Client Alert: Broker & Consultant Fee Transparency to Group Health Plans

As the health care arena continues to evolve following the ACA and its progeny, one common theme in the regulations has been to increase transparency in the marketplace. Following on that theme, the Department of Labor recently issued its Field Assistance Bulletin No. 2021-03 aimed at the fees charged by group health insurance brokerages and consultants. The language of the Bulletin sets forth the Department’s short to medium term enforcement policy in regard to the amendments made to ERISA section 408(b)(2)(B), which was included as part of the Consolidated Appropriations Act of 2021 (CAA). Taken together, these documents set forth one method the Department will take to achieve the government’s goal of requiring group health plan sponsors, who are charged to act in a fiduciary capacity, to consider the costs of the services provided by certain vendors.

Who is affected?

ERISA section 408(b)(2)(B) applies to all group health plans, regardless of group size, and includes both insured and self-funded plans; all of which are “covered plans.” The sole exception applies to certain small employer health reimbursement arrangements.

The new language applies to “covered service providers” who provide plan related services to “covered plans.” Covered service providers include individuals and entities that enter into a contract or arrangement to provide one or more of the following services to a covered plan:

  • Brokerage services with respect to selection of:
    • Insurance products (including vision and dental);
    • Plan management services, vendors, and administrative supports; and
    • Stop-loss, pharmacy benefit, wellness, and other plan services.
  • Consulting services related to the development or implementation of:
    • Plan design, insurance or insurance product selection (including vision and dental);
    • Plan management services, vendors, group purchasing organization agreements, and services; and
    • Stop-loss, pharmacy benefit, wellness, and other plan services.

In addition to providing covered services, the broker, consultant, or other covered service provider must reasonably expect $1,000 or more in direct or indirect compensation in connection with its contract or arrangement with the covered plan.

Additionally, the Bulletin clarifies that only covered service providers who are a party to the contract or arrangement with the covered plan are required to make the disclosure. In this way, the amended statute does not require affiliates or subcontractors, solely by virtue of offering services to the covered plan as an affiliate or subcontractor of the covered service provider, to individually make the disclosures, as they will not have entered into the contract or arrangement with the covered plan.[1]

What information must be disclosed?

Covered service providers must disclose to covered plans specified information regarding the services to be provided and the compensation the covered service provide reasonably expects to receive in connection with its services. At a minimum, this information must include:

  • A description of the services to be provided by the covered service provider;
    • Including, where applicable, information about those services for which the covered service provider will provide or reasonably expects to provide services directly to the covered plan as a fiduciary.
  • A description of the direct compensation that the covered service provider expects to receive in connection with the contract or arrangement with the covered plan. In most instances, such direct compensation will include some form of commission.
  • A description of all indirect compensation that the covered service provider, its affiliates, or subcontractors expect to receive.
    • Where a covered service provider employs the use of affiliates, subcontractors, or both, the disclosure should also include a description of the arrangement between the covered service provider and the affiliate or subcontractor.
    • Indirect compensation disclosures should also include (1) an identification of the services for which such indirect compensation will be received, (2) any formulae relied up in the calculation of such indirect compensation,  (3) identification of the payer of such indirect compensation, and (4) a description of the arrangement and any formula amongst and between the payer of the indirect compensation and the covered service provider, affiliates, or subcontractors.
  • A description of any compensation the covered service provider expects to receive in connection with the termination of the contract, along with a calculation of how any prepayments will be calculated and refunded.

In addition to describing the types of compensation, the covered service provider notice should also include the manner in which such compensation will be received.

Finally, a covered service provider must set forth the services that the covered service provider is rendering to the covered plan as a fiduciary.

When are the disclosures required?

The CAA amendments became applicable on December 27, 2021. Covered service providers, therefore, are required to make their fee disclosures for any new contracts or arrangements as of that date. The Bulletin clarifies that the “effective” date of the contract or arrangement is the date the contract or arrangement was executed, which may not necessarily be the beginning of a new plan year. Therefore, covered plans should consult with and collect the requisite information from their covered service providers for any contracts or arrangements that are written, renewed, or extended in 2022.

