What employer health plan fiduciaries must know about disclosure requirements

By Susan Rupe

Employer health plans face a new wave of fiduciary litigation.

The Consolidated Appropriations Act of 2021 imposes 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.

Employers now have specific requirements to publicly disclose information about their health plans. Some fear employers can open themselves up to class-action lawsuits brought about by employee plan participants for failing to adequately monitor health plan administrators and the reasonableness of health plan fees.

A panel of benefits and executive compensation experts from Faegre Drinker discussed compliance strategies to help prevent and defend against potential lawsuits during a recent webinar.

“Fiduciaries have always had a duty to monitor fees and costs. Recent changes in the law require disclosures that provide greater visibility into health plan pricing and operations,” said Kendra Roberson, partner with Faegre Drinker. Typical activities that give rise to health plan sponsors becoming fiduciaries, she said, include:

Selecting and monitoring third-party administrators, networks, consultants and other vendors.
Ensuring fees paid by plans are reasonable.
Appointing and monitoring other fiduciaries.
Interpreting plan provisions.
Exercising discretion in denying or approving benefit claims.

Responsibilities of health plan fiduciaries

Health plan fiduciaries have a number of responsibilities under ERISA, Roberson said. They must act solely in the interest of the plan’s participants and beneficiaries. They must act for the exclusive purpose of providing benefits and defraying reasonable expenses. They must act in accordance with plan documents, and they must follow a prudent process in performing all duties.

New required information disclosure may lead to greater scrutiny, Roberson said. Recent health care cost transparency and disclosure laws were intended to promote competition and bring down costs. But these required disclosures provide information that can be used for potential litigation over health plan fees, including:

Compensation disclosures by covered service providers for health plan-related services.
Disclosures of negotiated rates for provider services.
Prescription drug and health care cost reporting.

Service providers must disclose information to plan fiduciaries. That information includes:

Direct compensation received by a covered service provider from a covered plan.
Indirect compensation received by a covered service provider from any source other than the covered plan, the covered service provider or an affiliate.

The disclosure also must provide sufficient information to assess the reasonableness of direct and indirect compensation and any potential conflicts of interest that may exist.

Roberson advised plan fiduciaries to request service provider compensation disclosures from all service providers in advance of entering or renewing contracts and on an annual basis after that. She also advised plan fiduciaries to evaluate and document responses to requests and take any necessary mitigation actions.

Prescription drug costs included in requirements

The disclosure requirements also pertain to prescription drug and health care cost reporting. Health plans and services providers must disclose to the U.S. Department of Health and Human Services the following information:

Total amount spent by plan on top 50 drugs in each category: the costliest, the most frequently dispensed and the highest increase over the preceding year.
Total spending by plan on health care services by certain categories of costs – for example, hospital costs and prescription drug costs.
Total spending on prescription drugs by the plan and by participants.
Average monthly plan premiums paid by participants and by the employer.
Any impact on plan premium or out-of-pocket cost by rebates or other payments from drug manufacturers.

Roberson advised plan fiduciaries to request and analyze information submitted to HHS to understand reported drug and health costs, and ask service providers whether costs can be reduced. She also advised plan fiduciaries to analyze information regarding prescription drug rebates to determine which drug manufacturer payments are considered rebates and how much the pharmacy benefit manager is receiving in direct compensation.

Practical next steps for plan fiduciaries

What should plan fiduciaries do now? It is the process that matters and not the result, said Michael Rosenbaum, partner with Faegre Drinker. Fiduciaries must show that a prudent process was followed in making all fiduciary decisions.

He gave a rundown on actions fiduciaries must take now.

Review fiduciary/governance structure. Consider a fiduciary/governance compliance assessment. Identify key players, such as the board, CEO, third-party administrator and consultants. Identify all fiduciary activities performed by key players. Review plan documents and compare what they say to how your organization is actually performing plan-related fiduciary/governance activities. Consider and implement process improvements related to the plan’s fiduciary activities.
Consider fiduciary/governance process improvements. Change your fiduciary/governance practices to align with those used for your retirement plans. Create a “work plan” identifying all plan fiduciary and settlor (business) activities and the responsible key player. Revise the plan/s fiduciary/governance structure to eliminate or limit board members’ exposure. Understand and address potential conflicts of interest.
More improvements to consider. Dedicate a health and welfare committed as opposed to a chief human resources officer. Require those who have delegated fiduciaries duties to monitor and report to the board at reasonable interviews. Created a written record of the process followed with respect to all fiduciary activities on the work plan.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on X @INNsusan.