As part of the Consolidated Appropriations Act (CAA) signed into law by President Trump in December 2020, contracts or arrangements for services between a “covered plan” and a “covered service provider” (CSP) entered into, extended, or renewed on or after December 27, 2021, must include specific disclosures for broker and consultant compensation. Covered service providers and plan fiduciaries should take a good faith reasonable interpretation of the statue in order to comply, beginning December 27, 2021. On December 30, 2021, the Department of Labor (DOL) released a Field Assistance Bulletin providing some clarifying guidance on the new requirements. We expect the DOL to provide additional guidance this year.
The new requirements apply to both large and small, fully insured and self-funded group health plans as defined by the Employee Retirement Income Security Act (ERISA).
It also applies to covered service providers who are service providers that reasonably expect to receive at least $1,000 in direct and/or indirect compensation for broker or consultant services under an agreement. What constitutes broker and consulting services is broad and includes services such as:
- Selection of third party administrators (TPAs) and other service providers for benefits administration
- Medical management
- Pharmacy benefit management
- Employee Assistance Programs (EAPs)
- Compliance services
- Transparency tools
- Disease management products
- Development and/or implementation of plan design
- Group purchasing organization agreements and services
- Participation in and/or services from preferred vendor panels
The statute has specific requirements on what must be included in the compensation disclosure. According to the rules, the disclosure must include:
- Description of the services that will be provided
- If applicable, a statement stating that the CSP (or its affiliate or subcontractor) is a fiduciary
- Description of all direct and indirect compensation that the CSP (or its affiliate or subcontractor) expects to receive for services provided
- Description of the arrangement between the payer and the CSP (or its affiliate or a subcontractor) to which indirect compensation is paid, including a description of services for which indirect compensation is received and identification of the payer of the indirect compensation
- Description of any compensation that will be paid among the CSP (or its affiliate or subcontractor) paid on a transactional basis, including identification of the services for which such compensation will be paid and identification of the payers and recipients of such compensation even if said compensation is disclosed in another provision
- Description of any compensation that the CSP (or its affiliate, or subcontractor) reasonably expects to receive in connection with termination of the contract or arrangement, and how any prepaid amounts will be calculated and refunded upon such termination
Covered service providers must disclose both direct and indirect compensation.
Direct compensation is compensation received directly from the plan. This includes compensation such as flat fees, per contract per month fees, fees per service, per employee per month (PEPM) fees, etc. Covered service providers must describe the manner in which compensation is received. Indirect compensation is compensation received from any source other than the plan, the plan sponsor, the covered service provider, or its affiliate. Indirect compensation includes commissions, payments from subcontractors or affiliates supporting plan-related services, referral fees, other plan administration fees, non-monetary compensation that exceeds $250 per year such as meals, travel, entertainment, etc. In the disclosure, the covered plan sponsor must identify the payer and the arrangement and manner in which payment is received.
As of December 27, 2021, the covered service provider must provide the compensation disclosure to the plan “not later than the date that is reasonably in advance of the date on which the contract or arrangement is entered into, and extended or renewed.”
This means that disclosures should be made in advance of plan renewal dates and contract renewal dates, but do not need to be provided before agreements that are entered into, extended, or renewed before December 27, 2021. For example, a new client contract or arrangement that is entered into on December 26, 2021, will not require the disclosure at the inception of the agreement. Should the client renew its contract in 2022, the disclosure will be required.
The disclosure is an annual requirement and updates may be required throughout the course of the year.
The statute states that a covered service provider who has knowledge of a plan-related compensation change must report that change within 60 days of the change. Further, disclosure of any good faith errors or omissions must be reported within 30 days of discovery.
Plan sponsors and covered service providers are encouraged to take a good faith interpretation of the statute and comply right away.
EPIC will provide additional updates as more information becomes available.
EPIC offers this material for general information only. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. The matters addressed in this document and any related discussions or correspondence should be reviewed and discussed with legal counsel prior to acting or relying on these materials.
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Compliance Director – Atlanta, GA