Plan sponsors traditionally paid brokers and consultants even though they didn’t know exactly how they were paid and had no way of knowing.
“Historically, provider and broker compensation was completely unknown in many cases,” said Darren Fogarty, executive director of the Committee for Fee-Only Benefits Advisors.
“So how would you determine if it was reasonable?” The value of private health care is really hard to define. There are also massive conflicts of interest everywhere you look in this industry. The Consolidated Appropriations Act enters 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 Leapfrog Group, a nonprofit healthcare industry watchdog organization.
Before the CAA was enacted, many plan sponsors were unaware of compensation, said James Gelfand, executive vice chairman of the ERISA industry committee.
“You don’t know what the broker or the consultant gets in return for the money they accept from the sellers,” he said. “Downstream, you may not know the effects this has on your plan, your beneficiaries, and the money from that plan. So, you may be winning upfront through a consultant or broker who charges you less, but downstream they may have convinced you to choose a trader or PBM who pays them. In the end, you end up paying higher costs, your beneficiaries have higher copayments, and you’re not a good fiduciary.
The CAA’s wording addresses this concern: “Effective December 27, 2021, the new disclosure requirements apply to persons who provide ‘brokerage services’ or ‘advice’ to group health plans covered under the ‘ERISA who reasonably expect to receive $1,000 or more in direct or indirect compensation related to the provision of these services.
Leah Binder, President and CEO of Leapfrog Group, considers this a game-changer. “CAA increases accountability for employers who provide cost-effective, high-quality care in their benefits package,” she said. “It is also a real transformation in the transparency of health services. Employers have always been the trustees under ERISA, but the standards for being a trustee have been significantly improved under this new law.
The law serves two purposes, Fogarty said.
“The first was to inject compensation transparency into a historically opaque space,” he said. “The other was to help plan sponsors assess and verify that their plan expenses are indeed reasonable, which hasn’t really been the case until now. It’s time to take a step back and ask yourself how much they earn, where it comes from, and what it says about whether they are really working for your health plan or not. This is the essential question. »
The CAA requires brokers and consultants to provide written information about the following:
- Services to be provided to the health plan;
- Remuneration that will be paid by the health insurance scheme for the services it receives;
- Any direct and indirect compensation that the broker or consultant reasonably expects to receive in association with an account over $1,000;
- Identify information on the nature and payer of these services; and
- Any compensation the broker or consultant expects to receive upon termination of the contract and how prepaid accounts will be calculated and reimbursed
This kind of disclosure is overdue, said Michael Thompson, president and CEO of the National Alliance of Healthcare Buyer Coalitions.
“It took a long time to come to the idea that you should know how people are compensated and if they have any conflicts of interest,” he said. “Of course you have to know how much they are paid and how you pay it. There are no free meals. This money is paid by someone – and it’s probably you.
What should plan sponsors expect from their relationship with their broker or consultant?
- Compensation disclosure is the bar that must now be met, but it should be understood as the minimum threshold for compliance.
- The CAA offers plan sponsors the opportunity to review the business practices of brokers and consultants for transparency purposes in other ways as well.
- This not only demonstrates due diligence and process, thereby protecting his company from future audits by the US Department of Labor, but is also consistent with the spirit of ERISA’s new CAA Amendments.
“Employers, especially those who are self-funding, have the responsibility, but more importantly the opportunity, to re-evaluate how all of their service providers bring value to them and what it costs,” Fogarty said. “The CAA has opened this conversation wide, and we shouldn’t let it go to waste.”