Who doesn’t like surprises?
The Department of Health and Human Services, that’s who. Filed on September 10, and published on September 16, 2021, are the Proposed Rules partially implementing the “No Surprises Act” and the “Transparency” provisions of Consolidated Appropriations Act of 2021 (CAA). For those of you just joining us, these rules impose additional annual disclosure and filing requirements on insurance issuers regarding compensation paid to agents and brokers (but it’s the agents and brokers who will be doing the legwork). While it’s important to note that these are the proposed rules which only apply to individual and short-term limited duration plans (i.e., not employer-provided group health plans, for which there does not yet exist regulatory guidance, just the statute itself), the group health plan rules are immanent, and it is reasonable to assume that the group health plan rules will not be substantially different. Thus, issuers and brokers who deal with group health plans should take note as they prepare for the December 27, 2021, effective date. This article will include interpretive guidance both from the CAA and the provisions of the Proposed Regulations that will likely be applied to group health plans.
So, let’s dive right into this 163-page document, shall we?
In general, group health issuers must make disclosures to “responsible plan fiduciaries” and report annually to HHS any direct or indirect compensation provided by the insurer to “covered service providers” associated with enrolling individuals in the coverage.
A “covered service provider” (CSP) is one who contracts with the plan and reasonably expects to receive $1,000 or more in direct or indirect compensation in connection with providing “brokerage or consulting services,” which include anything related to:
- selection of insurance products (including vision and dental),
- recordkeeping services,
- medical management vendor,
- benefits administration (including vision and dental),
- stop-loss insurance,
- pharmacy benefit management services,
- wellness services,
- transparency tools and vendors,
- group purchasing organization preferred vendor panels,
- disease management vendors and products,
- compliance services,
- employee assistance programs, or
- third party administration services.
Note that a service provider will be a CSP even if some or all of the services pursuant to the contract or arrangement are performed by affiliates or subcontractors of the CSP.
An “affiliate” is an entity under common control with the CSP or an officer, director, employee, or partner of the CSP.
A “subcontractor” is any person or entity that is not an affiliate of the CSP who enters a contract or arrangement with the CSP pursuant to which it will receive compensation of at least $1,000 for performing services under the CSP’s contract or arrangement with the covered plan.
“Compensation” is anything of monetary value. It does not include non-monetary compensation valued at $250 (adjusted for inflation) or less in the aggregate during the term of the contract or arrangement.
“Direct Compensation” includes sales and base commissions, attributable directly to the policy, certificate, or contract of insurance for the sale, placement, or renewal of insurance.
“Indirect Compensation” includes service fees, consulting fees, finders’ fees, profitability and persistency bonuses, awards, prizes, volume-based incentives, and non-monetary forms of compensation that are received from any source other than:
- the covered plan;
- the plan sponsor;
- the covered service provider;
- an affiliate of the covered service provider; or
- a subcontractor of the covered service provider.
The description of compensation or cost may be expressed as “a monetary amount, formula, or a per capita charge for each enrollee or, if the compensation or cost cannot reasonably be expressed in such terms, by any other reasonable method, including a disclosure that additional compensation may be earned but may not be calculated at the time of contract if such a disclosure includes a description of the circumstances under which the additional compensation may be earned and a reasonable and good faith estimate if the covered service provider cannot otherwise readily describe compensation or cost and explains the methodology and assumptions used to prepare such estimate. Any such description shall contain sufficient information to permit evaluation of the reasonableness of the compensation or cost.”
Disclosure to Plan Fiduciary
This disclosure for group policies must be made “reasonably in advance of the date upon which such responsible plan fiduciary or covered plan administrator states that it is required to comply with the applicable reporting or disclosure requirement”, and any changes to compensation must be disclosed within 60 days of receipt.
The disclosures related to direct compensation must include:
- A description of the services to be provided to the plan;
- A statement that the CSP, affiliate, or subcontractor will provide services to the covered plan as a fiduciary; and
- A description of all direct compensation (aggregate or by service) that the SCP, affiliate, or subcontractor expects to receive in connection with services provided to the plan.
The disclosures related to indirect compensation must include:
- Compensation from a vendor to a brokerage firm based on a structure of incentives not solely related to the contract with the covered plan, not including compensation received by an employee from an employer on account of work performed by the employee;
- A description of the arrangement between the payer and the CSP, affiliate, or subcontractor pursuant to which indirect compensation is paid;
- Identification of the services for which the indirect compensation will be received; and
- Identification of the payer of the indirect compensation.
