January 2026 Health Insurance & Benefits Monthly Roundup: A Watershed Month Reshapes the Industry

It is not an exaggeration to call January 2026 the most consequential single month for American health insurance in at least a decade. Congress passed the most significant pharmacy benefit manager legislation in history. The Department of Justice extracted a record fraud settlement from one of the nation's largest health systems. CMS proposed Medicare Advantage payment rates so flat they erased tens of billions in insurer market capitalization overnight. Ten negotiated drug prices took effect for the first time under the Inflation Reduction Act. Millions of Americans gained HSA eligibility through a sweeping tax law change. And a cascade of new state coverage mandates went live across the country. Together, these developments represent a fundamental recalibration of the balance of power among payers, pharmacy intermediaries, regulators, and the patients at the center of it all.

What makes January remarkable is the coherence across these stories. The Kaiser settlement and the CMS rate proposal form a one-two punch against Medicare Advantage business models built on aggressive risk coding. The PBM reform law and new state-level spread pricing bans attack the same opaque middleman economics from different angles. The HSA expansion and the IRA drug price negotiations both put more purchasing power directly into consumers' hands. This roundup traces each of those threads.

Kaiser Permanente Pays a Record $556 Million Medicare Advantage Fraud Settlement

On January 14, the Department of Justice announced that Kaiser Permanente agreed to pay $556 million to resolve allegations that it systematically inflated diagnosis codes across its Medicare Advantage membership over nearly a decade -- the largest MA fraud recovery in the program's history.

The DOJ alleged that between 2009 and 2018, Kaiser added roughly 500,000 diagnoses to patient records that were never clinically addressed during office visits, generating approximately $1 billion in improper payments from CMS. Physicians were pressured to amend patient files months after encounters had concluded, inserting diagnosis codes for conditions that were neither evaluated nor treated during the original visit. The retroactive chart amendments served a single purpose: increasing the risk scores CMS used to calculate Kaiser's per-member, per-month payments.

The case originated with a whistleblower complaint filed in October 2014 by James Taylor, a former Kaiser employee. Taylor and fellow whistleblowers will receive a combined $95 million. Kaiser did not admit wrongdoing. U.S. Attorney Craig Missakian stated that "Medicare Advantage is a vital program that must serve patients' needs, not corporate profits." For context, MedPAC has documented $76 billion to $88 billion in annual MA overpayments across the program. Kaiser's settlement, large as it is, represents only a fraction of the alleged improper payments. The signal to the rest of the industry is unmistakable.

CMS Proposes Flat Medicare Advantage Rates for 2027 and Targets Chart Review Upcoding

Twelve days later, CMS delivered the second blow. On January 26, the agency released its proposed MA rate notice for 2027, projecting a net average payment increase of just 0.09 percent -- effectively flat. Wall Street had been modeling increases of four to six percent.

The market reaction was immediate. Humana and UnitedHealth Group shares each dropped roughly 20 percent. Elevance Health and CVS Health declined approximately 13 percent. Centene lost more than 10 percent. UnitedHealth had already signaled trouble earlier in January when it issued 2026 revenue guidance of $439 billion, well below the $454 billion analysts expected.

More structurally significant was a proposal buried within the advance notice: CMS intends to exclude "unlinked chart reviews" from the risk-adjustment data that determines MA payments. These retrospective chart audits, conducted by or on behalf of health plans, identify diagnosis codes not captured during normal clinical encounters and submit them to CMS purely for payment purposes -- precisely the activity at the center of the Kaiser settlement. CMS estimates this reform would save Medicare approximately $7 billion in 2027 alone.

The combination of flat base rates and a crackdown on supplemental coding practices represents a fundamental challenge to the MA business model. For employers and brokers advising retiree populations, downstream effects could include narrower networks, reduced supplemental benefits, and increased cost-sharing in plans that can no longer sustain current benefit levels at proposed payment rates.

Congress Passes Landmark PBM Reform in the Consolidated Appropriations Act of 2026

If there is a single story that defines January 2026, it is the passage of comprehensive pharmacy benefit manager reform. On January 30, the Senate voted 71 to 29 to approve the Consolidated Appropriations Act of 2026, which included the most far-reaching PBM legislation ever enacted. The bipartisan margin reflected years of accumulated frustration over the role of pharmacy intermediaries in driving drug costs.

The new law attacks PBM economics from several directions. Beginning in 2028, PBMs operating in Medicare Part D must pass through 100 percent of manufacturer rebates to the plan, with quarterly remittance required within 90 days. Service fees must be bona fide -- flat-dollar amounts at fair market value rather than percentage-of-spend arrangements that incentivize favoring higher-priced drugs. Effective 2029, any-willing-pharmacy network provisions prevent PBMs from steering prescriptions exclusively to affiliated pharmacies, with explicit protections for essential retail pharmacies in rural and underserved areas. HHS must establish pharmacy contract standards by April 2028.

For employer-sponsored plans, the law introduces semiannual PBM transparency reporting and grants plan fiduciaries explicit statutory audit authority with the right to conduct at least annual audits of PBM operations. In a parallel development, the DOL issued a proposed rule requiring PBMs and TPAs to disclose all compensation arrangements to self-insured plan sponsors. Employers entering 2027 PBM procurement cycles are already incorporating the new transparency and passthrough requirements into RFP language.

Bronze and Catastrophic ACA Plans Become HSA-Eligible

One of the most consequential provisions of the "One Big Beautiful Bill" took effect on January 1, 2026: all Bronze and Catastrophic ACA Marketplace plans now automatically qualify as high-deductible health plans for HSA eligibility purposes. Guided by IRS Notice 2026-05, the change is simple in mechanics but transformative in reach.