Furthermore, in order to meet the objectives of the policy (i.e. allowing covered plans to perform cost-benefit analysis related to the fees charged and services provided by their brokers and consultants), covered service providers are required to make the disclosures set forth above “reasonably in advance” of the date on which the contract or arrangement is entered into, extended, or renewed. Furthermore, any change in such disclosures are required to be made as soon as practicable.

How does a covered plan ensure disclosure?

While the disclosures contemplated by the statutory provision are intended to come from the covered service provider, the fiduciary responsibility rest with the covered plan sponsor. The primary enforcement mechanism, therefore, is to deem nonconforming deals to be prohibited transactions under the statute. However, no such determination shall be made provided covered plans meet the following requirements:

  • “The responsible plan fiduciary did not know that the covered service provider failed or would fail to make required disclosures and reasonably believed that the covered service provider disclosed the information required to be disclosed.
  • The responsible plan fiduciary, upon discovering that the covered service provider failed to disclose the required information, requests in writing that the covered service provider furnish such information.
  • If the covered service provider fails to comply with a written request…within 90 days of the request, the responsible plan fiduciary notifies the Secretary of the covered service provider’s failure…”

Conclusion

As plan fiduciaries consider their options this year, whether its with a new carrier or a renewal, they should begin working with their brokers and consultants to gain a better understanding of the fees that are charged and prepare to answer inquiries about the reasonableness thereof.

[1] Affiliates and subcontractors should review the nature of their relationship to covered plans to ensure that their services do not extend beyond the scope of the services provided on behalf of a covered service provider, thus possibly triggering the need for the affiliate or subcontractor itself to disclose.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.


Robert D. Burgee is an attorney at Fraser Trebilcock with over a decade of experience counseling clients in business transactions, civil matters, regulatory compliance, and employee matters. Bob also has a background in employee benefits, having been a licensed agent since 2014. You can reach him at 517.377.0848 or at bburgee@fraserlawfirm.com.


Aaron L. Davis works in employee health and welfare benefits. He is also Chair of the firm’s labor law practice and serves as Firm Secretary. He has litigation experience in a diverse range of employment matters, including Title VII, the Age Discrimination and Employment Act, the Americans with Disabilities Act, the Family Medical Leave Act, and the Fair Labor Standards Act. You can reach him at 517.377.0822 or email him at adavis@fraserlawfirm.com.

Five Stories that Matter in Michigan This Week – May 27, 2022

Five Stories that Matter in Michigan This Week – May 27, 2022; Legal, Legislative, and Regulatory Insights


The Republican-led Michigan Senate and House recently passed $2.5 billion in tax cuts, with a party-line vote in the Senate and a more bipartisan vote in the House. The legislation was passed shortly after Governor Whitmer suggested sending $500 rebates to “working families” in Michigan. The proposed tax cuts would include an expansion of Michigan’s Earned Income Tax Credit from 6% to 20% in the 2022 tax year; increasing personal tax exemptions by $1,800; and reducing the personal income tax rate from 4.25% to 4% starting in 2023, among other things.

Why it Matters: The jockeying between the governor and legislature revolves around the broader debate over what to do with the billions of dollars the state has available in the form of unexpected surplus, due in large part to federal pandemic relief funding. How the money is spent, or returned to Michigan residents in the form of tax cuts or rebate checks, is sure to be a key issue in the November elections.

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The Michigan legislature recently voted to put the issue of term limits for lawmakers on this year’s November ballot. The plan would permit lawmakers to serve 12 years in Lansing, and all of that time could be spent in the House or Senate, or it could be divided between the two chambers. Voters will also be asked to approve or reject a requirement that state-level office holders submit annual financial disclosures to address conflicts of interest. If approved by voters, elected officials would have to disclose their assets, income and liabilities, and their involvement in any businesses, nonprofits, labor organizations or educational institutions.

Why it Matters: In 1992, Michigan voters voted in favor of a constitutional amendment for term limits. Since then, Michigan House members have been limited to three two-year terms and Michigan Senate members to two four-year terms—a maximum of 14 years between the two chambers. Accordingly, if the new term limit proposal is passed by Michigan voters, it would represent the first substantive change to term limits in 30 years.

