Federal mandates bring big lawsuit worries for health plan administrators

The Consolidated Appropriations Act of 2021 is imposing new disclosure requirements on health plan providers and the potential for big lawsuits.

Signed into law Dec. 27, 2020, the CAA includes provisions designed to increase transparency in employee health benefit plans by amending the Employee Retirement Income Security Act of 1974. It has taken time for the compliance deadlines to come due on some parts of the law.

"You get just a wealth of new additional fiduciary obligations on health and welfare plans sponsors," said Jennifer S. Berman, an employee benefits attorney and compliance consultant. "So, here we are three years later, and plan sponsors are working to implement all of these new fiduciary obligations."

This is more than just another federal mandate for health plan administrators. Major class-action lawsuits are in the offing if health plans are not managed according to changes in the law.

Four main areas

The CAA is meant to increase transparency in health benefits plans in four key areas, notes the Society for Human Resource Management:

Eliminating gag clauses on price and quality information. Plan sponsors can no longer agree to restrictions in provider network contracts that would prevent them from accessing cost and quality of care information and providing that information to participants. This information includes provider-specific cost and quality of care data.

This provision was effective immediately, SHRM said.

Disclosure of compensation to brokers and consultants. ERISA requires that any compensation paid to plan service providers be "reasonable." However, the Department of Labor had not applied the rule to health plans, preferring to focus on retirement plans first.

This provision was made applicable one year after the bill passed.

Mental health parity and substance use disorder benefits. This provision prohibits group health plans from providing disproportionately worse benefits for mental health and substance use disorders than for medical and surgical care.

Federal regulators proposed new rules that are expected to go into effect on Jan. 1, 2025, for group health plans, and on Jan. 1, 2026, for individual health plans.

Reporting on pharmacy benefits and drug costs. The CAA updates the law and the tax code to require each group health plan to report certain information related to prescription drugs to the secretaries of the HHS, DOL, and Treasury.

The first report would be due one year after enactment of the CAA. Each subsequent report would be due by June 1 each year.

Health plan compensation

It is the second provision that concerns the National Association of Benefits and Insurance Professionals and its members. Health plan brokers and consultants must provide specific service and compensation disclosures for their contracts or arrangements to be considered “reasonable.”

Plan fiduciaries must review those disclosures prior to entering into, extending, or renewing the arrangement and concluding the compensation is reasonable. That part is not new, Berman explained.

"The new law is to publicly disclose the amount that is being paid to a provider for certain procedures," she said.

The provider codes need to be made publicly available in advance before plan participants get their Explanation Of Benefits.

"There's advanced EOB requirements, so that you could see in advance how much you're going to have to pay if you go to the hospital and have an in network or out of network procedure," Berman said. "You need to be able to see what you would end up paying in advance."

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.