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Broker Compensation Transparency

The Consolidated Appropriations Act, 2021 (CAA) requires health insurance brokers and consultants to disclose any compensation they may receive for service referrals to ERISA-covered group health plan sponsors. All types of health insurance plans are affected by the CCA. These plans include individual and family plans, small and large group plans, and self-funded and fully-funded plans, along with Health Reimbursement Accounts and Flexible Spending Accounts.

On December 27, 2021, the CAA transparency provision became effective. Due to this, brokers and consultants must inform group health plan sponsors regarding expected compensation and services provided in exchange for direct or indirect compensation valuing $1,000 or more. The purpose of this requirement is to ensure there are no conflicts of interest for plan service providers and that compensation is reasonable.

Additionally, it’s important to understand what direct and indirect compensation entails:

Direct. When a broker receives direct compensation, it typically includes payments from the plan sponsor through a fee for services. A broker may also receive commissions based on a percentage of premium amounts or a flat-dollar amount per employee per month (PEPM) as a form of compensation.

Indirect. Bonuses and additional commissions for retaining business with a carrier, or other similar situations, are considered indirect compensation.

For a contract between an ERISA-covered group health plan and a covered service provider (CSP) to be considered reasonable, certain disclosure requirements must be met for both consulting and brokerage services. For example, entities providing employee assistance programs, medical management, development or implementation of plan designs, and more, must disclose compensation levels totaling over $1,000.

CSPs must keep all compensation disclosures current and accurate. Within 60 days after a commission charge occurs, disclosures must be updated. Below are a few of the required disclosures that CSPs must divulge in writing to plan fiduciaries:

  • Descriptions of direct and indirect compensation
  • Descriptions of transaction-based compensation
  • Descriptions of services provided for compensation
  • Descriptions of refunds due to plan termination
  • Descriptions of compensation related to plan termination
  • Descriptions of how compensation will be received
  • Identification of the indirect compensation payer
  • A statement highlighting any fiduciary services the broker expects to offer

It is important to note that the required description of compensation or cost can be expressed as either a monetary amount, formula, or per capita charge for every enrollee. Notably, the U.S. Department of Labor announced a temporary enforcement policy, stating so long as a person made disclosures following a good faith, reasonable interpretation of the law, the person will not be treated as having failed to make required disclosures to a plan fiduciary.

If you have any questions regarding broker compensation transparency or the new requirements, please contact Creative Benefits, Inc.