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The Michigan Supreme Court heard oral arguments in a case with significant implications for criminal cases against nine former government officials stemming from the Flint water cases, as well as for criminal procedure, more generally, in Michigan. The criminal defendants, including former Governor Rick Snyder, argue that their constitutional rights were violated when a single grand juror indicted them.

Why it Matters: Beyond the question of whether a one-person grand jury is constitutional, this case also raises interesting separation of power issues, given that the grand juror was a sitting judge.

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In a cash-out merger, the shareholders of the target company cash out and aren’t involved in the ongoing operations of the acquiring company. But what happens when not all the shareholders are happy about the deal? As you might suspect, litigation often ensues, and that’s exactly what happened in a case, Murphy v. Inman, recently decided by the Michigan Supreme Court. It’s an important case because the Court clarified the rights of shareholders bringing claims against directors after a cash-out merger.

Why it Matters: This decision gives shareholders, boards of directors—and their respective advisors—much needed clarity on how actions taken during corporate transactions will be viewed by the courts. First, the Court adopted a two-question test, based on reasoning from Delaware courts, to determine whether a claim should be derivative or direct. Second, it made clear that boards of directors do owe fiduciary duties directly to shareholders during a cash-out merger.

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Three significant developments related to the production and consumption of energy happened recently. First, Governor Whitmer announced a roadmap for making Michigan carbon neutral by 2050. Second, the Attorney General’s office reached a settlement with Consumers Energy that would result in Consumers ending its use of coal by 2025. Third, Governor Whitmer petitioned the U.S. Department of Energy to keep the Palisades Nuclear Plant in southwest Michigan open, arguing that its closure would cost the state 600 well-paying jobs.

Why it Matters: Energy continues to be a major political and economic issue around the world (the war in Ukraine), in the United States (high gas prices), as well as here in Michigan. Energy inflation, together with ongoing efforts to transition from fossil fuels to renewable energy, pose ongoing challenges and opportunities for politicians, policymakers and business leaders alike.


Related Practice Groups and Professionals

Mergers & Acquisitions | Edward Castellani

Criminal | Election Law | Klint Kesto

Energy, Utilities & Telecommunication | Michael Ashton

Taxation | Mark Kellogg

Former Student Falsely Accused of Sexual Misconduct Wins $5.3 Million Jury Award for Defamation and Civil Conspiracy

A jury in South Carolina awarded a former Clemson University student $5.3 million in connection with defamation and civil conspiracy claims he brought against three individuals stemming from false allegations of sexual misconduct.

While the lawsuit against the individuals did not include a Title IX claim, the underlying circumstances did involve a Title IX investigation. In fact, the male student did bring suit against Clemson for violations of Title IX and the Due Process Clause of the 14th Amendment to the U.S. Constitution, and Clemson settled for an undisclosed amount.

This case is noteworthy because it resulted in such a large damage award based on accusations of sexual misconduct, and the resulting fallout from the investigation, which is something colleges and universities must frequently address.

The Facts of the Case

The case involved a female student who accused a male student of sexual misconduct. The male student alleged that their sexual encounter was consensual, and that his accuser only alleged misconduct and filed a Title IX complaint with the school (alleging she had been sexually assaulted while under the influence of alcohol), after her boyfriend learned of the encounter.

The accuser and her boyfriend allegedly began calling the male student a “rapist” to their friends. And the male student was suspended from Clemson and expelled from the university.

The Implications

This case demonstrates that Title IX investigations can be fraught with risks. Such cases often involve allegations like the ones described above, and colleges and universities need to carefully handle such investigations, including any actions they take on the basis of allegations made by the parties involved.

If you have any questions about this case, or Title IX issues in general, please contact Ryan Kauffman.


Fraser Trebilcock Attorney Ryan Kauffman

Ryan K. Kauffman is a Shareholder at Fraser Trebilcock with more than a decade of experience handling complex litigation matters and representing higher education institutions. You can contact him at rkauffman@fraserlawfirm.com or 517.377.0881.

