Consolidated Appropriations Act 2021
Compensation Disclosure for Group Health Insurance Brokers
On December 27, 2020, former President Trump signed into law the Consolidated Appropriations Act (CAA). Among the many thousands of pages of this law, one section addresses the need for a compensation disclosure for group health insurance brokers, to inform plan sponsors and fiduciaries of the broker’s portion of the annual premiums. This is an amendment to the Employee Retirement Income Security Act (ERISA) and thus was able to be included in the CAA along with other amendments to other existing laws. This type of disclosure is not new; ERISA has required similar disclosure for retirement plans for many years.
What Is the Purpose of the Consolidated Appropriations Act?
This new Consolidated Appropriations Act or CAA disclosure requirement allows plan fiduciaries to determine the reasonableness of the costs of a Plan. The fiduciaries of a plan are considered to be the sponsor’s Board of Directors or the business owners by default unless otherwise specified (e.g., a Benefits Committee). If the plan fiduciaries do not receive the disclosure, ERISA will automatically consider the Plan as “unreasonable” and therefore it will be classified as a prohibited transaction.
If the plan fiduciaries allow a prohibited transaction to remain in place, they may be found directly liable for any claims made against a plan. They also may be held directly responsible by the Department of Labor and/or the Department of Health and Human Services for up to an additional 20% penalty of any amounts recovered in connection to the prohibited transaction.
What Must Be Disclosed?
The CAA requires health insurance brokers to disclose compensation over $1,000 received that is directly related to a specific plan or over $250 of indirect compensation (spread across multiple plans).
The law is fairly broad in its construction. “Brokerages and consulting services” are deemed to include:
- Selection of insurance products (including dental and vision)
- Recordkeeping services
- Medical management
- Benefits administration
- Stop-loss insurance
- Pharmacy benefit management services, including services provided to a pharmacy benefit coalition
- Wellness services
- Transparency tools and vendors
- Group purchasing organization preferred vendor panels
- Disease management vendors and products
- Compliance services
- Employee assistance programs
- Third-party administration services
- Development or implementation of plan design services
Note that property/casualty plans are NOT included, nor are life and disability insurance plans. Medicare/Medicaid plans are likewise exempted, as they have their own set of rules separate from the group health plans.
Group Health Insurance Brokers must disclose to the plan fiduciaries:
- Description of services offered through the plan;
- A statement whether or not the service provider is also a plan fiduciary;
- Description of all direct (tied to a specific plan) and indirect (spread over multiple plans) compensation to the broker or consultant;
- Fees paid by plan;
- Incentive payments;
- Transaction-based payments such as finder’s fees or commissions;
- Commission multipliers, bonus commissions, back-end-commissions, retention bonuses;
- Non-financial compensation and perks (game tickets, trips, meals, travel, etc.)
- How compensation is shared among the broker/consultant, affiliates, and subcontractors;
- Description of plan termination fees when applicable.
If there is a combined plan (for example, a single plan offering medical plus dental plus vision), only one disclosure is needed. If there is a medical plan and a separate dental and vision plan, two disclosures are needed. If there are three independent plans, one for medical and one for dental and the third plan for vision, then three disclosures are required.
Many times it is not possible to know the full scope of the commission and fees-for-performance in advance, so the compensation disclosure has a provision in it for being amended within 60-days of the benefits broker becoming aware of the discrepancy. There is not a formal threshold of how much variance is permitted before an amended disclosure must be made; we recommend any changes of greater than 10% or $10,000 as a reasonable metric to use.
The Consolidated Appropriations disclosure applies to any plans starting or renewing on or after December 27, 2021, one year from the date the Consolidated Appropriations Act (CAA) was made law. Please note this is based on the date the contract or renewal was signed by the group insurance broker and plan sponsor.
UPDATE: On December 30, 2021, the DOL released a Field Assistance Bulletin clarifying that the effective date is the date the contract is signed and executed, not the effective date (which had been stated in the previous reporting).
For plans renewing midyear, for example, July 1, 2022, the disclosure must be made sometime before the contract execution date. In this case, presumably by mid-June 2022. Note that the CAA does not stipulate a specific number of days before the plan commences or renews for this disclosure to be done, only that it must be made.
What are the Consequences for Not Disclosing This Information?
The expectation is that group health insurance brokers will be proactive in supplying this information and in educating their clients on how to read and interpret the disclosure statements.
If a Plan Sponsor has not received the notice before the effective date of the plan(s), they need to send a written request to the broker, who then, in turn, has 90 calendar days to respond.
If after 90 days the disclosure has still not been received, the Plan Sponsor must alert the US Department of Labor in writing within 30 days (which is a net 120 days from making the initial request to the broker) and should take steps to terminate the plan as soon as possible, as it will be deemed as prohibited transaction (as mentioned previously).
The DOL is expected to provide a model noncompliance reporting form, but this has not been released as of the time of this writing.
Other Points to Remember
- Some states already have similar disclosure requirements in place, notably in California and Nevada.
- This information needs to be tailored for each separate plan. A generic disclosure form stating something like “we provide group health benefits and our compensation ranges from 3% to 11% per plan” would NOT be considered to be in compliance with the law.
Online Compensation Disclosure Tool
With the implementation of the new CAA disclosures for brokers to reveal all compensation over $1,000, HR Service, Inc. is happy to provide you with our Broker Compensation Disclosure Generator Tool that easily creates and delivers all required disclosures.
We are gifting this to all brokers, regardless of whether you do business with us. To use this new tool, click the compliance toolkit to learn how to use the system at no cost or obligation to you. You will also find the PowerPoint presentation here.
If you prefer watching the training video you can access it below:
Brokers who already use HR Service for one of our ERISA eSolutions or HR eSolutions will receive an added benefit where the information automatically populates your CAA Compensation Disclosure with little effort on your part. You will find it by logging in to your Partner account.
Existing HR Partners
- Login to www.compliancelogin.com with your partner login.
- See the new menu item titled “Compensation Disclosure” on the Dashboard or enter Clients List from the Dashboard in the Action section selecting “$” to generate statements for existing clients.
If you have any questions on the CAA broker compensation disclosure requirements or need assistance in using this tool, please contact us at (833) 685-8400, ext. 1.
Prepared by David Norton, SPHR, SHRM-SCP
Human Resources Business Consultant