The Health Law Ticker

Included within the 5539 pages of statutory changes in the Consolidated Appropriations Act, 2021 (the COVID-19 relief bill signed into law at the end of December 2020) are important new “transparency” laws that affect third party administrators and other providers who contract with ERISA-regulated group health plans for certain brokerage and consulting services.

Section 202

Section 202 of the new law requires “covered service providers” who enter into contracts or arrangements with ERISA-regulated group health plans to disclose direct and indirect compensation received from these plans. The definition of “covered service provider” is broad, and so too are the disclosures that will be required.

The term “brokerage services” includes services for which the covered service provider, an affiliate, or a subcontractor reasonably expects to receive indirect compensation or direct compensation for the services provided to the ERISA-regulated group health plan. As discussed further below, the term “indirect compensation” is defined broadly and extends to certain payments received from brokers, agents or other subcontractors. The new law lists several types of services, including, among other items: selection of insurance products (including vision and dental), recordkeeping, medical management vendor, benefits administration (including vision and dental), stop-loss insurance, pharmacy benefit management, wellness services, transparency tools and vendors, group purchasing organization preferred vendor panels, disease management vendors and product, compliance services, employee assistance programs, or third party administration services.

The term, “consulting” is also broadly defined to include the services for which the covered service provider, an affiliate, or a subcontractor reasonably expects to receive indirect compensation or direct compensation related to: the development or implementation of plan design, insurance or insurance product selection (including vision and dental), recordkeeping, medical management, benefits administration selection (including vision and dental), stop-loss insurance, pharmacy benefit management, wellness design and management services, transparency tools, group purchasing organization agreements and services, participation in and services from preferred vendor panels, disease management, compliance services, employee assistance programs, or third party administration services.

Planning is Key

Given these broad categories for brokerage services and consulting services, service providers with contracts or arrangements with ERISA-regulated group health plans should carefully consider taking steps now to meet the new disclosure requirements.

What’s Required in the Disclosure to the Plan Fiduciary

The new ERISA provision will require the “covered service provider” to disclose to a responsible plan fiduciary, in writing, the following:

1. A description of the services to be provided to the ERISA-regulated group health plan pursuant to the contract or arrangement;
2. If applicable, a statement that the covered service provider, an affiliate, or a subcontractor will provide, or reasonably expects to provide, services pursuant to the contract or arrangement directly to the covered plan as a fiduciary;
3. A description of all compensation received directly from the ERISA-regulated group health plan, either in the aggregate or by service, that the covered service provider, an affiliate, or a subcontractor reasonably expects to receive in connection with the services to be provided to the ERISA-regulated group health plan pursuant to the contract or arrangement (“Direct Compensation Disclosure Requirement”);
4. A description of all indirect compensation that the covered service provider, an affiliate, or a subcontractor reasonably expects to receive in connection with the services to be provided to the ERISA-regulated group health plan pursuant to the contract or arrangement (“Indirect Compensation Disclosure Requirement”);
5. A description of the arrangement between the payer and the covered service provider, an affiliate, or a subcontractor, as applicable, pursuant to which such indirect compensation is paid;
6. A description of any compensation that will be paid among the covered service provider, an affiliate, or a subcontractor, in connection with the services to be provided to the ERISA-regulated group health plan pursuant to the contract or arrangement if such compensation is set on a transaction basis (such as commissions, finder’s fees, or other similar incentive compensation based on business placed or retained), including identification of the services for which such compensation will be paid and identification of the payers and recipients of such compensation (including the status of a payer or recipient as an affiliate or a subcontractor), regardless of whether such compensation is disclosed pursuant to the Direct Compensation Disclosure Requirement or the above Indirect Compensation Disclosure Requirement; and
7. A description of any compensation that the covered service provider, an affiliate, or a subcontractor reasonably expects to receive in connection with termination of the contract or arrangement with the ERISA-regulated group health plan, and how any prepaid amounts will be calculated and refunded upon such termination.

“Indirect Compensation” Also Broadly Defined

For the purposes of the required disclosures, the term, “Indirect Compensation” is also broadly defined. The new ERISA provision defines “indirect compensation” to mean “compensation received from any source other than [the ERISA-regulated group health plan], the plan sponsor, the covered service provider, or an affiliate.” The definition further notes that “[c]ompensation received from a subcontractor is indirect compensation, unless it is received in connection with services performed under a contract or arrangement with a subcontractor” (i.e., a contract or arrangement between the ERISA-regulated group health plan and the subcontractor). This broad definition will require the collection of information from the brokers and other affiliates and subcontracts of the “covered service provider” regulated by the new law.

Disclosure Rules Go Into Effect at End of 2021

While these disclosure requirements are extensive, the disclosure provisions of the ERISA modifications go into effect on December 26, 2021. There is also a transition rule that provides that no contract executed prior to December 27, 2020, shall be subject to the new requirements of ERISA that were added by Section 202 of the Consolidated Appropriations Act, 2021.