Maintaining a successful business relationship between employers and brokers requires a certain level of transparency. In an attempt to achieve compensation transparency and help employers better understand broker incentives, the Consolidated Appropriations Act (CAA) was signed into law by former President Trump in late 2020.
The CAA contains a provision that requires health insurance brokers to disclose all direct and indirect compensation that they receive for their services. Plan fiduciaries are responsible for obtaining compensation disclosures and identifying possible conflicts of interest.
When executed properly, broker compensation disclosures should reveal what a company pays out and receives. Many brokers receive a commission from the insurance company as their primary form of compensation, meaning employers often overlook how much their brokers are being paid.
What Is The Consolidated Appropriations Act?
The CAA was signed into law on December 27, 2020, and contains a series of provisions that discuss disclosure rules and expectations. The Act requires covered service providers (CSPs), such as insurance brokers and consultants, to disclose all compensation to their clients if they expect to receive $1,000 or more in either direct or indirect compensation for services rendered.
One of the main goals of these transparency provisions in the Consolidated Appropriations Act is to help employers determine how brokers earn money. This information can then be used to help employers make more informed plan decisions.
Plan fiduciaries may be familiar with compensation disclosure Form 5500, which has requirements that are fairly narrow in scope. This Form does not require brokers to include supplemental commissions, service fees, pharmacy rebates, marketing fees, non-monetary compensation and various other types of additional compensation. Under the CAA, brokers are required to include all fees and compensation received.
What Information Are CSPs Required To Disclose?
The Consolidated Appropriations Act will require all health insurance brokers and agents to disclose their commissions for contracts entered into, on or after December 27, 2021. This new federal law only applies to CSPs who can reasonably expect to earn more than $1,000 in direct compensation and/or more than $250 in indirect compensation from a health insurance carrier or health plan.
This law applies to all types of health insurance plans, including individual and family plans, small group plans, large group plans, self-funded plans, fully-funded plans, HRAs, FSAs and others. Covered service providers are responsible for keeping their compensation disclosures up-to-date and accurate. Disclosures must be updated within 60 days after any commission changes occur.
CSPs are required to disclose the following information in writing to plan fiduciaries:
- Description of services to be provided to the client based on the plan outlined in the contract.
- A statement that the broker, affiliate or subcontractor will provide services based on the terms of the contract directly to the plan.
- Description of direct compensation that the broker, affiliate or subcontractor reasonably expects to receive by delivering services.
- Description of indirect compensation that the broker, affiliate or subcontractor reasonably expects to receive by delivering services.
- Description of the arrangement between the broker, affiliate or subcontractor that receives indirect compensation and the payer.
- Identification of all services for which the broker, affiliate or subcontractor will receive indirect compensation, if applicable.
- Identification of the payer of any indirect compensation.
- Description of the services in which compensation will be paid, as well as identification of the payer if the compensation is paid via a transaction basis.
- Description of any compensation that the broker, affiliate or subcontractor expects to reasonably receive in connection with the contract termination.
- Description of how any compensation will be received by the broker, affiliate or subcontractor.
Are Brokers Required To Meet Timing Requirements?
Brokers are required to meet certain time frames when changes occur that could affect their ability to accurately disclose compensation information. Brokers will be required to disclose all required information before the date of the arrangement or contract that they enter into, renew or extend. Any changes to compensation information must be disclosed within 60 days of being informed of these changes.
If any inadvertent errors or omissions are discovered when reviewing the disclosure, they must be corrected within 30 days. Brokers are also required to respond to any written requests made by their clients within 90 days. An employer must request disclosure in writing in the event that a broker refuses or fails to disclose compensation information. If the broker does not respond or refuses the written request, the employer must submit a formal notice within 30 days to the Department of Labor (DOL).
Who Is Required To Meet CAA Requirements?
Under the Consolidated Appropriations Act, the definition of who qualifies as a “consultant” is quite expansive. In addition to health insurance brokers, the Act also requires many other types of entities, those that provide certain services to group health insurance plans at a compensation level of more than $1,000, to provide disclosure information to clients. These entities may include the following:
- Stop-loss insurance
- Development or implementation of plan designs
- Medical management
- Involvement in insurance or insurance product selection
- Transparency tools
- Benefits administration selection
- Wellness design and management services
- Group purchasing organization services and agreements
- Pharmacy benefit management services
- Employee assistance programs
- Disease management and compliance services
- Third-party administration services
- Services from preferred vendor panels
The Takeaway For Employers With Broker Relationships
Disclosure of commissions and consulting fees is likely to be positive for employers and the benefits industry as a whole. Full disclosure helps eliminate any cost transparency issues and helps employers better understand the value of their services. With full disclosure, employers know what brokers are doing to earn their compensation and can choose to seek services elsewhere based on cost.
Schedule A Consultation With A Benefits Consultant
The CAA broker compensation disclosure provision aims to establish greater trust between employers and their brokers and helps eliminate any concerns about how much of an employer’s money is being applied to their group health plan. To learn more about what broker compensation disclosure means for employers or to speak with a premier benefits consultant, contact the experts at the Business Benefits Group today.