Before this change, only about 4 percent of Marketplace plans met HDHP requirements for HSA contributions. That figure has jumped to approximately 35 percent. An estimated 7.3 million individuals gained HSA access, opening a tax-advantaged savings vehicle to a population previously locked out. The same legislation made telehealth pre-deductible coverage permanent for HDHP/HSA plans, resolving years of temporary extensions. A new Direct Primary Care Service Arrangement provision allows HDHP enrollees to pay up to $150 per month for individuals or $300 per month for families toward DPC memberships without disqualifying HSA eligibility -- effectively blessing the DPC model within the HSA framework for the first time.

Medicare Part D Negotiated Drug Prices Take Effect

January 1 also marked the day the first ten drug prices negotiated under the Inflation Reduction Act went into effect. Discounts range from 38 percent for Imbruvica to 79 percent for Januvia, covering some of Part D's most widely prescribed medications: Januvia, Farxiga, Jardiance, Xarelto, Eliquis, Entresto, Enbrel, Imbruvica, Stelara, and NovoLog/Fiasp. AARP projects out-of-pocket costs will drop more than 50 percent on average, with CMS estimating $1.5 billion in annual out-of-pocket savings and $6 billion in total program savings.

The Part D out-of-pocket cap rises modestly to $2,100 from $2,000. Fifteen additional drugs are being negotiated for 2027, with fifteen more for 2028. While the IRA negotiations apply only to Medicare Part D, the indirect effects on employer-sponsored plans are real. Negotiated Medicare prices create reference points that commercial plans and PBMs can leverage. When CMS secures a 79 percent discount on Januvia, it becomes increasingly difficult for manufacturers to defend dramatically different pricing in the commercial market -- a dynamic amplified by the PBM reform legislation's rebate passthrough and fee transparency requirements.

DOL Announces FY2026 Health Plan Enforcement Priorities

The Department of Labor entered the fiscal year with a sharpened enforcement agenda. Alongside ongoing focus areas like No Surprises Act compliance and employee contribution protections, FY2026 priorities newly elevate cybersecurity and data protection to a top-tier enforcement focus. As health plans digitize enrollment, claims, and communications, the DOL is signaling that plan fiduciaries must ensure vendors handling protected health information maintain adequate security controls.

Mental health parity enforcement also gains new significance because January 1, 2026 marks the effective date for several critical MHPAEA requirements. Plans must now meet a meaningful benefit standard, apply non-discriminatory factors to non-quantitative treatment limitations, and begin collecting outcome data demonstrating parity in practice. The DOL has also maintained focus on MEWA fraud detection, reflecting persistent concerns about entities marketing inadequately capitalized group health coverage to small employers.

A Wave of State Health Insurance Mandates Goes Live

January 1 brought a sweeping wave of state-level coverage mandates into effect. In New York, EpiPen coverage is now capped at $100 per year, diagnostic mammograms must be covered in full, and scalp cooling therapy during chemotherapy became a mandated benefit. Illinois enacted menopause therapy coverage under HB 5295 alongside brand-name drug shortage protections and non-opioid pain management mandates.

California's changes are particularly consequential: insulin copays are capped at $35 per 30-day supply, and the state imposed a fiduciary duty on PBMs with a spread pricing ban, creating a dual layer of accountability alongside the federal PBM reform law. Other notable state actions include:

• Virginia now requires diagnostic breast exams at no cost sharing and expanded prostate screening coverage.
• Connecticut mandated biomarker testing coverage for cancer and Alzheimer's diagnosis and treatment.
• Delaware enacted an abortion coverage mandate up to $750 per year, while Maryland eliminated prior authorization for pediatric transfers and prohibited arbitrary anesthesia time limits.

For multi-state employers, particularly those with fully insured arrangements subject to state insurance law, the increasingly complex patchwork of state-specific benefit requirements demands careful compliance attention.

Medicare Prior Authorization Reforms and the WISeR AI Pilot Launch

New federal prior authorization timelines went into effect across Medicare Advantage, Medicaid, CHIP, and managed care plans: 72 hours for expedited decisions, 7 calendar days for standard requests. MA plans can no longer reopen previously approved inpatient admissions except in cases of clear error or fraud.

CMS also launched the WISeR Model, a six-year AI pilot for streamlined prior authorization in traditional fee-for-service Medicare. Operating in New Jersey, Ohio, Oklahoma, Texas, Arizona, and Washington through December 2031, it represents the federal government's most ambitious attempt to apply machine learning to the authorization process. Combined with the interoperability rules finalized in 2024 and electronic PA mandates scheduled for 2027, the trajectory points toward a future where prior authorization is faster, more transparent, and increasingly automated.

Looking Ahead

January 2026 set a tone that will reverberate through the rest of the year. The PBM reform law will drive a restructuring of pharmacy benefit arrangements over the next three years. The CMS MA rate proposal, if finalized near its proposed level, will force difficult decisions about benefit design and network breadth. The Kaiser settlement and chart review crackdown will accelerate compliance investments. The HSA expansion will reshape individual market purchasing behavior. And the state mandate wave will keep compliance teams busy through the next renewal cycle.

What unites these disparate developments is a clear directional shift: toward transparency, toward accountability, and toward aligning financial incentives with the interests of the patients and plan members who ultimately bear the cost of the American healthcare system. Whether that shift proves durable will depend on the implementation details still being written and the willingness of regulators to enforce the rules they have put in place. But as January 2026 demonstrated, the machinery of reform is now fully engaged.