Upcoming Changes to Health Industry Fee Disclosures
On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA) became law. One major component of the CAA is focused on enhancing the compensation disclosure rules for group health plans, individual brokers, and consultants. These new disclosure requirements bring group health plans more in-line with the disclosure rules that apply to retirement plans (e.g. 401(k) plans). This includes all forms of compensation, including standard ongoing compensation, bonuses, finder’s fees, prepaid (advanced) commissions, payments made by third parties, incentive programs not solely related to the plan, etc. Non-ERISA plans are not subject to the requirement.
The new ERISA disclosure generally requires the broker to identify each payer and describe each arrangement. The requirements also include:
- A description of the services provided to the covered plan;
- A description of all direct compensation;
- A description of all indirect compensation;
- A description of all transaction-based compensation;
- A description of any compensation payable in connection with termination and, if applicable, how any prepaid amounts may be refunded and calculated; and
- If applicable – a statement indicating the broker expects to offer fiduciary services to the plan.
Brokers and consultants for group health plans that reasonably expect to receive $1,000 or more in direct or indirect compensation (subject to inflation adjustment) must disclose the amounts on fee disclosure for the plan. This includes amounts received in connection with providing services, including – but not limited to - the selection of insurance products, recordkeeping services, stop-loss insurance, wellness services, disease management vendors, and products. The disclosure is required regardless of whether such services will be performed, or such compensation received, by the covered service provider, an affiliate, or a subcontractor. Values can be expressed in the aggregate or by service as a dollar amount, formula, per capita charge for each member, or any other reasonable method with a good faith estimate.
The disclosure descriptions must be sufficient for the client to evaluate ‘reasonableness’. These changes are important for plan sponsors, because any compensation that is deemed ‘unreasonable’ under these new disclosure obligations would likely be a prohibited transaction under ERISA. Prohibited transactions give rise to potential excise taxes and other fiduciary enforcement action.
These new fee-disclosure requirements are set to go into effect on December 27, 2021 and were not changed in the most recent FAQs regarding the CAA issued by the Department of Labor, Health and Human Services, and the Treasury on August 20, 2021. On and after December 27, 2021, in order to be considered compliant, a detailed fee disclosure will be required prior to the initial contract or renewal date. An updated notice will also be required within 30 days following the discovery of any inadvertent errors or omissions, within 60 days of a compensation change, and within 90 days of a client request.
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