Compensation Disclosure for Employer-Sponsored Health Plans
The Consolidated Appropriations Act, 2021 (CAA), signed into law on December 27, 2020, contained many provisions, including a transparency provision that requires the disclosure of compensation paid to brokers and consultants who provide services to employer-sponsored health plans.
Section 202 of the CAA amends the Employee Retirement Income Security Act (ERISA) Section 408(b)(2) to incorporate “reasonableness” compensation standards for group health plans, mirroring those that apply to retirement plans when negotiating contracts or service arrangements. These disclosure requirements are to become effective one year after the enactment of the CAA and require the Department of Labor to finalize the notice and comment rulemaking process by the same date. However, the CAA provides a transition rule under which these disclosure requirements will not apply to any contract executed prior to one year after the December 27, 2020, enactment of the CAA.
ERISA Section 408(b)(2) provides a statutory exemption from the party-in-interest prohibitions for any “reasonable” contract or arrangement with a “party-in-interest.” A broker or consultant receiving such compensation is considered a party-in-interest. Pursuant to regulations finalized in 2012, but applicable to retirement plans only, a contract was not considered “reasonable” unless the “covered service provider” disclosed its direct or indirect compensation. Similarly, Section 202 of the CAA requires the disclosure of compensation paid by group health plans—excluding qualified small employer health reimbursement arrangements (QSEHRAs)—in order to meet the reasonableness standard of ERISA and qualify for the statutory exemption. A group health plan covered by Section 202 of the CAA would include a welfare plan that provides medical care to an employee and/or his dependents through insurance, reimbursement, or otherwise. Generally, a group health plan will include a health reimbursement arrangement, a health flexible spending arrangement, and an employer payment plan.
Pursuant to Section 202 of the CAA, a “covered service provider” is defined as a service provider that enters into a contract or arrangement with the covered plan and reasonably expects $1,000 or more in direct or indirect compensation in connection with providing either brokerage or consulting services or both. The CAA defines brokerage and consulting services as follows.
- Brokerage Services: Selection of insurance products (including vision and dental), recordkeeping services, medical management vendor, benefits administration (including vision and dental), stop-loss insurance, pharmacy benefit management services, wellness services, transparency tools and vendors, group purchasing organization preferred vendor panels, disease management vendors and products, compliance services, employee assistance programs, or third party administration services.
- Consulting Services: Development or implementation of plan design, insurance or insurance product selection (including vision and dental), recordkeeping, medical management, benefits administration selection (including vision and dental), stop-loss insurance, pharmacy benefit management services, wellness design and management services, transparency tools, group purchasing organization agreements and services, participation in and services from preferred vendor panels, disease management, compliance services, employee assistance programs, or third party administration services.
If an entity determines that it is a covered service provider, it must disclose certain information to the plan fiduciary no later than the date that is reasonably in advance of the date on which the contract or arrangement is entered into, extended or renewed. A covered service provider must disclose a change of any information as soon as practicable, but not later than 60 days from the date on which the covered service provider is informed of such change, unless precluded by extraordinary circumstances. In addition, the covered service provider is required to provide information requested by a plan fiduciary or a covered plan administrator to comply with disclosure and reporting requirements pursuant to ERISA.
Finally, a contract or arrangement does not cease to be reasonable if the covered service provider acted in good faith and with “reasonable diligence” but makes an error or omission if the covered service provider discloses the information to the plan fiduciary as soon as practicable, but not later than 30 days from the date the covered service provider knows of the error or omission.
Section 202 of the CAA also provides that a plan fiduciary will not have engaged in a prohibited transaction if, upon learning of an error or omission, the plan fiduciary requests the relevant information in writing from the covered service provider. Moreover, if the plan fiduciary does not receive the information within 90 days of the request, it must notify the Secretary of Labor within 30 days following the earlier of
- the covered service provider’s refusal to furnish the information; or
- 90 days after the written request.
If a covered service provider fails to comply with a written request for information within 90 days, the plan fiduciary must determine whether to terminate or continue the contract or arrangement, or, if the notice relates to future services, the plan fiduciary must terminate the contract or arrangement.