In business, we often look to eliminate or mitigate risk. Enterprise Risk Management has become an industry unto itself.
When tackling these concerns, risks can be grouped into two categories involving those associated with: “Known” factors that we are aware of and can effectively plan for; and “unknown” factors that we are not aware of but know that the possibility exists, and can therefore plan for (i.e., a hostile takeover or departure of a key person).
However, the most challenging risks to tackle live in a third category former Defense Secretary Donald Rumsfeld famously referred to as “unknown unknowns.” These are risks associated with “unknown” factors, and to complicate matters further, we don’t even know that we are unaware of them. These risks live in our blind-spots, and are especially dangerous when the status quo changes.
That said, here’s something you might not know: We are currently in the midst of major legislative change associated with employer-sponsored health plans. The new law represents the biggest shift to hit the health insurance industry in the past decade, and most of your employer clients are completely unaware. But ignorance is not a viable defense against the law, and the Consolidated Appropriations Act of 2021 (CAA) is already in effect.
The CAA identifies employers as the plan sponsor, highlights their fiduciary responsibilities and expands ERISA to clearly apply to employer-sponsored health plans. As a fiduciary, it is now their responsibility to administer the plan for the benefit of those participants and ensure that they are paying only reasonable fees for necessary services.
That might seem straightforward, but the health benefits market has multiple embedded conflicts of interest. These exist in the relationships employers have with their trusted service providers (including broker, carrier, TPA, PBM and others). Compensation structures like rebates, bonuses, overrides and more create scenarios where their best interests do not align with vendors. As the plan fiduciary, they can no longer afford to blindly trust their vendors. Employers must review their recommendations, monitor performance and document the decision-making process to demonstrate that they are acting in the best interest of the participant as a “prudent expert” would.
Until now, a lack of transparency in the industry has made it difficult to perform these duties, but the CAA changes that by requiring three important things:
- The removal of gag clauses from plan contracts.
- Complete compensation disclosure from service providers.
- New reporting requirements on prescription drug spend, plan costs and parity of coverage for mental health conditions.
The Department of Labor has already begun audits to ensure compliance with the new rules, and when the DOL comes knocking, claiming ignorance won’t work. To be clear, a company that offers health insurance to employees is the plan fiduciary (with a capital “F”), and has the same duties and responsibilities on the health care plan as they have on the retirement plan. (Technically, ERISA has always applied, but now under CAA the feds have made it clear that the employer is a fiduciary and must act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in alike capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”)
Being a fiduciary is a full-time job. Where should your employer clients start? At the beginning. First, acknowledge they are a fiduciary. Second, establish a fiduciary committee to formalize and manage a fiduciary process. And third, adhere to the process they’ve established and document all administrative decisions.
If they need help, they should hire a prudent expert, an advocate who can be unbiased and conflict-free. Experience and expertise matter when choosing the right partner(s). Employers should not rely on empty promises like, “we’ve got you covered” because this industry is full of “unknown unknowns,” and their liability could be large.
Published on EmployeeBenefitNews, July 6, 2022