A Preparation Guide for the
Broker/Consultant Compensation & Service Disclosure Requirements
Overview, Impacts and Responsibilities for the Large Group Marketplace
EFFECTIVE DECEMBER 27, 2021, FEDERAL LAW WILL REQUIRE THAT HEALTH INSURANCE AGENTS AND BROKERS DISCLOSE TO THEIR INDIVIDUAL AND GROUP HEALTH CLIENTS THE COMPENSATION THEY EXPECT TO RECEIVE AND A DESCRIPTION OF THE SERVICES THEY WILL PROVIDE IN RETURN.
This document is meant to provide an outline of the new ERISA Section 408(b)(2) disclosure obligations along with a few suggestions for complying with these new requirements. The new disclosure requirements can be complex and cumbersome and place substantial new responsibilities on health insurance brokers, consultants and plan fiduciaries. It is not intended that the advice in our guide represents the best solution in all scenarios, as the proper method for satisfying these requirements should be made based on the unique characteristics of each broker/client relationship.
Origins and Purpose
Download Our guide
Embedded deep within the Consolidated Appropriations Act of 2021, (the heavily debated legislation more commonly known for its $2.3 million dollar spending bill that combined $900 billion in stimulus relief resulting from the COVID-19 pandemic), are important new regulations impacting insurance carriers, health insurance brokers, benefit consultants and insurance agents.
With these new rules, brokers and consultants must disclose to employers the various forms of direct and/or indirect compensation they receive from insurance carriers and vendors associated with a health plan. The disclosures must be provided when the employer enters into an agreement with the broker or when the plan is renewed.
These requirements expand ERISA’s existing disclosure requirements, previously implemented in 2012 and applied to retirement plans only. Under the regulation, an arrangement is not “reasonable” unless the covered service provider, the broker, discloses its direct and indirect compensation. Any arrangement that is not “reasonable” is a “prohibited transaction” under ERISA.
With the new rules, additional transparency is being added with the intention of providing the necessary information for the plan fiduciary to understand the services that will be provided to them along with the compensation being paid to the broker or consultant. In this way, they should be better able to make a determination as to whether an arrangement for services is reasonable and qualifies for the applicable exception to the prohibited transaction rule.
If the broker or consultant fails to adhere to the new requirements, the contract will not be deemed “reasonable” under ERISA.
The Spirit of the Law
Disclosure Requirements
The new rules, found in a section of the Act called “Title II-Transparency, Section 202, Disclosure of direct and indirect compensation for brokers and consultants to employer sponsored health plans and enrollees in plans on the individual market”, requires that a “covered service provider” must provide the required information to the “plan fiduciary” in advance of the date the contract for the “covered plan” is entered into, extended or renewed.
A few key terms referred to in the Act are explained below:
Who is a “Plan Fiduciary?”
A “plan fiduciary,” according to the Employee Retirement Income Security Act (ERISA) is defined as “those persons or entities who exercise discretionary control or authority over plan management or plan assets, have discretionary authority or responsibility for the administration of a plan…” The primary responsibility of the plan fiduciary is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses.
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, either directly or indirectly, at least $1000 in compensation related to those services.” The bill defines compensation as anything of monetary value except non-monetary compensation valued at $250 or less. Generally, “services” are identified broadly and encompass plan design, benefit selection, medical management, stop-loss insurance, third party administrator services, pharmacy benefit management services, wellness design and services, plan-related agreements services, employee assistance programs, HRAs, ICHRAs, FSAs, etc., although QSEHRAs are excluded (see below for a more detailed list of services). The threshold of $1000 makes the requirement applicable for nearly all but the smallest groups (perhaps those with 2 or 3 employee), depending on the premium.
What is a “Covered Plan?
Under the act, a “covered plan” refers to a group health plan as defined under the Employee Retirement Income Security Act (ERISA). 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.” This limits the disclosure obligations to the components of a plan that are paying for medical claims and does not extend the obligations to non-medical benefits like group life or disability products.