Temporary Enforcement Policy Addresses CAA's Health Plan Service Provider Disclosure Requirements

The U.S. Department of Labor (DOL) has issued a temporary enforcement policy to address frequently asked questions about the requirement for certain service providers to disclose direct and indirect compensation data to group health plan fiduciaries under the Consolidated Appropriations Act (2021) (CAA).

The CAA’s disclosure requirement applies to entities providing brokerage or consulting services to a group health plan if such entities expect to receive $1,000 or more in direct or indirect compensation for those services. Covered service providers must provide the information necessary for the fiduciaries to determine whether the plan is paying no more than reasonable compensation for the vendor’s service, as required by the prohibited transaction rules of the Employee Retirement Income Security Act of 1974, as amended (ERISA). 

The new guidance largely confirms and clarifies the statutory changes made by the CAA, including the following:

• Applicable Group Health Plans: The CAA’s disclosure requirement applies to insured and self-insured group health plans, regardless of size. It extends to grandfathered health plans under the Affordable Care Act and, unlike many CAA provisions, extends to excepted benefits, such as standalone dental and vision plans. However, the disclosure requirement does not apply to qualified small employer health reimbursement arrangements and plans that are not subject to ERISA (such as church plans and governmental plans).
• Applicable Service Providers: A service provider will be subject to the CAA’s disclosure requirement based on the services that it provides to a group health plan, and not how the service providers identifies itself or its fees. Services that will subject a service provider to the CAA’s disclosure requirement include services related to the development or implementation of plan design, the selection of insurance products, administrative services, pharmacy benefit management services, stop-loss insurance, wellness programs, employee assistance programs and the insurers, third-party administrators, pharmacy benefit managers, and other vendors that furnish those services.
• Effective Dates: The CAA’s service provider disclosure requirements apply to a contract or arrangement that is entered into, extended, or renewed on or after December 27, 2021. Applicability generally is based on the date the contract or arrangement is executed, which may differ from its effective date. For example, a contract that was executed on December 20, 2021, that relates to services that commenced on January 1, 2022, is not subject to the disclosure requirement (unless and until it is renewed or extended).
• Identifying and Disclosing Compensation: When disclosing compensation to a plan fiduciary, the service provider may express the cost as a monetary amount, formula, or a per capita charge for each enrollee. If a service provider cannot identify or calculate compensation amounts before a contract or arrangement is entered into, the service provider may instead disclose that additional compensation may be earned but is not determinable at the time of the contract, provided that the disclosure describes when additional compensation may be earned and includes a reasonable, good faith estimate of the compensation and a description of the methodology and assumptions used to prepare the estimate. The DOL emphasized that service providers should aim to provide more specific information, whenever possible, and such disclosures should align with the objective of providing the plan fiduciary with sufficient information to evaluate the reasonableness of the compensation and severity of any associated conflicts of interest. 
• DOL’s Enforcement Approach: The DOL does not expect to issue regulations or additional guidance addressing the CAA’s disclosure requirement, but it emphasized that a service provider will not have failed to comply with the disclosure requirement if it makes disclosures in accordance with a good faith, reasonable interpretation of the requirement under section 408(b)(2)(B) of ERISA (the CAA’s disclosure requirement). The DOL also explained that group health plan service providers may rely on existing DOL guidance that addresses similar disclosure requirements for pension plans.

Based on the temporary enforcement policy, it is clear that the DOL expects service providers and group health plans subject to the CAA’s disclosure requirement to have sufficient guidance to comply with the new requirements. Group health plan fiduciaries should identify the plan’s service providers that are subject to the disclosure requirement based on the services they provide to the plan and require them to submit clear and specific information that will allow them to assess the reasonableness of the compensation they receive before executing, extending, or renewing contracts for brokerage or consulting services.

For more information on these requirements, you may wish to connect to our Health Care Reform Dashboard or contact a member of our Employee Benefits and Executive Compensation Group.

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