CAA Documents for Brokers

Agent Compensation Disclosure Template

Background – History of CAA

In December 2020, Congress enacted the Consolidated Appropriations Act of 2021 (CAA), which included a new requirement that bars an ERISA group health plan fiduciary from entering into, renewing, or extending a services contract or arrangements with a “covered service provider” that is providing “brokerage services” or “consulting” to the plan unless specified disclosure obligations are satisfied by that service provider so that the fiduciary can ensure that the compensation that is being received in connection with the services being provided to the plan is “reasonable.”

Who must disclose?

Common Questions

Who does this apply to?

Specifically, this disclosure obligation applies to service providers who:

1. Enter into a contract or arrangement to provide services to a group health plan of any size; and
2. Reasonably expect to receive at least $1,000 in “direct” and/or “indirect” compensation (whether paid to the broker or consultant, an affiliate, or a subcontractor) related to:

“Brokerage services . . . with respect to selection of insurance products (including vision and dental), recordkeeping services, medical management vendor, benefits administration (including vision and dental), stop-loss insurance, pharmacy benefit management services, wellness services, transparency tools and vendors, group purchasing organization preferred vendor panels, disease management vendors and products, compliance services, employee assistance programs, or third party administration services.”

“Consulting . . . related to the development or implementation of plan design, insurance or insurance product selection (including vision and dental), recordkeeping, medical management, benefits administration selection (including vision and dental), stop-loss insurance, pharmacy benefit management services, wellness design and management services, transparency tools, group purchasing organization agreements and services, participation in and services from preferred vendor panels, disease management, compliance services, employee assistance programs, or third party administration services.”

What action is required?

As of December 27, 2021 the covered service provider must disclose the required information to the responsible plan fiduciary “not later than the date that is reasonably in advance of the date on which the contract or arrangement [with the covered service provider] is entered into, and extended or renewed.” The purpose of the disclosure is to enable the plan fiduciary to ensure that the compensation that will be received in connection with the services provided to the plan is “reasonable.” These requirements extend to “group health plans” (including stand-alone vision and dental plans for product selection and benefit administration functions brokering services and consulting)

While Congress passed CAA-2021 in December of last year, we don’t yet have regulations from the departments (DOL/HHS/IRS), nor do we have a model notice. However, we have enough guidance that we can begin to make our good faith efforts to comply.

1. As of today, we can exclude: automobile insurance, worker’s comp, liability insurance, AD&D and disability.,
2. We will likely be able to exclude: non-coordinated excepted benefits such as hospital indemnity, fixed indemnity, and coverage for only a specified disease or illness (such as cancer-only policies).
3. But, as of today, it is unclear whether life insurance is an excepted benefit.

We believe it is best practice to disclose all compensation for all products and services provided to clients, especially if removing the unnecessary components would require customization of the fee disclosure for each client; not to mention, that it could create an awkward conversation should a client be approached by a competitor asking whether such fees were disclosed – regardless of CAA requirements.

When must disclosure be made?

The new fee disclosure requirement applies to contracts or arrangements with brokers or consultants entered into or renewed on or after 12/27/2021. If you have already finalized client renewal documents for the 2022 plan year or will be providing them prior to 12/27/2021 (e.g., for a 1/1/2022 or later renewal), then you are likely not required to provide the fee disclosure to them for the upcoming 2022 plan year. You must provide a then current fee disclosure for the next renewal for the subsequent plan year, or earlier if client requests at any time after 12/27/2021.

Fee disclosures may be provided as part of an engagement letter, a formal contract, or a stand-alone fee disclosure type of document. An updated Fee Disclosure must be provided to the client each time there is a change to a fee.

We believe current best practice is to document / save evidence that proves the office provided the fee disclosure to the client. This can be done by saving an email within the agency management system currently in place.

Must each client have a written agreement AND a fee disclosure agreement?

No. The CAA requires that a formal written agreement be in place that outlines the services being provided. Take note that this means a BOR alone is no longer sufficient.

Each agency must decide whether a single document is preferred. While both of these requirements can be satisfied with one document, it is best practice to have two separate documents: a Services Agreement and a separate Fee Disclosure in order to avoid re-negotiating the entire arrangement on an annual basis. With two separate documents, a Client need only be provided with an updated Fee Disclosure.

If there is not currently a written Services Agreement in place with a client that outlines the services to be performed, then we encourage the agency to prepare both a written services agreement and the fee disclosure no later than the next upcoming renewal.

What revenue must be disclosed?

All revenue that relates to brokerage services and/or consulting services for a group health plan of any size that equates to at least $1,000. This includes fees paid to a TPA. In determining whether the $1,000 threshold is exceeded, the covered service provider would consider services performed by – and payments received by – an affiliate or a subcontractor.

Examples of Inclusive Revenue:

What information must the fee disclosure provide?

Fee Disclosures must list all services to be performed or provided, all direct compensation expected from the plan (e.g., fees paid directly by the plan), all indirect compensation expected from all plan related sources (e.g. vendor incentive payments and other payments from third parties), transaction-based compensation (e.g., commissions, finders’ fees), and any compensation related to contract termination.

How do I describe the compensation related to each fee?

Each fee / compensation must include a corresponding description of the type of fee arrangement. For this purpose, compensation includes anything of monetary value that is at least $250. In disclosing the various forms of compensation, descriptions may be expressed as a flat fee, a formula or percentage, or a per-capita charge for each enrollee (e.g., PEPM). The purpose of this description is to allow the client to evaluate the reasonableness of the overall compensation.

‘Direct’ Compensation is money received directly from the plan.

The manner in which the compensation is received must also be included in the fee disclosure (i.e., who effectively pays you). This includes specific fees being charged to the plan and fees that the plan has agreed to, but that are billed through a carrier in an insured plan arrangement.

‘Indirect’ Compensation is money received from any source other than the covered plan, the plan sponsor or the covered service provider in connection with services described in the (services agreement) contract. An example of this would be compensation from a vendor to a brokerage firm based on a structure of incentives not solely related to the contract or plan. Other examples include, but are not limited to: