Seyfarth Synopsis: As employers consider the rising costs of coverage of semaglutide drugs like Ozempic and Wegovy in their health plans, a recent class action complaint alleging obesity-related discrimination could be a sign of things to come for more legal challenges. As the use of such drugs explodes in popularity across the country, insurers and health plans may face increasing pressure, in and out of the courts, to remove or justify any exclusions of coverage.

In Whittemore v. Cigna Health and Life Insurance Company, filed in the United States District Court for the District of Maine, Plaintiff Jamie Whittemore alleges Cigna has engaged in disability discrimination under the Affordable Care Act (ACA) by declining coverage for semaglutide drugs to treat obesity in the health plans it administers – including fully insured and self-insured plans it administers for employers. The Complaint’s background facts are extensive and detail a societal shift in the perception and treatment of obesity. The Complaint alleges that while historically attributed to a lack of willpower and largely considered a mere risk factor for covered conditions, obesity has been increasingly perceived as a complex but treatable condition in and of itself. The Complaint notes that, in 2013, the American Medical Association described obesity as a “disease state” requiring “a range of interventions.” Most recently, one such treatment is semaglutide, which operates by mimicking the body’s natural appetite regulator, glucagon-like peptide-1 (GLP-1). The success of semaglutide drugs in double-blind trials has led to a flurry of research, prescriptions, and optimism for obesity treatment. In light of the high cost, however, not all health plans cover these drugs.

Whittemore was enrolled in a Cigna-administered health plan and sought coverage for medications for obesity treatment. Cigna declined coverage under the plan. Whittemore’s allegations regarding Cigna’s plan focus on what Whittemore deems the “Obesity Exclusion”: the plan’s exclusion of coverage for medications, specifically semaglutide drugs, when used to treat obesity. Whittemore claims Cigna’s own internal policies consider these interventions “medically necessary to treat obesity” but that Cigna administers plans that exclude coverage for treatment of obesity. The health plan in which Whittemore participated allegedly includes Wegovy and Zepbound, two semaglutide drugs, on its covered prescription drug list, but excludes coverage when the drugs are utilized for obesity treatment in particular.

Whittemore alleges that because the drugs are excluded only if prescribed for obesity, but are covered when used for another condition (namely diabetes), the plan violates Section 1557 of the ACA by treating one disease or disability differently from another. Section 1557 of the ACA prohibits discrimination on the basis of disability in a health program or activity that receives federal financial assistance.. The Complaint alleges both disparate treatment and disparate impact discrimination on the basis of disability under Section 1557.

At this early stage of not only Whittemore’s case but those like it, several questions remain unanswered. For instance, whether obesity will be considered a disability under Section 1557 is far from clear. Notably, under the Americans with Disabilities Act, the vast majority of federal courts, including the First Circuit which includes the District of Maine, do not consider obesity a physical impairment unless it is a symptom of an actual or perceived underlying physiological disorder or condition, such as diabetes. If obesity is not considered a disability for purposes of Section 1557, these discrimination allegations would not succeed. In addition, even if obesity is deemed a disability, questions remain regarding whether a self-funded plan would be subject to Section 1557.

Because of the novelty of semaglutide drugs as an available treatment, cases challenging noncoverage are also in their infancy. As the use of these drugs exponentially increases, however, a rise in such litigation may be inevitable.

Please contact the employee benefits attorney or ERISA litigator at Seyfarth Shaw LLP with whom you usually work if you have any questions regarding health plan coverage of semaglutide drugs.  We will be monitoring this case and other cases to see how the scope of Section 1557 is addressed by the courts.

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Mathieu Turle, Unsplash

Seyfarth Synopsis: Recently HHS issued a memorandum announcing the maximum annual limitation on cost sharing (a/k/a out-of-pocket maximum) for 2026 and the IRS issued Rev. Proc. 2024-40 announcing the cost-of-living adjustments to certain welfare and fringe benefit plan limits for 2025.

