The relationship between a group health insurance broker and their client is at its optimum when transparency and a shared understanding of responsibilities exists between the two entities. For the employer, finding a broker that embellishes this principle is paramount if they are to effectively manage a competitive benefit portfolio and achieve the desired wellness objectives within the organization, all while working within the scope of their corporate budget.
The consolidated Appropriations Act of 2021 (CAA), will aid the employer achieve this result since it contains several provisions focusing on business transparency. Effective December 27, 2021, insurance brokers and consultants will be required to disclose all compensation if they expect to receive $1,000 or more and provide a description of the services they will provide in return to their group health clients. The disclosure must be provided when an employer enters into an agreement with the broker or when the plan is renewed.
The disclosure requirement is intentionally comprehensive and the descriptions provided must be sufficient for the business owner to evaluate easily.
The disclosure of compensation must include all compensation received by carriers for each client, including both direct and indirect compensation. Direct compensation refers to all compensation received directly from the insurance carrier. This compensation will typically be expressed as a monetary amount, a formula or a per capita charge for each enrollee.
Indirect compensation is defined to mean compensation received from any source other than the insurance carrier. This includes compensation from a vendor to a brokerage firm based on a structure of incentives not solely related to the contract with the plan. Any indirect compensation, including any from affiliated companies of the provider as well as any contingent commissions and overrides need to be reported.
The nature and scope of services the broker expects to provide is required to be clearly detailed in the contract or agreement. Generally speaking, these services might include the services for plan placement, enrollment, account management, plan servicing and any other value-added services offered by the broker. These items should be sufficiently detailed so that the business owner can evaluate the broker’s proposal in light of the compensation being paid.
The CAA requires that of this information must be provided to the client by the broker or consultant in a reasonable timeframe, in advance of when the contract or arrangement is either entered into or renewed. Additionally, the broker must notify the client of any changes in relevant information as soon as is practical, but not more than 60 days after the broker or consultant becomes aware of the changes. If the broker fails or refused to disclose, the employer must request disclosure in writing. If the broker fails or refuses to respond to the written request, the client must submit a formal notice to the Department of Labor within 30 days.
With these new requirements, employers will see precisely how much compensation the broker will receive from their carriers(s) for servicing the company’s business. By gaining an understanding of how brokers earn their compensation in light of the services being provided, the business owner will be better able to evaluate the value and fit of any given broker’s proposal for services. Additionally, these requirements should clear up any confusion that may exist as to the roles and responsibilities, resulting in a greater level of trust between both parties.
Ultimately, these disclosure requirements will provide the ability for employers to make wiser and more informed benefit decisions. Be sure your broker or consultant complies with these new rules since for the employer, selecting a broker that prizes transparency means they put their clients first…and that is a winning solution for both the employer and their employees.