New Compensation Requirements for Group Benefits Brokers

The Consolidated Appropriations Act of 2021 requires agents, brokers and consultants providing health plan-related services to disclose the compensation they receive and the services they perform for that compensation.

The rules apply to individual insurance agents/brokers as well as brokerages and agencies that earn more than $1,000 in direct or indirect compensation selling or administering individual or group health coverage and other medical-related services.

The law also requires employers who sponsor group health plans to make sure those disclosures are included in their contracts, and they will have to be able to prove that’s the case.

The rule, which takes effect Dec. 27, 2021, requires them to divulge to clients what they are being paid in fees or commissions in connection with:

• Brokerage services for placing business with a group health plan,
• Pharmacy benefit administrators,
• Benefit administrators and record-keepers,
• Medical management vendors,
• Disease management vendors,
• Stop-loss insurance,
• Wellness services,
• Employee assistance programs,
• Transparency tools and vendors,
• Compliance services, and
• Group purchasing organization preferred-vendor panels.

The bill defines compensation as anything of monetary value except non-monetary compensation valued at $250 or less.

Required disclosures

The disclosures must include:

• A description of the services to be provided to the group health plan pursuant to the consulting or brokerage services contract.
• A statement that the broker or consultant expects to provide services to the plan as a fiduciary (if applicable).
• A description of all direct compensation the broker or consultant expects to receive in connection with the services they provide.
• A description of all indirect compensation the broker or consultant expects to receive for their services (other than compensation they may receive from a plan that is not directly tied to the compensation for placing a particular account).
• If the broker or consultant is sharing their compensation with affiliates or subcontractors, a description of that compensation.
• A description of all transaction-based compensation.
• A description of any compensation payable in connection with termination and, if applicable, how any prepaid amounts may be refunded and calculated.

The broker or consultant has to provide the above information to the plan fiduciary “reasonably in advance” of the contract taking effect or being renewed. Also, if any of the compensation changes, the broker or consultant is required to notify the plan fiduciary of that change no later than 60 days from the date the broker was made aware of the change.

If the broker or consultant fails to provide the required information or if the information is incomplete or inaccurate, the plan fiduciary must:

• Take reasonable steps to obtain the correct information after they discover it’s missing or incorrect,
• Inform the Department of Labor about the missing or erroneous information, and
• Consider whether to terminate or continue the arrangement if the service provider fails to comply with a request for information within 90 days.

The takeaway

This is a major change that any employer who provides group health insurance, wellness services and other related services needs to be on top of. Once the new regulations take effect, no broker or consulting contracts will be considered reasonable unless they include the required compensation disclosures.

Before these new rules take effect, you should work with your broker or consultant on putting in place procedures for obtaining this information. Employers will also need to establish procedures for documenting all of the information to show they are complying with the law.