Health+Benefits the March 2021 issue

New Benefit Plan Compensation Disclosure Requirements

Some things you need to know now.
By Scott Sinder, Kate Jensen Posted on February 28, 2021

We will take a deeper dive into the rest of the act’s new requirements at a later date and today will focus solely on its new plan service provider compensation disclosure regime.

Section 202 of the act dictates that, effective Dec. 27, 2021 (more on that in a moment), a “covered plan” shall not agree to any “contract or arrangement for services” or to any “extension or renewal of such contract or arrangement” with a “covered service provider” unless the new disclosure obligations it imposes have been satisfied.

The Council is in the process of establishing a working group to develop best practices for satisfying the new disclosure regime. We already have been fielding a lot of questions, however, regarding the definitional parameters of the operative terms. Before outlining the scope of the new disclosures, let’s first evaluate who must make the new requisite disclosures, to whom, and when.

What is a “Covered Plan”? Under the act, a “covered plan means a group health plan as defined under” the Employee Retirement Income Security Act. ERISA defines a “group health plan” as a “group welfare benefit plan” “to the extent that the plan provides medical care” either directly “or through insurance, reimbursement, or otherwise.” The act thus clearly limits the statutory disclosure obligations to the components of a plan that are paying for or insuring medical claims and does notextend those obligations to non-medical benefits like group life or disability products.

Good faith errors and omissions in the disclosure will not be considered a violation if they are corrected within 30 days of becoming aware of them.

Who is a “Covered Service Provider”? “Covered service providers” are brokers and consultants who provide “services” directly to a “covered plan” and expect to receive—“directly or indirectly”—at least $1,000 in compensation “related to those services.” The $1,000 minimum includes compensation received by an affiliate or subcontractor but excludes non-monetary compensation valued at $250 or less in the aggregate for the term of the agreement.

“Services” are as broadly defined as possible and encompass plan design, benefit selection, medical management, stop-loss insurance, third-party administrator services, pharmacy benefits management services, wellness design and services, plan-related agreements services, employee assistance programs, etc.

When must the mandated disclosures be provided? The requisite disclosures are required to be made “not later than the date that is reasonably in advance of the date on which the contract or arrangement is entered into, [or] extended or renewed.” The act’s transition rule expressly exempts any “contract or arrangement” entered into before Dec. 27, 2021, from the new disclosure requirements. It is important to note that the relevant “contract or arrangement” is the “contract or arrangement” between the broker/consultant and the plan and not an insurance contract between the plan and an insurer to provide medical benefits to plan participants. Therefore, with respect to Jan. 1 renewals (about which the new disclosure obligations are generating much angst), as long as the service agreement with the plan for the placement of those products was finalized prior to Dec. 27, the new disclosure obligations do not apply.

What must be disclosed? The disclosure must be provided in writing to a responsible plan fiduciary and must include:

  • A description of the services to be provided to the plan
  • If applicable, a statement that the broker/consultant plans to offer fiduciary services to the plan
  • A description of all direct compensation the broker/consultant expects to receive from the plan (in the aggregate or by service)
  • A description of all expected indirect compensation (including vendor incentive payments and other payments from third parties, a description of the arrangement under which the compensation is paid, the payer of the compensation, and any services for which the compensation will be received)
  • Separately, any transaction-based compensation (e.g., commissions, finder’s fees) for services and the payers and recipients of the compensation
  • A description of any compensation the broker/consultant expects to receive in connection with the contract’s termination (and how any prepaid amounts will be calculated and refunded upon termination).
The act’s transition rule expressly exempts any ‘contract or arrangement’ entered into before Dec. 27, 2021, from the new disclosure requirements.

The compensation “descriptions” may be expressed as dollar amounts, formulas, or per capita charges for enrollees. If these methods cannot reasonably be used, you may use a good faith estimate and supporting explanations, methodologies and assumptions. The clear intent here is to provide as much latitude as possible.

Brokers/consultants have 60 days to update the disclosure based on new information. You also must provide, upon request from a plan fiduciary or administrator, “any other information relating to the compensation received in connection with the contract or arrangement.” Good faith errors and omissions in the disclosure will not be considered a violation if they are corrected within 30 days of becoming aware of them. Plan fiduciaries must report any non-compliance to the Department of Labor.

Are implementing regulations required? Although the secretary of labor has the normal ERISA authority to issue implementing regulations and to otherwise interpret the application of the new disclosure regime, the secretary is not required to issue implementing regulations here. (The secretary of labor is given express authority to alter the financial thresholds to account for inflation, but, without that express authority, those amounts arguably would have been fixed in place absent a statutory amendment.)

The new requirements will pose compliance challenges. To the extent that you have implementation questions or concerns, please be sure to flag them for us so we can include them on the new working group’s agenda.

Scott Sinder Chief Legal Officer, The Council; Partner, Steptoe Read More

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