Understanding the new group health plan broker disclosure rule
Too often when employers engage with brokers and consultants regarding their health plan choices, they get advice clouded by incentives paid to same advisers they are entrusting with their fiduciary obligations. These incentives can range from broker commissions and overrides to referral fees, six-figure bonuses and even exotic vacations — all in exchange for helping retain business for, or steering business to, a particular insurance company, third-party administrator, pharmacy benefits manager or other vendor.
The resulting conflicts of interest have contributed significantly to spiraling health plan costs for employers and employees alike — but a new solution recently enacted by Congress is designed to address these conflicts directly and reduce their financial impact.
The Consolidated Appropriations Act, 2021, enacted in December 2020, created a new fee disclosure rule to address conflicts of interest. This new rule requires brokers and consultants to disclose virtually all compensation to be paid in connection with a contract. These disclosures must occur well in advance of entering or extending a contract for brokerage or consulting services with an ERISA-covered health plan — regardless of whether the broker or one of its affiliates or subcontractors performs the services or receives compensation.
Not only does the new rule cover direct compensation received directly from a health plan, it also covers indirect compensation received from any source other than the plan, the plan sponsor, the broker or its affiliate. This includes compensation paid by a vendor to a broker based on incentives that are not solely related to the contract with the covered health plan.
While the new rule may not entirely solve the problem of misaligned interests in the marketplace, it will ensure employers receive better information with which to make more informed health plan decisions.
The new broker disclosure rule will take effect as of December 27, 2021, requiring brokers and consultants to make all necessary disclosures of compensation before entering, extending or renewing contracts for their services. These new requirements apply to ERISA-covered health plans and mirror regulations that apply to ERISA-covered retirement plan providers.
Under the new broker disclosure rule, the plan fiduciary may incur liability if a broker fails to disclose all compensation and those disclosure failures are not promptly reported to the U.S. Department of Labor. Even if a plan is exempt from ERISA, the plan fiduciary should still request disclosure in order to ensure better decision-making regarding their health plan choices.
Each covered service agreement requires a full compensation disclosure by the broker or consultant, including enough information to allow the plan fiduciary to understand the fee arrangements. A complete broker disclosure should include the following:
Besides fees paid by a health plan to a broker or consultant, other compensation that must be disclosed includes commissions, bonuses paid by vendors, finder's fees, retention fees and any incentive payments not solely related to the plan.
At Korn Ferry, we help employers understand and evaluate the disclosure information they receive from brokers, then review their current health and welfare benefits programs for cost-efficiency opportunities. Unlike our competitors, we are truly independent advisers and do not accept vendor commissions or any other indirect compensation.
We've worked with a wide range of clients to analyze their health plan decisions and ensure full disclosure from brokers. For example, we recently conducted an independent request for proposal for a client's self-funded health plan. We determined that the current broker did not conduct a thorough analysis of potential medical and pharmacy vendors when the plans were last marketed and found overall projected savings of 12%. Although we do not accept any vendor fees, we learned — and were able to show the client — that the incumbent vendor had offered substantial monetary incentives for renewals.
To learn more about how Korn Ferry can help your organization evaluate broker disclosures and make more informed health plan decisions, contact us.