Transparency of Health Schemes and the Case for Fiduciary Committees of Social Protection Schemes | Mintz – Perspectives on Employment, Labor and Benefits
The Consolidated Appropriations Act of 2021 (the “Act”) enacted a series 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 governed pension plan trustees over the past decade. While pension and welfare plans are subject to ERISA fiduciary standards, trust committees, which are common in the case of pension plans, are much less common with respect to welfare plans. . The new law provides compelling reasons for this to change.
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 sought to identify and to adopt best governance practices for plans and procedures. They have come to rely on trust committees to manage or oversee the administration of the plan. An emerging body of case law supports the idea that properly organized and operated pension plan fiduciary committees can play an important role in ensuring faithful adherence to ERISA fiduciary standards, thereby reducing exposure to fiduciary breach claims.
While ERISA fiduciary standards apply to both pension and benefit plans, fiduciary compliance relating to benefit plans, including group health plans, is often an afterthought. Broadly speaking, social assistance schemes, programs and arrangements are of two broad types: fully insured and self-funded. The former, fully insured, take the form of regulated insurance products offered for sale by licensed insurance companies that plan sponsors typically rely on for all aspects of plan administration; the latter, self-funded plans, are in most cases managed by third-party administrators or consultancy firms, which plan sponsors usually rely on as well. Despite this, social assistance plan sponsors generally retain full fiduciary responsibility for their social assistance plans (except where settlement of certain medical, life, and disability claims has been delegated to a claims trustee). This retained fiduciary responsibility is too often misunderstood and ignored.
Section BB of the act generally deals with surprise medical billing and health plan transparency for group health plans. While the law’s provisions limiting surprise medical bills have attracted much media attention, the law’s dozen or so transparency provisions have the power to transform maintaining the group health plan. Each of the new requirements of the Act apply to group health insurance plans and insurers. Particularly in the case of self-funded group health insurance plans, these transparency requirements are such that plan sponsors will have to rely heavily, if not exclusively, on non-fiduciary service providers to comply. To complicate matters further, these new transparency rules are mostly granular and prescriptive, which means there are plenty of opportunities for mistakes.
It won’t take long for the plaintiffs’ bar to connect the proverbial dots. Private health insurance health care spending exceeds $1 trillion annually, and employer-sponsored group health plans cover some 179 million Americans (about fifty-five percent (55%) of the total population of the country). The complexity of the law’s new transparency rules ensures that there will be violations. The parallels to the world and trajectory of 401(k) plan litigation are undeniable. The law offers an important and juicy new target: fiduciary claims against trustees and group health plan sponsors for failure to properly screen, supervise and compensate service providers.
Section BB of the Act
Despite this title I, articles 101 to 118, of division BB of the law (entitled the law without surprise) mainly deals with surprise medical billing, it also contains transparency measures. These measures include rules regarding continuity of care, improving the accuracy of provider directory information, setting up a price comparison tool and requiring databases of complaints from all providers. state-based payers. Title II, Sections 201-204, of the BB Division of the Act is officially titled Transparency. It includes rules prohibiting gag clauses in vendor contracts, requiring disclosure of direct and indirect compensation for brokers and consultants, bolstering parity in mental health and addictions benefits, and reporting on drug and drug benefits. drug costs, among others.
Each of the BB Division’s transparency provisions is defined in an amendment to the Public Health Services Act and in parallel amendments to ERISA and the Internal Revenue Code, and each imposes obligations on group health plans (including grandfathered plans) and issuers of health insurance. In the absence of appropriate delegation of authority, the default governing body – the “plan administrator” – of an ERISA-governed plan is the plan sponsor’s directors, partners, or managers, or the sole proprietor, as the case may be. In this context, one can easily see how these individuals become potential defendants or targets.
Section BB of the Act contains about a dozen provisions relating to transparency in health insurance schemes, ranging from relatively insignificant provisions (for example, prescribing the information that must appear on insurance identification cards) to merits (for example, requiring the maintenance of an online pricing comparison tool). Others are more difficult to calibrate (for example, a directive to enact regulations under ACA rules governing non-discrimination of suppliers). For the purposes of this article, the most important are the rules that require brokers and consultants to disclose their compensation to plan trustees.
What this means for claimants
You don’t have to spend a lot of time studying the list of BB Division Transparency Requirements outlined above to discern at least the broad outlines of the problem: each of the BB Division Transparency Requirements is highly prescriptive. There are many things that can go wrong. In addition, things like the Price Transparency Tool and Advanced Explanations of Benefits (“EOB”) will require the development of new technology infrastructure. Others, such as the rule of non-discrimination of suppliers, invite complainants to question the full scope of the provision. This is not an academic exercise. There is a lot at stake as vendors of all persuasions seek to be included on vendor panels. (We describe the issues in a previous post available here.).
A subset of these transparency requirements, while probably not well suited to class actions, will nonetheless prove frustrating. Provisions governing cost estimation and continuity of care fall into this category. By contrast, the mental health parity provisions seem perfectly designed to attract class action lawsuits. This is all the more worrying given the difficulty plan sponsors and their providers have had in complying with rules governing non-quantitative treatment limitations imposed under the Mental Health Parity Act 2008 and Dependency Equity (“MHPAEA”). To complicate matters, the benchmarking under the MHPAEA required by Section 203 of the BB Division, which, as interpreted by the Departments of Labor and Health and Human Services, is complex and time-consuming.
The common thread of the Plaintiffs Bar, however, is found in the Broker/Consultant Compensation Disclosure Rules. For starters, there is the obvious allegation that the rule was not followed correctly, thus triggering a prohibited transaction. However, just as obvious and even more disturbing are claims that come straight out of 401(k) litigation: the plan paid excessive fees and the plan’s trustees failed to pay attention. Essentially, the law’s emphasis on fee disclosure invites careful scrutiny of the underlying fees and the fiduciary commitment that accompanies them.
Litigation over the Act’s broker and consultant compensation disclosure rules could go a long way to reshaping the way these people and firms are compensated. In Field Assistance Bulletin 2021-03, the Department of Labor encourages brokers and consultants to consult the Pension Disclosure Rules 2012 for guidance. One of the consequences of the final pension disclosure rule has been to move away from asset-based fees and commissions on the theory that an increase in assets is unlikely to result in a corresponding increase in the amount compensable work. The same could be true in the case of brokers’ compensation for group health insurance plans.
What this means for employers
Employers can better protect themselves from exposure to claims based on fiduciary breaches under their welfare plans by following the lead of the 401(k) plan. Basically, this requires the adoption of prudent policies and procedures and the demonstration of strong and ongoing fiduciary compliance. Establishing a social assistance plan trust committee is an excellent starting point.