ERISA Health Plan Transparency and Trust Committees
The Consolidated Appropriations Act, 2021 (the “Act”) enacted a set of transparency requirements that apply to employer-sponsored group health plans. These transparency rules impose a new and complex set of obligations on plan trustees that mirror the rules that have applied to pension plan trustees over the past decade. While both pension and redundancy plans are subject to ERISA’s fiduciary standards, trust committees common to retirement plans are far less common in redundancy plans. The new law provides compelling reasons to change this.
In response to the steady increase in class action and other lawsuits against 401(k) and other pension plan trustees, as well as regulatory developments affecting plan administration, plan sponsors have attempted to identify and implement best-in-class plan governance practices. They now rely on trustee committees to handle or oversee plan administration. New case law supports the notion that properly organized and operated pension plan trust committees can play an important role in ensuring diligent compliance with ERISA trust standards, thereby reducing the risk of fiduciary breach claims.
While ERISA fiduciary standards apply to both pension and social plans, fiduciary compliance with social plans, including group health insurance plans, is often an afterthought. Broadly speaking, there are two types of benefit plans, programs, and arrangements: fully insured and self-funded. The former fully insured arrangements take the form of regulated insurance products offered for sale by licensed insurance companies and on which plan sponsors generally rely in all aspects of plan administration; The latter, self-funded plans, are in most cases operated by third party administrators or consulting firms, which are also generally relied upon by plan sponsors. Nonetheless, plan sponsors generally retain full fiduciary responsibility for their plan (unless the decision on specific health, life and disability claims has been delegated to a fiduciary claims administrator). This retained fiduciary responsibility is too often misunderstood and underappreciated.
Section BB of the Act generally addresses surprise medical bills and health plan transparency for group health insurance. While the law’s provisions on curbing surprise medical bills have garnered much of the media attention, the law’s dozen or so transparency provisions have the power to transform how group health plans are serviced. All of the new requirements of the law apply to group health plans and carriers. Particularly in the case of self-funded group health plans, these transparency requirements are such that plan sponsors must rely heavily, if not exclusively, on non-fiduciary service providers to comply. To make matters worse, these new transparency rules are mostly granular and prescriptive, meaning there’s no shortage of opportunities to make mistakes.
It won’t be long before the law firm connects the proverbial dots. Private health insurance spends more than $1 trillion annually on healthcare, and employer-sponsored group health insurance covers approximately 179 million Americans (about fifty-five percent (55%) of the nation’s total population). The complexity of the law’s new transparency rules ensures that violations occur. The parallels to the world and the course of 401(k) plan litigation are unmistakable. The law offers a big, new, juicy target: fiduciary infringement claims against group health plan trustees and plan sponsors for failure to properly select, oversee, and compensate service providers.
Section BB of the Act
Notwithstanding that Title I, Sections 101-118, of Division BB of the Act (entitled the law without surprises) mainly deals with surprise medical bills, but also includes transparency measures. These measures include rules on continuity of care, improving the accuracy of provider directory information, establishing a price comparison tool, and requiring state claims databases for all payers. Title II, Sections 201-204, Section BB of the Act is formally titled transparency. Among other things, it includes rules that eliminate toggle clauses in provider contracts, require disclosure of direct and indirect brokerage and consultant fees, strengthen parity in mental health and substance use disorders services, and report on pharmacy services and drug costs.
Each of Division BB’s transparency provisions is set out in an amendment to the Public Health Service Act and parallel amendments to ERISA and the Internal Revenue Code, imposing obligations on group health insurance plans (including grandfathering plans) and health insurance issuers. In the absence of proper delegation of authority, the default governing body – the “Plan Administrator” – of an ERISA-managed plan is the directors, partners or managers of the plan sponsor or sole proprietorships, as the case may be. In this context, it is easy to see how these individuals become potential suspects or targets.
Section BB of the Act contains about a dozen provisions related to healthcare plan transparency provisions, ranging from the relatively trivial (e.g. prescribing what information must appear on insurance cards) to the substantive (e.g. prescribing care a web-based price) comparison tool). Others are more difficult to calibrate (e.g. a directive enacting rules under the Court of Auditors’ rules on non-discrimination of providers). For the purposes of this post, the most important rules are those that require brokers and advisors to disclose their compensation to plan trustees.
What this means for claimants
One does not have to spend much time studying the above list of Division BB transparency requirements to see at least the broad outlines of the problem: Each of the Division BB transparency requirements is very prescriptive. A lot can go wrong there. In addition, elements such as the price transparency tool and extended declarations of performance (“EOBs”) require the development of a new technology infrastructure. Others, such as the provider non-discrimination rule, invite plaintiffs to bring the full scope of the provision back to court. This is not an academic exercise. There is a lot at stake, because providers of all stripes want to be included in provider panels. (We describe the inserts in a previous post available here.).
Some of these transparency requirements, while probably not well-suited to class action lawsuits, will prove annoying. Provisions on cost estimates and continuity of care fall into this category. By contrast, mental health parity provisions appear perfectly designed to support class action lawsuits. This is all the more concerning given the difficulties plan sponsors and their providers have encountered in complying with the non-quantitative treatment restriction rules imposed under the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”). To make matters worse, the comparative analysis required by the MHPAEA under Section 203 of Division BB is complex and burdensome as interpreted by the Departments of Labor and Departments of Health and Human Services.
However, the main reason for the plaintiffs’ bar association lies in the disclosure rules for brokerage/consultancy fees. For starters, there is the apparent claim that the rule was not properly followed, triggering a prohibited transaction. Equally obvious, and even more troubling, are allegations straight out of the 401(k) litigation book: The plan paid inflated fees and the plan’s trustees ignored it. In essence, the law’s focus on fee disclosure invites close scrutiny of the underlying fees and associated fiduciary commitments.
A court case affecting the Act’s brokerage/consultancy disclosure rules could go a long way to reshaping the way these individuals and firms are compensated. In Field Assistance Bulletin 2021-03, the Department of Labor encourages brokers and consultants to align themselves with the 2012 Pension Disclosure Rules. A consequence of the final pension disclosure rule was a move away from wealth-based fees and commissions on the theory that an increase in wealth is unlikely to result in a corresponding increase in the amount of compensable work. The same could prove true in the case of brokerage commissions related to group health insurance.
What this means for employers
Employers can best protect themselves from fiduciary breach claims under their social plans by following the lead of the 401(k) plan. Essentially, this requires adopting prudent policies and procedures and demonstrating robust, ongoing fiduciary compliance. Establishing a welfare plan trustee committee is a great place to start.
©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC All rights reserved.National Law Review, Volume XII, Number 66