Term Limits and Financial Disclosure Requirements will be on the November Ballot in Michigan

In 1992, Michigan voters voted in favor of a constitutional amendment for term limits. Since then, Michigan House members have been limited to three two-year terms and Michigan Senate members to two four-year terms— a maximum of 14 years between the two chambers.

Those limits may change in light of a vote by the Michigan legislature on May 10 to put the issue of term limits on this year’s November ballot. The plan would permit lawmakers to serve 12 years in Lansing, and all of that time could be spent in the House or Senate, or it could be divided between the two chambers.

Voters will also be asked to approve or reject a requirement that state-level office holders submit annual financial disclosures to address conflicts of interest. If approved by voters, elected officials would have to disclose their assets, income and liabilities, and their involvement in any businesses, nonprofits, labor organizations or educational institutions.

No discussion or debate of the plan took place in either the House or the Senate.

According to reports, the Michigan Legislature worked with the advocacy group Voters for Transparency and Term Limits to bring these issues before Michigan voters in November. The resolution passed 76-28 in the House, and by a 26-6 vote in the Senate.

We will continue to keep you informed about these developments, as well as other issues in the lead up to the November elections.


Fraser Trebilcock attorney and former Michigan State Legislator Klint Kesto has nearly two decades of experience working in both the public and private sectors, including serving as Co-Chair of the CARES Task Force. You can reach him at kkesto@fraserlawfirm.com or 517.377.0868.

Michigan Cannabis Regulatory Agency Abandons Plan to Allow Hemp to be Synthetically Converted to THC

Citing safety concerns and the lack of scientific and public health data, on April 15, 2022, the Michigan Cannabis Regulatory Agency (CRA) dropped its plan to allow hemp to be synthetically converted to THC.

The decision was handed down just days after the regulatory body was renamed from the Marijuana Regulatory Agency and assumed authority over hemp-derived products, pursuant to Governor Whitmer’s Executive Order No. 2022-1.

According to draft rules proposed earlier this year, hemp growers would have been permitted to sell hemp to marijuana processors, who could then convert it to THC for use in edibles, vaping cartridges, and other products being sold in the licensed marijuana market.

While safety was cited as the primary reason for dropping the proposal, issues related to business and competition likely also influenced the CRA’s decision. Specifically, hemp growers, including out-of-state growers, could have posed a new competitive threat to the state’s existing marijuana industry.

Currently, licensed businesses are permitted to extract THC oil from marijuana. If the CRA’s plans to allow hemp to be synthetically converted to THC were to proceed, it could lead to the existing producers going out of business.

If you have any questions about the impact of this decision by the CRA, or the cannabis industry in general in Michigan, please contact Klint Kesto or your Fraser Trebilcock attorney.


Fraser Trebilcock attorney and former Michigan State Legislator Klint Kesto has nearly two decades of experience working in both the public and private sectors, including serving as Co-Chair of the CARES Task Force. You can reach him at kkesto@fraserlawfirm.com or 517.377.0868.

$400 Car Insurance Refunds – Will the Estates of Your Deceased Relatives Miss Out?

If you had a vehicle insured at 11:59 p.m. on October 31, 2021, you are eligible to receive a $400 refund if the insurance met the minimum insurance requirements for operating a vehicle on Michigan roads.

This refund is part of 2019 bipartisan auto reform legislation that requires the Michigan Catastrophic Claims Association to issue refunds of $400 per eligible vehicle no later than May 8, 2022.

Many Michigan drivers have already received their refunds by check or automatic deposit from their insurer. However, recently deceased individuals with qualifying vehicles are also eligible. Insurance companies may have mailed checks to an invalid address or directly deposited funds into a closed checking account.

If you are the personal representative of a decedent’s estate, contact the decedent’s insurance company to ensure that the refund is mailed to the personal representative’s address or deposited to the estate’s bank account.

If you require assistance, the experienced probate attorneys at Fraser Trebilcock can provide the guidance you need. Please contact us.

This alert serves as a general summary and does not constitute legal advice. Please contact us with any specific questions.


Heidi L. Pierce is a paralegal at Fraser Trebilcock focusing on estate planning and trust administration. You can contact her at 517.377.0858, or at hpierce@fraserlawfirm.com.