Charge info for group well being plans
The Consolidated Funds Act (“CAA”) contains a number of provisions that improve transparency in the implementation of group health plans. Under one of these provisions, brokers and consultants are required to provide fee information to a responsible plan trustee if the broker or consultant is qualified as a covered service provider.
In general, certain transactions between an employee benefit plan and an interested party, including a service provider, are prohibited under ERISA. However, ERISA Section 408 (b) (2) provides that a contract between a plan and a service provider is not a prohibited transaction if adequate compensation is paid for the required services under a reasonable contract.
In 2012, the Department of Labor (“DOL”) issued final regulations requiring Insured Service Providers to provide fee information to a responsible plan trustee prior to entering into a contract for services related to a retirement plan. The purpose of the disclosure was to provide the trustee with information to determine whether the fees payable were reasonable and to assess the impact of a possible conflict of interest. If the trustee had not received the fee information, the contract would not be “fair” and the trustee would have conducted a prohibited transaction. DOL considered extending the fee disclosure rules to social security plans, but decided to keep these rules for a later date.
The CAA amends ERISA Section 408 (b) (2) to require certain service providers to disclose fees for group health plans by law. This information must be provided so that the contract with the service provider is “appropriate” and thus exempt from the prohibited transaction rules. The change is very similar to the retirement plan fee disclosure rules and appears to be largely modeled on them. As a result, if an employer is familiar with the 408 (b) (2) retirement plan fee disclosure rules, the new group health plan rules won’t come with many surprises.
The effective date of the group health plan disclosure rules is December 27, 2021 (one year after the effective date of the CAA). The change will apply to all contracts executed after this date (including an extension or renewal of an existing contract).
Plans Subject to Fee Disclosure Rules
An ERISA-covered “group health plan” is subject to fee disclosure rules. This includes any insured or self-insured plan that provides medical care to employees or their loved ones. The rules would apply to everyone:
- Great plan for medical / prescription drugs
- Dentist plan
- Vision plan
- Flexible health spending account
- Health reimbursement agreement (other than a qualified small employer health insurance agreement or QSEHRA).
There is no exception for a small plan that covers fewer than 100 participants with fully insured or self-funded benefits. As such, a small group health plan is subject to fee disclosure rules, even if exempt from submitting Form 5500.
Covered service providers
An insured service provider is a service provider who contracts with a group health plan and reasonably expects to receive direct or indirect compensation of $ 1,000 or more in connection with the following services:
- Intermediary services for the selection of insurance products, recording services, medical management providers, benefit management, stop-loss insurance, benefit management service for pharmacies, wellness services, transparency tools and providers, preferred supplier panels of the group purchasing organization, providers and products for disease management, Third party compliance services, employee assistance programs, or administrative services.
- Consulting services relating to the development or implementation of draft plans, the selection of insurance or insurance products, the keeping of records, the medical management, the selection of the benefit management, the stop-loss insurance, the benefit management for pharmacies, the services for the design and Management of wellness services, transparency tools and arrangements for purchasing groups and services, participation in and services from preferred supplier bodies, illness management, compliance services, employee assistance programs or third-party administration services.
In determining whether the US $ 1,000 threshold is exceeded, the insured service provider would take into account the services and payments received from an affiliate or subcontractor.
An insured service provider does not include an insurer. Presumably this is because health insurers are subject to strict government regulations, including how premiums are calculated.
Consideration of the remuneration
Both the “direct” and the “indirect” remuneration are taken into account.
- Direct compensation is compensation received directly from the group health plan.
- Indirect compensation is compensation received from a source other than the group health plan, plan sponsor, insured service provider, or an affiliate.
Information to be disclosed
The insured service provider must provide the following information in writing to a responsible plan trustee:
- A description of the services to be provided under the contract.
- Whether the services are performed on a fiduciary basis.
- A description of all direct and indirect remuneration that the insured service provider can reasonably expect. This can be expressed as an amount of money, a formula, or a per capita fee for each participant, or any other appropriate method. If applicable, the description should include a disclosure that additional compensation may be earned, with a description of the circumstances in which the additional compensation will be received, with a good faith estimate of the additional compensation.
- With respect to indirect compensation, the disclosure should include (1) compensation that a seller has paid to a brokerage company based on incentives that are not solely related to the contract of the plan (e.g., a contingent compensation based on the Basis of a broker’s entire ledger is paid with a carrier); (2) describe the agreement between the payer and the insured service provider under which the indirect compensation will be paid; (3) indicate the services for which indirect compensation is received; and (4) identify the indirect compensation payer.
- A description of any compensation paid between the insured service provider, an affiliate or a subcontractor, if that compensation is determined on a transaction basis (e.g. commissions, finder fees or similar incentive payments based on the business placed or retained).
- A description of any compensation that the insured service provider, its affiliate or its subcontractor can reasonably expect in connection with the termination of the contract.
The disclosure must include a description of the manner in which direct and indirect compensation will be received from the insured service provider (e.g. from the plan or plan sponsor, or in the form of commissions paid by an insurance carrier).
Time of disclosure of fees
The insured service provider must provide the necessary information to the trustee of the relevant plan reasonably in advance of the date on which the contract or arrangement is entered into and extended or renewed. In the rules for retirement planning, DOL refused to specify a date by which the information must be provided. Remember that the purpose is to give the trustee of the responsible plan sufficient time to review the information in accordance with its ERISA fiduciary duties, including determining that the compensation is reasonable in relation to the services to be provided. Therefore, the Trustee of the Competent Plan should require that the fee details be provided prior to the expected date of the contract signature, with sufficient time to review and ask questions or request further clarification or additional information.
Error in disclosing fees
The contract will not become inadequate if the insured service provider notifies the relevant plan trustee within 30 days of discovering an error or omission in the information disclosed.
Failure to receive the required fee information
The responsible plan trustee has not carried out a prohibited transaction if he is of the opinion that the insured service provider has provided the necessary information and, after discovering the error, takes the following steps:
- Requests in writing that the insured service provider provide the fee information.
- If the insured service provider refuses or does not provide the fee information within 90 days of the request, it will notify DOL of the error or refusal.
- Evaluates whether the contract should be terminated in accordance with due diligence. If the contract relates to future services and the disclosure is not made immediately after the 90-day period has expired, the contract must be terminated as soon as possible.
Savvy plan sponsors are already urging brokers and consultants to make solid fee disclosure every time they sign a new group health plan contract. The new rules will formalize this process. Obtaining and reviewing fee information should be added to a plan sponsor’s annual checklist.
It is less clear how plan sponsors should determine whether group health plan fees are “reasonable”. For insurance product commissions, plan sponsors are generally informed that “these are standard commission levels”. At present, the social security plan benchmarking tools that exist for pension plans are not as readily available. It will be interesting to see if benchmarking tools are developed for group health plans and if these tools will have an impact on fees.