2026 Out-of-Pocket Maximum

On October 8, 2024, the Department of Health and Human Services (HHS) released a memo announcing the 2026 cost-sharing limits applicable to health and welfare plans.  The Affordable Care Act requires group health plans to have an out-of-pocket maximum which limits overall out-of-pocket costs or cost sharing on essential health benefits (EHBs) covered by a plan.  The cost-sharing limit applies to deductibles, coinsurance, copayments, and any other expenditure required of an individual which is a qualified medical expense with respect to EHBs covered under the plan.  Plans are not required to apply the out-of-pocket maximum on benefits that are non-EHBs.

The 2026 out-of-pocket maximums are $10,150 for self-only coverage and $20,300 for other than self-only coverage (e.g., family coverage, self plus one, etc.).  This represents an approximate 10.3 percent increase from the 2025 limits which were $9,200 and $18,400, respectively.  Note that the cost-sharing limits for high deductible health plans, which tend to be lower, will be announced at a later date.

2025 Limits for Certain Health and Fringe Benefits

Hopefully in time for open enrollment, the IRS has announced 2025 cost-of-living adjustments to various tax related limits, including the dollar limits for contributions to health flexible spending accounts (Health FSAs) and qualified transportation fringe benefit programs.  The 2025 cost-of-living adjustments (and the changes from 2024) for these plans are summarized in the table below:

Health and Welfare and Related Plan Limits20242025Change
Qualified Transportation Fringe Benefit Monthly Limit (commuter highway vehicle, transit pass and qualified parking)$315$325+$10
Health Flexible Spending Account (Health FSA) Maximum Annual Pre-Tax Contribution$3,200$3,300+$100
Health FSA Maximum Carryover$640$660+$20
Dependent Care Flexible Spending Account (Dependent Care FSA) * Maximum Annual Pre-Tax Contribution – Employee is married and filing a joint return or Employee is a single parent
– Employee is married but filing separately		           





$5,000        



$2,500		           





$5,000        



$2,500		No change
* Dependent Care FSA limits are set by statute and do not adjust for inflation.

Please contact the employee benefits attorney at Seyfarth Shaw LLP with whom you usually work if you have any questions regarding these or other limits on health and welfare and related plans.

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FlyD, Unsplash

On September 6, 2024, the U.S. Department of Labor (DOL) issued Compliance Assistance Release No. 2024-01, titled “Cybersecurity Guidance Update.” The updated guidance clarifies that the DOL cybersecurity guidance applies to all ERISA-covered plans, and not just retirement plans, but also health and welfare plans. Also, as a direct response to service providers’ concerns, the DOL expanded its 2021 guidance to emphasize that plan sponsors, fiduciaries, recordkeepers, and participants should adopt cybersecurity practices across all employee benefit plans. With cyber risks continually evolving, the update highlights the importance of implementing robust security practices to protect participant information and plan assets.

Background

When the DOL initially issued its cybersecurity guidance in April 2021, it was intended to help ERISA plan sponsors, fiduciaries, service providers, and participants safeguard sensitive data and assets. Some interpreted the guidelines as applicable only to retirement plans and not service providers or recordkeepers, which led to industry calls for clarity. The 2024 Compliance Assistance Release addresses these concerns by confirming that the DOL’s cybersecurity expectations indeed are intended to extend to all ERISA-covered employee benefit plans, including health and welfare plans.

Expanded Guidance Highlights

The updated guidance maintains the original three-part format, emphasizing Tips for Hiring a Service Provider, Cybersecurity Program Best Practices, and Online Security Tips. Here’s a breakdown of these components and key updates from the recent guidance:

1. Tips for Hiring a Service Provider

Plan sponsors and fiduciaries have a critical responsibility when selecting and monitoring service providers to ensure strong cybersecurity practices are in place. The updated DOL guidance advises fiduciaries to thoroughly vet potential providers by asking specific, detailed questions. One key area to examine is insurance coverage. Fiduciaries should be verifying that the prospective provider’s insurance includes coverage for losses resulting from cybersecurity incidents.

In addition, fiduciaries should review the provider’s security history and validation processes. This involves requesting records of past security incidents, recent information security audits, and any evidence of the provider’s compliance with cybersecurity standards. Finally, it is essential to establish clear contractual obligations with service providers. Contracts should contain provisions addressing data confidentiality, timely breach notification, ongoing compliance monitoring, and well-defined incident response protocols.

By specifying these points, the DOL aims to provide plan fiduciaries with concrete criteria for evaluating potential third-party providers, especially those managing sensitive health and welfare data.

2. Cybersecurity Program Best Practices

Educating participants plays a crucial role in reducing cyber risks, and the DOL encourages plan sponsors to empower participants with resources that strengthen their account security. One fundamental aspect of this education involves password management and the use of multi-factor authentication (MFA). The DOL recommends that participants use longer, unique passwords and change them annually. This approach offers a balance, maintaining security without overwhelming users with frequent updates.

Sponsors should also encourage participants to enable MFA wherever possible, as this extra layer of protection makes it significantly harder for unauthorized users to gain access. Additionally, the DOL highlights the importance of cyber threat awareness. Educating employees on recognizing phishing attempts, avoiding free public Wi-Fi when accessing sensitive accounts, and keeping contact information up to date are essential to safeguard against fraud. By understanding and implementing these practices, plan participants can actively contribute to the security of their accounts.

3. Online Security Tips for Participants

The updated guidance underscores the need for a comprehensive cybersecurity framework to protect ERISA plans. A cornerstone of this approach is conducting regular cybersecurity risk assessments. By identifying potential vulnerabilities, plan sponsors and fiduciaries can better understand the specific risks to their data and implement targeted access controls to ensure that only authorized individuals can access sensitive information. Data encryption is also a vital part of the DOL’s recommendations. Encrypting data both in transit and at rest adds a critical layer of defense, protecting information from unauthorized access, even if the data is intercepted or compromised.

These tips further highlight the DOL’s focus on enhanced MFA. Service providers, in particular, are encouraged to implement phishing-resistant MFA, especially for systems exposed to the internet or areas containing highly sensitive data. By deploying these robust authentication methods, ERISA plan administrators can significantly reduce the risk of unauthorized access and bolster overall security. Additionally, the DOL pointed health and welfare plan sponsors to resources from the Department of Health and Human Services (HHS), including the Health Industry Cybersecurity Practices and guidelines tailored for small, medium, and large healthcare organizations.

Takeaways and Action Items for Plan Sponsors and Fiduciaries

The updated guidance reinforces the importance of cybersecurity across all ERISA-covered plans. To adhere to the DOL’s expectations and mitigate cyber risks effectively, plan sponsors and fiduciaries should consider these actions:

  • Evaluate Service Provider Cybersecurity: Conduct due diligence by asking for information on service providers’ cybersecurity policies, audits, and breach history. Include clear cybersecurity terms in contracts and ensure vendors have applicable insurance coverage.
  • Implement Robust Cybersecurity Policies: Ensure your organization’s cybersecurity policies align with DOL guidelines, including regular risk assessments, strong encryption practices, and incident response planning.
  • Educate Participants: Provide ongoing resources to educate plan participants on online security, focusing on best practices like strong passwords, MFA, and phishing awareness.
  • Leverage HHS Resources for Health Plans: For health and welfare plans, use the HHS cybersecurity guidance to align your practices with industry-specific standards.
  • Conduct a Cybersecurity Self-Audit: Consider conducting a self-audit or hiring a cybersecurity expert to assess and improve your cybersecurity practices. Health plans, in particular, should coordinate these audits with HIPAA privacy and security requirements.
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camilo jimenez, Unsplash

Seyfarth Synopsis: Access to reproductive health care has been a part of the national debate for years, and even more so since 2022 when the US Supreme Court issued its ruling in Dobbs overturning decades of precedent established under Roe v. Wade.  As a result, the topic has become a focal point in the Presidential election with the two main candidates having seemingly very different platforms and catering to their constituencies who have strongly held beliefs and values on the issue. This aspect has been well covered in the media.  However, employers also have a vested interest in how the federal and state laws and jurisprudence evolve in this area, which is largely dependent on which party wins the White House and down ticket races this November. 

Under Dobbs, the Supreme Court dismantled the federal Constitutional protections around abortion access specifically (and arguably reproductive health care more generally), and in light of the absence of specific federal legislation regarding the right to an abortion, gave the decision on access to each of the states. This triggered fairly immediate action in many of the state legislatures and mobilized citizen initiatives around the country. 

Continue Reading Reproductive Health Care: A Future in Flux with the Next Administration
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Seyfarth Synopsis: The federal district court for the Northern District of Texas has issued an order in the Ryan case staying the effective date on a nationwide basis the Federal Trade Commission (FTC) Rules banning noncompete agreements (the “Rule”), as well as enforcement of the Rule. However, legislatures and agencies at the federal and state level continue their efforts to ban or limit non-compete agreements. This blog post highlights actions employers may consider to reduce risks related to reliance on non-compete and non-solicitation arrangements in employment related contracts.

In Ryan LLC v. FTC, on August 20, 2024, a federal district court judge issued an order granting the plaintiffs’ motion for summary judgement and holding that the Rule is unlawful and “shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.” The court determined that the FTC lacked statutory authority to promulgate the Rule and that the Rule was arbitrary and capricious. For a more detailed discussion of the court’s reasoning, see here.  

There are two additional court rulings regarding the Rule that were made in response to preliminary injunctions to stop enforcement of the Rule. In ATS Trees v. FTC, the Eastern District of Pennsylvania denied a preliminary injunction because it found that it was likely the FTC has authority to issue the Rule and that ATS Trees had not shown the requisite irreparable harm required to issue a preliminary injunction (see discussion here). In Properties of the Villages v. FTC, the Middle District Court of Florida issued a preliminary injunction holding that it was likely that the FTC did not have authority to promulgate the Rule and that the FTC violated the Major Questions doctrine (see discussion here).

We will see if the nationwide reach of the order in Ryan has any effect on the future rulings in the other two district courts. No appeal of the Ryan decision has been filed so far by the FTC to the U.S. Court of Appeals for the Fifth Circuit (the deadline is October 21). Until there is a contrary court decision, employers should have a reprieve from enforcement of the FTC’s prohibitions. The FTC has appealed the decision in Properties of the Villages to the Eleventh Circuit, but it is unclear how this appeal of a stay order and preliminary injunction could affect the Ryan court’s summary judgement order vacating the Rule nationwide.

Additional Sources Seeking to Limit Noncompete Arrangements

While employers have apparently obtained a reprieve from enforcement of the FTC’s Rule banning the use of noncompete arrangements, many federal and state legislatures and agencies are still busy seeking to restrict the use of non-compete arrangements. For example:

  • The FTC can still seek orders against individual employers (such as its actions announced here) that the employer was prohibited from imposing, maintaining, enforcing or threatening to enforce non-competes against its employees.
  • In line with the National Labor Relations Board memo from its General Counsel on May 2023, an administrative law judge for the NLRB recently issued a decision in J.O. Mory, Inc. requiring an employer to rescind certain restrictive covenants (including noncompete and nonsolicitation provisions) in its employment agreements (see our prior legal update here).
  • The FTC and the Department of Justice signed a Memorandum of Understanding with respect to coordination of investigations into anti-competitive activities such as restrictive contract provisions utilizing  noncompete and nondisclosure provisions (see memo here).
  • Many state legislatures have been or are considering narrowing or out-right banning the use of noncompete arrangements. Minnesota recently adopted a ban on non-compete agreements and Washington state (see blog post here) and Colorado (see blog post here) passed legislation limiting the use of non-competes. In addition, governors in New York (here), Maine (here) and Rhode Island (here) vetoed legislation that would have banned non-compete agreements.
  • The Federal Deposit Insurance Corporation issued a notice seeking public comment on a proposal to revise its current Statement of Policy on Bank Merger Transactions to prohibit non-compete restrictions in bank mergers where the selling entity must divest all or a portion of its business lines or branches (see prior post here).

Employer Options and Strategies to Reduce Risks

Employers can take proactive steps to reduce the risks of enforcement actions relating to, or new laws invalidating, noncompete and nonsolicitation provisions by restructuring how employers protect against departing employees damaging the valuable goodwill that the company owners have worked hard to create.

Restructuring Employment Agreements

  • Garden Leave.  Garden leave generally means that an employee is required to remain employed with an employer for a certain period of time after the employee or employer provides notice of its intent to terminate employment and the employer limits or restricts the employee’s duties and access to the Company’s employees or premises. For example, in the preamble to its release of the Rule, the FTC has acknowledged that this type of garden leave agreement is not a post-employment restriction and would generally not be treated as noncompete agreements when the employee is receiving the same total compensation and benefits on a pro rata basis. See 89 Fed. Reg. 38366 (May 7, 2024).
  • Fixed-Term Employment Agreements. Similar to garden leave, a fixed-term employment agreement retains restrictions on competing against the company while still employed and would not be treated as a post-employment prohibition or restriction.  To incorporate either garden leave or fixed terms into employment agreements, employers may need to sort through certain design considerations, such as the application of a “separation from service” under Section 409A of the Internal Revenue Code with respect to payments of deferred compensation and the individual’s continued treatment as an employee for purposes of certain employee benefit plans. However, currently, these types of “in-service” restrictions appear to be subject to less scrutiny. Thus, the benefit of having them warrant consideration by employers to restructure employment agreements to have garden leave or fixed terms instead of post-employment restrictive covenants such as noncompete and nonsolicitation provisions.
  • Post-Termination Mitigation Requirement.  Some severance or other post-termination payments can have mitigation clauses when the severance or other payment is intended to provide compensation to the employee while unemployed instead of a windfall or double dip if the employee immediately obtains new employment. This type of mitigation is usually not limited to compensation received from a company’s competitor, but any employer. Generally, this type of mitigation provision will provide for an offset to severance payments by compensation received by the former employee from another employer during the severance period.

Take Advantage of Restrictions under State Corporate Laws

Companies can look to restrictions based on state corporate laws, such as the duty of loyalty and fiduciary responsibilities of partnerships, member managed limited liability companies or shareholders of a closely held corporations. In many situations, these restrictions apply to owners or members, and continue after termination of employment. 

  • Closely Held Corporation.  Closely held corporations are those with a limited number of shareholders.  The maximum number of shareholders in a closely held corporation can vary between 10 and 35 depending on the state’s laws. The “majority view” followed by some states (e.g., MA, NY, IL and IN) is that all shareholders, even minority shareholders, of a closed corporation owe fiduciary duties to the other shareholders. In Delaware (the “minority view”), only controlling shareholders have fiduciary duties to the other shareholders. To be able to extend restrictions to key employees, a company might look to reincorporate or incorporate as a closely held holding company in a state following the majority rule and grant those key employees shares in this type of entity.  Also, if the company purchases the employee’s shares upon a termination of employment, the transition may be treated as a sale of an interest in the company, which is a general exception under the Rule and several state rules that prohibit non-competes.  As part of the stock repurchase agreement, the company could negotiate reasonable non-compete provisions. Even better, the company could provide the required non-compete provisions that will apply in the event the employee sells her interest in the company.
  • Limited Liability Company (LLC).  LLC members may or may not have fiduciary duties depending on the operating agreement and the design of the management of the LLC.  For example, under California LLC statutory rules, a member of a member-managed LLC is statutorily prohibited from competing with the LLC unless the operating agreement provides otherwise.

Review Scope of Restrictive Covenants

It can be tempting to draft broad restrictive covenants because it may appear that “more is better” when designing these protections for the employer. However, if certain restrictive covenants are overly broad, they may be subject to legal restrictions or enforcement actions relating to the noncompete agreement. For example, in the preamble to the Rule, the commission noted that a reasonable NDA which would otherwise not be treated as a noncompete provision could be problematic if the NDA’s restrictions apply to workers’ general training, knowledge, skill or experience gained on the job. While the FTC ban has been struck down, it is important to note that the FTC still has authority to bring enforcement actions against employers for uncompetitive activities. The FTC also cited the case of Brown v. TGS Mgmt., 57 Cal. App. 5th at 316, 19, in which a California appellate court found that a company’s NDA was overly broad and functioned as a de facto noncompete agreement.  Similarly, while customer or employee nonsolicitation agreements may not be expressly prohibited under a state’s laws, an overly broad provision may be treated as a noncompete restriction. 

Therefore, employers should review their restrictive covenants in compensation documents to determine if the restrictive covenants might be treated as noncompetitive actions by the FTC or under the ever shifting landscape of state law restrictions. Overly restrictive covenants may be treated as invalid and unenforceable under state laws. Employers can reduce the risk of FTC enforcement action or changes to state law that may invalidate its restrictive covenants by narrowly drafting the restrictions to protect the company’s trade secrets and other protected information and to prohibit unfair competition under applicable state laws.

For additional information regarding what steps your company can take to reduce risks relating to non-compete agreements, please call us to discuss.

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Seyfarth Synopsis: On September 9, 2024, the Departments of the Treasury, Labor, and Health and Human Services (the “Departments”) released highly anticipated Final Rules under the Mental Health Parity and Addiction Equity Act (MHPAEA).  Instead of providing the guidance hoped for by stakeholders, the new rules may leave employers wondering if they should continue to offer mental health (MH) and substance use disorder (SUD) benefits.

To read our full Legal Update, click here.

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On Monday, September 9, 2024, the Departments of Health and Human Services, Labor and Treasury (the “Departments”) issued their final rule regarding the nonquantitative treatment limitation (NQTL) comparative analysis required under the Mental Health Parity and Addiction Equity Act (MHPAEA). (These acronyms roll right off the tongue, don’t they?) The Departments note that final rules reflect thousands of comments they received after publishing their proposed rules last August 2023. They remark that through these rules they “aim to further MHPAEA’s fundamental purpose – to ensure that individuals in group health plans or group or individual health insurance coverage who seek treatment for covered MH conditions or SUDs do not face greater burdens on access to benefits for those conditions or disorders than they would face when seeking coverage for the treatment of a medical condition or a surgical procedure. These final rules are critical to addressing barriers to access to MH/SUD benefits.” 

While laudable, the rules seek to implement that goal by imposing fairly burdensome requirements on sponsors of self-funded medical plans who have been left to sort through the NQTL requirements without a clear roadmap and at considerable expense. 

The final rules appear to make discreet changes to the proposed rules. Your Seyfarth EB team is busy digesting the guidance and will issue a Legal Update shortly analyzing the final rule, and most importantly what this means for sponsors and administrators of self-funded plans. 

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Seyfarth Synopsis: On August 19, 2024, the IRS issued Notice 2024-63 (the “Notice”) providing guidance for plan sponsors that wish to provide matching contributions based on eligible student loan repayments made by participants, rather than based only on elective deferrals, pursuant to the SECURE 2.0 Act of 2022. This post summarizes guidance under the Notice. 

Section 110 of the SECURE 2.0 Act of 2022 codified rules that permitted plan sponsors to make a matching contribution to a 401(k), 403(b), SIMPLE or governmental 457(b) plan based on a participant’s “qualified student loan payment,” in addition to matching contributions on a participant’s elective deferral contribution to the plan. These rules already took effect this year, and the IRS has now issued welcome guidance on how this provision should be implemented.

Continue Reading Major SECURE 2.0 Guidance Issued: Extra Credit for Repaying Qualified Student Loans
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This post was originally published to Seyfarth’s Trading Secrets blog.

Once again surprising the country by acting ten days before her own self-appointed deadline, a federal judge in the United States District Court for the Northern District of Texas issued a ruling on August 20 in the Ryan v. FTC case setting aside the FTC Rule banning non-competes, and held (quoting Fifth Circuit precedent) that the ruling had “nationwide effect” that is “not party restricted” and “affects persons in all judicial districts equally.” This will undoubtedly elicit an immediate appeal from the FTC.

The Court’s reasoning is almost word-for-word identical to its Order staying the FTC Rule on July 3, 2024 (which we analyzed here). The Court once again limited its ruling to conclude that the FTC violated the APA because “[1] the FTC exceeded its statutory authority in implementing the Rule, and [2] the Rule is arbitrary and capricious.”

Continue Reading Federal Texas Court Sets Aside with “Nationwide Effect” the FTC Rule Banning Non-Competes