Beyond traditional cost-shifting, employers are exploring structural innovation. Over one-third of large employers now offer at least one non-traditional plan design, including variable copay plans that set transparent, fixed copayments based on individual providers' costs, giving members the ability to shop for lower-cost care. According to Mercer's analysis, 7 percent of surveyed employers have a variable copay plan in place or planned for 2026, and another 20 percent are weighing the option for 2026 or 2027. Among large employers already offering them, 28 percent of covered employees chose to enroll, suggesting genuine member appetite for plan designs that reward cost-conscious decisions.

The cost pressure is also intersecting with retirement benefits in meaningful ways. SECURE 2.0 Act provisions taking effect on January 1, 2026, require employees earning more than $150,000 to make 401(k) catch-up contributions on a Roth (after-tax) basis, while a new "super catch-up" provision allows employees aged 60 through 63 to contribute up to $11,250 in catch-up contributions. These changes add implementation complexity for benefits teams already stretched thin by health plan redesigns, and they underscore how the total rewards landscape is shifting on multiple fronts simultaneously.

Meanwhile, research from Employee Benefit News highlighted a troubling counterpoint to all this plan design activity: 53 percent of employees regret their health plan choice, with 86 percent reporting confusion about their benefits. The gap between employers' plan design sophistication and employees' ability to navigate those designs is widening, a dynamic that threatens to undermine the value of even well-intentioned benefit strategies.

Mental Health Parity Enforcement Freeze Creates a Two-Track Compliance Landscape

As employers finalized 2026 plan documents throughout December, the federal mental health parity enforcement pause that began in May 2025 continued to create a uniquely difficult compliance environment. The Departments of Labor, Health and Human Services, and Treasury had announced that they would not enforce portions of the 2024 Mental Health Parity and Addiction Equity Act (MHPAEA) final rule while reconsidering the regulations in light of a lawsuit filed by the ERISA Industry Committee.

The pause created what benefits attorneys have described as a "two-track" compliance landscape. On one track, the core statutory parity requirements and the 2013 final regulations remain fully in effect, meaning plans must still ensure that financial requirements and treatment limitations for mental health and substance use disorder benefits are no more restrictive than those applied to medical and surgical benefits. Plans must also maintain comparative analyses for non-quantitative treatment limitations (NQTLs) and produce them upon request. On the second track, the enhanced NQTL testing standards, the fiduciary certification requirement, and the "meaningful benefits" standard introduced by the 2024 final rule are all on hold indefinitely.

The practical effect for employers operating in multiple states has been particularly messy. While the federal government paused its enhanced requirements, several states moved forward with their own parity frameworks. California, in particular, continued to enforce what are widely considered the strictest state-level mental health parity rules in the nation, applying standards that in some cases exceed what the now-paused federal rule would have required. For multi-state employers, this means a single plan may face different parity compliance expectations depending on where an employee is located, a situation that compliance advisors have called a "pause, not a pass." The consensus guidance throughout December was clear: employers should continue documenting their NQTL analyses and maintaining compliance infrastructure even where federal enforcement has temporarily retreated, because the pause could end with little notice and states are not waiting.

Gold Card Prior Authorization Laws Expand Across States

One of the most consequential but underappreciated trends of 2025 reached a crescendo in December as employers and providers assessed the cumulative impact of state-level prior authorization reform. More than 18 states took some form of legislative action on prior authorization during the year, with many expanding or strengthening gold card programs that exempt high-performing physicians from the requirement to seek insurer approval before delivering certain services.

The states that moved furthest in 2025 each addressed specific friction points in earlier gold card frameworks:

• Arkansas (HB 1301) removed the provision allowing insurers to revoke gold card status when a provider increased the volume of exempt procedures by 25 percent, and extended the gold card privilege to the provider's entire practice group rather than individual physicians.
• Texas (HB 3812) extended the evaluation look-back period from six months to one year, giving insurers and providers a larger and more statistically meaningful sample of authorization requests to assess whether a physician meets the 90 percent approval threshold.
• West Virginia (SB 833) took the opposite approach on scope, removing medication prescribing from gold card eligibility while preserving exemptions for procedural and diagnostic services.

California went further than any other state with SB 306, signed into law on October 6, which directs health plans to phase out prior authorization entirely for any service approved at a rate of 90 percent or higher. The law establishes a structured reporting and evaluation timeline: plans must submit approval rate data by December 31, 2026, the Department of Managed Health Care will publish the exempt services list by July 2027, and exemptions take effect January 1, 2028. Though the full impact is still years away, the legislation signals a fundamental philosophical shift from provider-by-provider gold carding to service-level exemption.

At the federal level, CMS's interoperability and prior authorization final rule (CMS-0057-F) began its phased implementation in January 2026, requiring Medicare Advantage, Medicaid, CHIP, and ACA exchange plans to respond to standard prior authorization requests within seven calendar days and expedited requests within 72 hours. Continuity of care provisions also gained traction across multiple states, with protections ranging from 90 days to one year for patients undergoing active treatment when their provider loses gold card status or leaves a network.

For employers, the convergence of state gold card expansion and federal timeline mandates creates a more favorable environment for employee access to timely care. Prior authorization delays remain one of the most common sources of member dissatisfaction, and the administrative burden on providers is well documented by the American Medical Association. As these reforms take hold, plan sponsors should expect to see measurable improvements in time-to-treatment metrics, though they should also watch for any cost implications if reduced prior authorization leads to higher utilization in certain service categories.

Looking Ahead to 2026

December 2025 closed out a year defined by tension between cost pressure and coverage access, between federal inaction and state innovation, and between legacy insurance structures and technology-first challengers. The PBM reform bills carry real momentum into the new Congress, but legislative timelines remain uncertain. The BCBS consolidation wave will continue to redraw the competitive map for employer plans. California's subsidy experiment will offer data on whether state-level backstops can meaningfully offset federal coverage losses. And the employer plan design changes taking effect on January 1 will test whether cost-shifting to employees can coexist with a benefits experience that actually helps people make informed choices.

The threads connecting these stories are not hard to find. Transparency, whether in PBM economics, plan design, or prior authorization processes, has become the organizing principle of health policy reform in both parties and at every level of government. The organizations that recognize this shift and build their 2026 strategies around it will be better positioned for whatever comes next.