Since a large majority of group health plans renew on January 1st or December 1st, most agencies will need to prepare to distribute their compensation disclosures to plan fiduciaries in advance of the contract or BOR renewal.
As a reminder, under the CAA, disclosure requirements apply to persons who:
Provide brokerage services or consulting to ERISA group health plans.
Reasonably expect to receive $1,000 or more in direct or indirect compensation in connection with providing those services.
The information required to be disclosed includes:
Direct and indirect compensation expected to be received in connection with a contract or arrangement between a covered service provider and a covered plan.
Generally must be disclosed reasonably in advance of when the parties enter into the contract or arrangement.
A covered service provider must provide the plan fiduciary (generally the person who makes plan decisions) a description of the services to be provided. The disclosure requirements apply to contracts executed on or after December 27, 2021.
On Dec 30, 2021, the DOL issued guidance on their temporary enforcement policy of the compensation disclosure requirements (FAB No 2021-03). The DOL answers some outstanding questions to give “service providers” help in complying with this disclosure requirement. Final rules may come later, but for now they’ve issued this guidance as a temporary policy to go off of.
The guidance says that the goal is to enhance fee/commission transparency, including any indirect compensation (like referral fees), but recognize compensation agreements are often complicated and not at all uniform. So the DOL expects (for now) a good faith and reasonable interpretation of this rule. This means looking at prior guidance for retirement plan service providers and taking steps to give a similar disclosure to plan fiduciaries (i.e., the employer plan sponsor) for the health benefits.
Specifically, a “covered service provider” is a service provider that enters into a contract or arrangement with a covered plan and reasonably expects to receive at least $1,000 in direct or indirect compensation for providing brokerage or consulting services under the contract or arrangement.
The guidance also clarifies when the contract or arrangement is “entered into” when there’s a BOR used. In this case, the date it is “entered into” is either the date the BOR was submitted to the carrier or the date the group application was signed for the following plan year (whichever is earlier). For example, if the “renew as is” application or whatever is used was signed on Dec 15th, 2022 (prior to Dec 27th), the disclosure should be provided to the plan fiduciary reasonably in advance, which many are suggesting should be 60 days in advance.
Brokerage services are defined to include services related to selection of TPAs and other service providers for benefits administration, recordkeeping, medical management, pharmacy benefit management, wellness, EAP, or compliance services; stop-loss insurance; and vendors of transparency tools or disease-management products.
Consulting services include those related to the development or implementation of plan design; stop-loss insurance; benefits administration selection (including vision and dental); recordkeeping, compliance, and other TPA services; medical management, disease management, or pharmacy benefit management services; group purchasing organization agreements and services; and participation in and services from preferred vendor panels.
A person or entity is not a “covered service provider” solely on the basis of providing services as an affiliate or a subcontractor performing one or more of the brokerage or consulting services under the contract or arrangement with the covered plan
Even though “typical” TPA services don’t seem to constitute brokerage or consulting services under the exemption, some TPAs provide a range of services beyond claims administration, recordkeeping, and similar services. A TPA may provide services that make it a covered service provider if the services involve the placement of stop-loss insurance; selection of vendors for medical management, disease management, or wellness services; or provision of compliance consulting.
Similarly, if a GA is providing consulting or brokerage services, then they would likely be a covered service provider who should provide a disclosure. But if they are simply providing quotes and benefits administration services, it may not rise to the level of brokerage or consulting services.
For arrangements where some services are performed by affiliates or subcontractors, the party entering into the contract with the covered plan is the covered service provider responsible for making the required disclosures. So, for example, if an enrollment firm or GA is paying a commission split, it seems that it would be disclosed on the broker/agency’s disclosure.
The rules give some leeway in how the compensation is disclosed, especially when the compensation is not known in advance. As a general rule, the compensation can be listed as a $ amount, a formula or PEPM amount. If it can’t be expressed in these ways, it can be shown using some other reasonable method, but the circumstances under which additional compensation may be earned have to be described and some sort of estimate/projected range.
This guidance also confirms this applies to all sizes of plans, both grandfathered and non-grandfathered, regardless of whether or not they have to file 5500, and that it applies to self-funded and fully-insured plans. It also applies to any standalone dental or vision plans, but likely not to life or disability benefits.