Additional disclosures that the CSP must provide include:
- A description of any compensation that will be paid among the CSP, affiliate, or subcontractor in connection transaction-based compensation, including commissions, finder’s fees and similar incentive compensation based on business placed or retained, including:
- Identification of the services for which compensation is paid; and
- Identification of the payer and recipients of compensation including status as an affiliate or subcontractor;
- A description of compensation received in connection with termination of the contract or arrangement, including how any prepaid amounts are calculated and refunded upon termination;
- A description of the way compensation will be received, for example, whether the compensation will be billed or deducted directly from plan assets.
Group health plans subject to these requirements include:
- Insured and self-funded plans.
- Private employment-based group health plans subject to ERISA, including grandfathered health plans under the Affordable Care Act (ACA).
- Non-federal governmental plans (for example, plans sponsored by states and local governments) that are subject to the PHSA.
- Church plans that are subject to the Code.
- Certain traditional indemnity plans (referring to arrangements that lack a network of providers).
Template Disclosure Form Provided by HHS
There isn’t one. Use your imagination; be creative!
For the HHS reporting, insurers will report direct and indirect compensation on Schedules A and C of Form 5500. On Schedule A will be the total fees and commissions paid per insurance contract or policy, who received the fees and commissions, and the purpose of said fees and commissions. The amounts reported will include sales and base commissions and all other monetary and non-monetary forms of compensation, including persistency and profitability bonuses, service and consulting fees, finder’s fees, awards, and prizes.
GA compensation from the insurer is not reported for the GA’s “management of an agency or performance of administrative functions for the insurer”. Here, a GA does not include brokers representing insureds, and payments would not be treated as paid for “managing an agency or performance of administrative functions” where the recipient’s eligibility for the payment or the amount of the payment is dependent or based on the value (e.g., policy amounts, premiums) of contracts or policies (or classes thereof) placed with or retained by an ERISA plan. Schedule A compensation would also not include occasional gifts or meals that are both occasional and insubstantial (less than $50 and $100 in the annual aggregate, excluding gifts under $10).
On Schedule C plans (excluding small welfare plans that satisfy the small plan exemption or Technical Release 92-01) will report if the service provider received, directly or indirectly, $5,000 or more in reportable compensation in connection with services rendered, except
- Compensation in relation to the plan consisting of insurance fees and commissions reported on Schedule A;
- Payments made by the plan sponsor that are not reimbursed by the plan; and
- Non-monetary compensation of insubstantial value (such as gifts or meals), that are valued at less than $50 or $100 in the aggregate.
What is included are:
- Money and other things of value (gifts, awards, trips) received from the plan in connection with services rendered to the plan;
- Payments made by the plan for services rendered (though payments not reimbursed by the plan, are not subject to Schedule C reporting requirements even if the sponsor is paying for services rendered to the plan.); and
- Compensation received from sources other than directly from the plan or plan sponsor.
Disclosure Requirements for Individual and Short-Term Policies
There’s good news here – this disclosure need only be made to the policyholder, not all dependents and beneficiaries. Spanning 3 pages of the Proposed Rules, there is found a discussion wherein we are advised of Agency’s limitless beneficence:
HHS considered whether to propose requiring that issuers make these required disclosures to all plan enrollees but are of the view that such a requirement would be needlessly burdensome requiring issuers to disclose direct and indirect agent or broker compensation to each person in an enrollment group would be unreasonable as many enrollees are infants, minor children, or otherwise not responsible for choosing their health insurance coverage.”
Obviously, someone up there had been gunning for disclosure to all enrollees, yet HHS has our backs:
For example, to the extent an issuer uses the agent or broker to provide the disclosure, requiring disclosure to be made to all enrollees prior to finalizing the plan selection would necessitate an adult, seeking to purchase coverage for their family, to bring that entire family to the office of the insurance agent or broker in order to receive the disclosure of information about direct and indirect compensation before finalizing the plan selection in which the family members would be enrolled.
Other Agency officials must have had more than their fair share of romantic disappointments, and the despair in the section on telephonic enrollments just leaps off the page:
In addition, emails or phone calls from unknown individuals are often not answered or responded to promptly, if at all, meaning a policyholder would need to first contact the other plan enrollees, telling them to expect a call from the agent or broker, which adds another layer of coordination and complexity.
 Don’t be fooled by terminology, “proposed” rules often persist substantially unchanged in the “final” rule after expiration of the public comment period. Think of it like parents “proposing” that their children finish their homework.
 “HHS assumes that the compensation information to be provided to potential policyholders prior to finalizing enrollment would be provided by agents and brokers on behalf of issuers.”
 That was probably a tough call; why, just the other day, my 9-year-old and I were putting together his new Lego Ninjago set, and he pressed me with a series of probing questions about our group health plans’ renewal commission structure.
 A mixed blessing, indeed. Some of my fondest childhood memories were of me and the old man tossing around the ol’ pigskin in the waiting room of Old Man Aflac’s Corner Insurance Store.
 Dude, maybe she’s just not that into you.