3 minute read
COMMENTARY FROM COUNSEL
As 2020 finally wound down, Congress passed its Consolidated Appropriations Act (the “Act”) which, among the numerous spending provisions and other Easter eggs, included the “No Surprises Act”—intended to address the problem of surprise medical bills that patients receive from out-of-network providers or facilities. Tucked further inside the No Surprises Act was a true surprise—some onerous new disclosure requirements on employee benefits brokers and consultants. The new disclosure requirements will impact IIAW members whose agencies are in the benefits business. The disclosure rules go well beyond Wisconsin’s existing fee disclosure requirements and largely track those that have applied for years to qualified retirement plans. The Act expands those rules to “covered plans” and “covered service providers” on the welfare plan side. The IIAW has received numerous questions about the new disclosure requirement and we are working, in conjunction with the Agents & Brokers Education Network (ABEN), to put together a video presentation on the Act, and a high level overview of the disclosure obligations it created. The requirements begin to apply December 27, 2021. Here are some of the details
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Background
Under the Employee Retirement Income Security Act (“ERISA”), a plan sponsor engages in a prohibited transaction if the compensation paid to applicable plan service providers is not “reasonable.” A prohibited transaction triggers excise taxes under the Internal Revenue Code. For this purpose, compensation will be “reasonable” only if the service provider satisfies advance written disclosure requirements. These obligations are implicated for “covered plans” and “covered service providers.” A “covered plan” is one that provides medical care to employees or their dependents directly or through reimbursement, insurance or otherwise. It includes medical, dental and vision benefits and applies to any plan that has a trust or any participant contributions. However, it does not include a qualified small employer health reimbursement arrangement.
Are you or your agency a “covered service provider?” A “covered service provider” is an entity that provides brokerage or consulting services under an arrangement with a covered plan for which the provider reasonably expects to receive $1,000 or more in direct or indirect compensation. A covered service provider generally will include any such broker or consultant that assists with the development or implementation of plan design or the selection of insurance products, recordkeeping services, stop-loss insurance, pharmacy benefit management services, wellness services, transparency tools and vendors, group purchasing organization agreements, disease management vendors and products, compliance services, employee assistance programs, third-party administration services, or medical management vendors. An entity can be a covered service provider even if the applicable services are performed by its affiliate or subcontractor.
What counts as compensation? For these purposes, “direct compensation” is compensation received directly from a plan and “indirect compensation” is compensation received from any source other than the plan, plan sponsor, covered service provider or an affiliate. This would include commissions. Also, compensation received from a subcontractor may be indirect compensation in some situations.
Required Disclosures
The covered service provider’s disclosures must be in writing and made to a plan fiduciary. The service provider will be required to describe the services it will provide, the arrangement between the payer and the service provider pursuant to which indirect compensation may be paid, identification of the services for which indirect compensation will be paid and the applicable payer, and the direct and indirect compensation the service provider expects to receive. The Act also includes detailed rules on how the compensation may be described. The service provider also must indicate if it will serve as an ERISA fiduciary and may be required to disclose compensation that will be paid among the service provider, an affiliate or a subcontractor. In short, this new disclosure requirement will require careful preparation. And, the disclosure must be provided before the contract is entered into, extended or renewed. Going forward, any change to the information must be disclosed to the plan fiduciary within sixty days of the day the covered service provider learns of it.
The irony of this surprising new disclosure obligation in the so-called “No Surprises Act” would be more enjoyable if it were not so burdensome. Fortunately, as mentioned above, the IIAW is working to stay on top of this new requirement and to provide resources to help understand it. Stay tuned for details regarding the IIAW/ ABEN video tutorial as well.
