Fee Disclosure Requirements for Health Plan Advisors Shed Light on Conflicts

The U.S. Department of Labor (DOL) has unveiled its enforcement policy on new fee disclosures by benefits brokers and consultants who provide services to employer health plans.

The disclosure requirements, which took effect on Dec. 27, 2021, let health plan sponsors check if their advisors are receiving indirect compensation that could create conflicts of interest. The DOL's Employee Benefits Security Administration released the enforcement guidance on Dec. 30 in Field Assistance Bulletin (FAB) 2021-03.

The Consolidated Appropriations Act, 2021 (CAA), amended the Employee Retirement Income Security Act (ERISA) by requiring people providing brokerage or consulting services to ERISA-covered group health plans to disclose detailed information to plan fiduciaries about the compensation they expect to be paid in connection with their services to the plan.

According to the DOL's announcement, the disclosures focus on helping plan fiduciaries guard against conflicts of interest that may arise when plan service providers receive compensation from third parties such as insurers—so-called indirect compensation—by ensuring that plan fiduciaries receive complete and timely information about such compensation before they enter into, renew or extend service provider arrangements.

"The new disclosure requirements will help group health plans and their fiduciaries by shedding needed light on some of the complex and often opaque fee-sharing arrangements that unfortunately typify aspects of our health care system," said Ali Khawar, acting Assistant Secretary of Labor for employee benefits security. "The Field Assistance Bulletin gives plans and their brokerage and consulting service providers some transitional flexibility as they build systems to implement the new disclosure requirements, but that flexibility depends on reasonable and good faith behavior."

The Field Assistance Bulletin discusses how fees are to be disclosed, particularly if the amount of fees cannot be determined prior to the beginning of the arrangement.

The DOL will be helping service providers comply with the new requirements and initially will focus its enforcement activities on cases in which covered service providers do not act in accordance with a good-faith, reasonable interpretation of the statute, the agency said.

Broad Scope

"The DOL makes it clear that even if a person does not identify themselves as a broker or consultant or is not licensed as a broker or consultant, that person will be subject to the new disclosure rules if the services they provide are brokerage services or consulting services," said William Sweetnam, legislative and technical director of the Employers Council on Flexible Compensation in Washington, D.C. "They will be subject to the disclosure requirement even if the fees for such services are bundled with fees for other services and the brokerage or consulting services are not specifically charged broken out as a separate fee."

Alison Smith Fay, a partner at law firm Boutwell Fay in Irvine, Calif., wrote that "the FAB clarifies that the new law applies to both insured and self-insured and large and small group health plans," including plans grandfathered under the Affordable Care Act.

In addition, she noted, the policy "lays out the DOL's view that plans that provide only 'excepted benefits' (for example, limited scope dental and vision plans) are covered plans subject to the new law."

Similar fee disclosure requirements have applied to pension plan service providers since 2012, the DOL announcement said.

The new guidance "encourages service providers to look to the DOL's fee disclosure rules for pension plans as a way to establish that they have acted in accordance with a good faith, reasonable interpretation of the rules," Fay pointed out. "Much of the terminology and many of the requirements imposed by CAA with respect to group health plans are identical to the terminology and requirements for pension plans," she noted.

New and Renewed Contracts

The new disclosure rules apply to contracts and arrangements entered into, extended or renewed after Dec. 27, 2021—one year after the CAA's enactment. Contracts already in effect on that date are not subject to the disclosure rules until the contract is renewed or extended.

Stephanie Grant, senior counsel at law firm Warner Norcross & Judd in Detroit, and Norbert Kugele, a partner in the firm's Grand Rapids, Mich., office, advised plan sponsors that are seeking to change service providers and sending out requests for proposals to "consider seeking the disclosure information early on in the process and before starting negotiations with a particular vendor."

Doing so "could allow the plan sponsor to compare direct and indirect compensation information from a number of vendors, making it easier to determine and document for ERISA compliance purposes whether the compensation that any one vendor earns is reasonable," Grant and Kugele said.

Related SHRM Articles:

Health Plan Transparency Reporting in 2022: Do You Know Where Your Health Care Dollars Go?, SHRM Online, January 2022

Agencies Delay Health Plan Price Transparency Disclosures, SHRM Online, August 2021

Health Plan and Provider Price Transparency Obligations Can't Be Ignored, SHRM Online, July 2021