CAA #14: DOL Issues Guidance on Broker Disclosure Requirements Under the CAA

The Department of Labor (DOL) issued Field Assistance Bulletin No. 2021-03 (the FAB) announcing its temporary enforcement policies regarding broker and consultant disclosure requirements to group health plans under the Consolidated Appropriations Act (CAA).

• The CAA requires certain providers of “brokerage” and “consulting” services to a group health plan (who expect to receive more than $1,000 in direct and indirect compensation in connection with those services) to disclose the amounts and sources of that compensation to fiduciaries of the plan.
• The CAA details the manner and timing of the disclosures.
• Contracts with service providers who do not disclose the required information will be deemed unreasonable and constitute a prohibited transaction.
• This could create liabilities for plan fiduciaries unless they take specified actions (including reporting the service provider to the Secretary of Labor.)
• Accordingly, it is important for plan fiduciaries to understand the disclosure requirements.

For a detailed description of the CAA’s disclosure provisions read our blog.  This article discusses clarifications to these requirements in the FAB as well as remaining “murky” issues.

In general, the DOL expects that service providers and fiduciaries will adopt a reasonable, good faith interpretation of the law.  The DOL notes that similar (in some cases identical) disclosure rules have been outlined in its regulations for pension plans.

While acknowledging fundamental differences between pension and health plan in terminologies and compensation arrangements, the DOL nevertheless finds sufficient similarities that it will allow affected parties to consider pension rules in their interpretation of the health plan requirements.

The FAB makes it clear that that the rules apply to all

• group health plans (insured and self-insured, large and small); and
• excepted benefits such as dental and vision plans.

The statute applies to covered service providers. 

• These are providers that enter into contracts or arrangements with group health plans to provide brokerage or consulting services.
• Many health plans are funded out of employer general assets; consequently, service providers tend to contract directly with employers rather than with their plans.
• By its literal terms, the statute would not appear to apply to contracts with employers; however, the FAB does not address this.

The statute defines brokerage services as those provided to a plan with respect to:

• selection of insurance products (including vision and dental),
• recordkeeping services,
• medical management vendor,
• benefits administration (including vision and dental),
• stop-loss insurance,
• pharmacy benefit management services,
• wellness services,
• transparency tools and vendors,
• group purchasing orga1nization,
• preferred vendor panels,
• disease management vendors and products,
• compliance services,
• employee assistance programs, or
• third party administration services.

The statute defines consulting services as those 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 services,
• 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.

These definitions cover a broad swath of services. The test for whether a provider is a consultant or broker is functional.  It does not matter what the provider calls itself.

Despite its breadth, the FAB leaves questions unanswered. 

• For example, brokerage services include those related to the “implementation of … third party administration services.”  Is that different from the actual provision of TPA services (which is not mentioned)?
• How is it different from selection of benefit administration services (which is mentioned)?
• Even if a TPA is not a broker or consultant solely by dint of performing TPA services, it may become one if it recommends (or requires) a plan to use a particular stop loss carrier or PBM.

The FAB does not address such nuances but offers two useful perspectives:

1. A significant goal of disclosure requirements is to enhance fee transparency for service arrangements that involve the receipt of indirect compensation.
2. In the event of DOL questions, the burden will be on service providers to explain why they are not covered service providers.  Employers may wish to take a similarly expansive approach when dealing with service providers to minimize the risk of engaging in a prohibited transaction.

The statute requires fee disclosures to be made in advance of entering into a contract with a plan.  It recognizes that providers will not always have exact dollar amounts and that disclosures may involve estimates or formulas for the calculation of compensation.

The FAB articulates that disclosure of compensation in ranges may be reasonable in circumstances when the occurrence of future events or other features of the service arrangement could result in the service provider’s compensation varying within a projected range.

• The range should be a forecast with as much precision as is reasonably possible, keeping in mind that the point of the disclosure is to provide the plan fiduciary with sufficient information to assess the reasonableness of the compensation.

The disclosure requirements apply to contracts “executed” on or after December 27, 2021.

• The FAB clarifies that the contract is deemed executed on the date it is entered into.
• For contracts executed prior to December 27, 2021, the disclosure requirements apply on the date the contracts are renewed or extended.

The DOL does not intend to issue formal regulations regarding the disclosure requirements but may offer additional guidance from time to time as deems appropriate.

For now, however, it appears that this FAB is all we’re going to get.