Consolidated Appropriations Act brings long overdue transparency: panelists

Plan sponsors traditionally paid brokers and consultants despite not knowing how exactly they were compensated and not even having a way to find out.

“Historically, vendor and broker compensation have been completely unknowable in many cases,” said Darren Fogarty, executive director of the Committee for Fee-Only Benefits Advisors.

“So how would you be able to determine whether it was reasonable? Value in private health care is really difficult to define. There also are massive conflicts of interest everywhere you look in this industry. The Consolidated Appropriations Act comes into this landscape and says, ‘things are going to be different from now on.’ The law changes the game,” Fogarty said.

Fogarty participated in Consultants and Brokers in the Light of CAA, a June 21 webinar sponsored by the Leapfrog Group, a nonprofit health-care industry watchdog organization.

Before the CAA was enacted, many plan sponsors were in the dark about compensation, said James Gelfand, executive vice president of the ERISA Industry Committee.

“You don’t know what the broker or consultant is getting in exchange for the money they are accepting from vendors,” he said. “Downstream, you may not know the effects that is having on your plan, your beneficiaries and the money in that plan. So you may be gaining on the front end by a consultant or broker charging you less, but on the back end they may have talked you into choosing a carrier or PBM that is paying them. In the end, you end up paying higher costs, your beneficiaries have higher copays and you are not being a good fiduciary.”

The language of the CAA addresses that concern: “Effective December 27, 2021, the new disclosure requirements apply to persons who provide ‘brokerage services’ or ‘consulting’ to ERISA-covered group health plans who reasonably expect to receive $1,000 or more in direct or indirect compensation in connection with providing those services.”

Leah Binder, president and CEO of the Leapfrog Group, considers it a gamechanger. “The CAA increases liability for employers who are providing cost-effective, high-quality care In their benefits packages,” she said. “It also is a true transformation in the transparency of health benefits. Employers have always been the fiduciaries under ERISA, but the standards for being a fiduciary have been greatly enhanced under this new law.”

The act has two objectives, Fogarty said.

“The first was to inject compensation transparency into a historically opaque space,” he said. “The other was to assist plan sponsors in evaluating and verifying that their plan expenses are in fact reasonable, which until now really hasn’t been the case. It’s time to step back and ask how much they making, where’s it coming from and what that says about whether they truly are working for your health plan or not. That is the vital question.”

The CAA requires brokers and consultants to provide written disclosures of the following:

• Services to be provided to the health plan;
• Compensation that will be paid by the health plan for the services it receives;
• All direct and indirect compensation that the broker or consultant reasonably expects to receive in association with an account in excess of $1,000;
• Identifying information about the nature and the payer of those services; and
• Any compensation the broker or consultant expects to receive upon contract termination and how prepaid accounts will be calculated and refunded

This type of disclosure is overdue, said Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions.

“It took a long time to get to the idea that you should know how people are compensated and whether they have conflicts of interest,” he said. “Of course you should know what they are getting paid and how you are paying for it. There are no free lunches. This money is being paid by somebody — and it’s probably you.”

What should plan sponsors expect from their relationship with their broker or consultant?

• Compensation disclosure is the bar that now must be met, but it must be understood as the minimum threshold for compliance.
• The CAA presents an opportunity for plan sponsors to scrutinize broker and consultant business practices for transparency in other ways, too.
• Doing so not only demonstrates prudence and process, thereby inoculating one’s company from future U.S. Department of Labor audits, it also is consistent with the spirit of ERISA’s new CAA amendments.

“Employers, especially self-funded ones, have the responsibility but more importantly, the opportunity, to reevaluate how all their service providers are bringing them value and what it costs,” Fogarty said. “The CAA has cracked wide open this conversation, and we shouldn’t let it go to waste.”