According to legislative insiders in Washington, the changes within the 2021 Consolidated Appropriations Act are here to stay. But what does this mean for plan sponsors and advisors?
The legislation will have significant implications for both groups, especially as the plan sponsor will now be held to a fiduciary standard. The CAA legislation establishes the environment for greater transparency, the need for better due diligence and the opportunity for improved employee health care outcomes at a lower expense. This situation will provide a perfect alignment: What is good for plan sponsors is good for plan participants. The need to assist the plan sponsor in creating a fiduciary process is a huge opportunity for a great Advisor.
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Plan sponsors need to act — and with urgency
We have reviewed the extensive information put out by ERISA attorneys and the implications for plan sponsors as responsible fiduciaries, are one of the most important distinctions in the group health provisions of the CAA. The legislation lays out the rules and responsibilities that plan sponsors must familiarize themselves and comply with. While these responsibilities have always loosely existed, they are now clearly laid out in the legislation. In addition, more detailed rules will be released as the regulatory bodies (DOL, Treasury and IRS) weigh in over the next year. Plan sponsors would be wise to work with their advisors to focus immediately on several key aspects of the legislation to comply with their fiduciary role.
Responsibilities for plan sponsors as fiduciaries
As a fiduciary, plan sponsors are subject to specific codes of conduct in order to act in the best interest of participants and their beneficiaries in a group health plan. Under CAA, fiduciary responsibilities dictate that plan sponsors carry out their duties prudently.
The goal of the group health provisions passed in the CAA legislation is to improve transparency. This lack of transparency has historically made it nearly impossible for plan sponsors and advisors to see their data and make informed decisions around improving their health plans and reducing the rising costs within them. The new legislation aims to address these deficiencies by outlining a plan sponsor's responsibilities as a fiduciary across four key areas:
1. Removal of gag clauses from service provider contracts on price and quality information Gag clauses in contracts prohibit an employer from being able to have full transparency and utilize their data as a fiduciary. As an example, a plan sponsor would be restricted from using their data for plan benchmarking or during an RFP process. Plan sponsors will have to attest to removal by the end of the year. Advisors should be working with their clients to inventory and remove these gag clauses from the underlying contracts. With the removal of these gag clauses, service providers will be required to provide complete participant information. Plan sponsors and their advisors will have more access to their data in order to make informed, cost-effective health care decisions, and be able to show that employee costs related to claims are expended in a prudent manner. This will allow the plan sponsor and advisor to establish both a fiduciary procurement process and to better identify waste through comparative analytics.
2. Establish reporting requirements for pharmacy and prescription drug disclosures Plan sponsors are required to report certain information to HHS, DOL, and Treasury, including drug pricing, frequency of prescription, drug cost increases, premiums, rebates and out-of-pocket costs. This annual reporting requires evidence that the plan sponsor's actions serve the economic interest of the enrollee.
3. Disclosure of direct and indirect compensation from all service providers CAA requires the reporting of direct and indirect compensation over $1,000 from all service providers. These rules require the disclosure of, among other things, the service provider's role in providing fiduciary services, as well as the direct and indirect compensation received by service providers related to the health plan.
4. Required parity in substance abuse and mental health benefits CAA requires plan sponsors to analyze non-quantitative treatment limitations on MH/SA benefits to show parity with medical and surgical care. Non-quantitative treatment limitations refer to network admission criteria, medical management programs, and coverage policies (i.e., access to substance abuse facilities). Quantitative treatment limitations include copay requirements or a restriction on the number of treatments.
Vital takeaways for plan sponsors and advisors
The changes passed into law through the CAA apply to all plan sponsors of health care programs. Plan sponsors and their advisors will need to meet their obligations under the legislation and any future regulations, while seizing opportunities for growth, improving benefits and decreasing waste.
As a fiduciary, plan sponsors are required to attest to the fact that they have implemented a process to understand and fully report on the details of their benefits program and prove that they are working in the best interest of plan enrollees. To do so, it is essential that they develop a rigorous procurement process, and quickly.
Plan sponsors must ensure they have access to all data available to fully understand what they're paying for and to demonstrate that it is in the best interest of their plan participants. The ability for plan sponsors and advisors to use data will be essential if they are to meet their fiduciary responsibilities which, in turn, will lower costs and improve participant outcomes
The plan sponsor's advisor will play a pivotal role in helping the plan sponsor establish a fiduciary procurement process, as well as develop solutions to help bring down health care expenses.
The bottom line for plan sponsors is that while the CAA legislation lays out the key responsibilities as a fiduciary, it is possible for plan sponsors to use these requirements to reduce costs and improve participant outcomes. For the advisor, the legislation provides a significant opportunity to embrace these new rules and truly differentiate their business.
Hugh O'Toole is the CEO of Innovu. Innovu will be watching closely as additional requirements and rules are codified by the regulatory bodies (DOL, Treasury, IRS) in the coming year and we will continue to enhance our solutions to meet any additional requirements that will be placed on plan sponsors.
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