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The 2024 compliance wave: What benefits advisors need to know

Over the last two years, a compliance tidal wave has loomed over employers and their benefit advisors. The crest of this massive wave has begun to touch down upon fiduciaries of employer groups, so how can benefit advisors stay dry?

Over the last two years, a compliance tidal wave has loomed over employers and their benefit advisors. The crest of this massive wave has begun to touch down upon fiduciaries of employer groups, most notably in the recent class action lawsuit against Johnson & Johnson. But what Rules and Acts led to this surge of compliance obligations, and how can benefit advisors stay dry?

2020: The year the compliance wave took shape

Four key dates have shaped the employer-sponsored health insurance (ESHI) space over the last 80 years. First was ESHI’s introduction in 1943, when the IRS issued a private ruling holding that employer-provided health insurance benefits were not subject to federal income taxation. Second, in 1974, the Employee Retirement Income Security Act (ERISA) was passed, which provided necessary protection for plan participants. Fast forward to 2010, the enactment of the Affordable Care Act and the pursuit to provide health insurance access for all. Finally, in 2020, when the Transparency in Coverage Rule and Consolidated Appropriations Act of 2021 were published and passed, two main factors contributed to the current compliance tidal wave’s growth and reach.

These two executive and legislative efforts could have an even greater impact on employers and benefit advisors than the ACA. The Consolidated Appropriations Act of 2021 includes key provisions like the No Surprises Act, the prohibition of gag clauses between employers and health plans, and the required disclosure of direct and indirect compensation to benefit advisors. Each element of the Act requires active engagement from employer fiduciaries responsible for overseeing health care spending. Notably, the CAA of 2021 also includes a requirement that employees have access to a cost-comparison shopping tool.

The Transparency in Coverage Rule, published during the same year, further intensified the compliance obligations of employers and their benefit advisors. It requires employers to provide employees with a web-based cost-comparison shopping tool highlighting personalized out-of-pocket costs and the total negotiated cost of care. This means the tool must consider an employee’s health plan design, upstream network arrangements, deductibles, and a wide variety of consumption accumulators, including whether the employee has already consumed allocated preventive care services like their annual check-up or colonoscopy, when applicable. Detailed information concerning the total negotiated costs likely to be incurred must also be displayed so that employees can understand the total cost of their care, including the employer-paid portions. This level of personalized out-of-pocket cost display and total price transparency had previously been unseen for employer-sponsored health insurance members, but is now a requirement for both fully insured and self-funded groups. Plan sponsors who fail to comply with the Rule could face fines of up to $100 per affected member per day. For a group of 1,000 employees, that’s over $250,000 a day.

2022-2023: What wave?

Throughout 2022 and 2023, media coverage of compliance requirements centered on the No Surprises Act. This can be attributed to the gross pricing exploitation consumers face with out-of-network billing, especially those “surprise out-of-network bills” covered by the NSA (out-of-network air ambulance service, out-of-network emergency facilities furnishing emergency services, and out-of-network providers of supplemental care, like anesthesiology performed at an in-network facility). Other components of the Consolidated Appropriations Act of 2021, particularly compensation disclosures and the prohibition of gag clauses, haven’t been widely explained to employers, and the consequences of those components have yet to be fully understood or felt.

Why hasn’t the watershed Transparency in Coverage Rule received the same coverage? In 2022, the first phase of the rule took effect, requiring the publication of two machine-readable files, the first file including all in-network negotiated rates for all covered items and services and the second capturing the historical out-of-network billed amounts. Initially, there was supposed to be a third file, the prescription rate file, which would have published the negotiated rates and historical net prices for covered prescription drugs. Maybe this would have had a material impact on the impending J&J class action suit, but it’s unlikely. With appropriate compliance, these files would theoretically bring the U.S. health care system toward a symmetrically transparent world for the first time in history.

The second phase, beginning January 1st, 2023, required employees to be provided access to the cost-comparison shopping tool, which has 500 identified items and services that are “shoppable.” Why didn’t this make bigger waves?

There a few reasons. The obligation of compliance for the first phase of the rule was squarely on the shoulders of health plans. They weren’t particularly useful to consumers who don’t h have extensive computer science knowledge and special computing equipment. In other words, these files would not have helped the health care consumer. Secondly, the concept of price transparency is not new to employers and employees. Price transparency tools have been around since 2008, although in many cases, they failed to show expected out-of-pocket costs and instead showed ranges of prices or prices paid based on historical claims data. This may have lowered, or in some cases soured, expectations of employers and employees with respect to this new transparency requirement. These tools would be deemed non-compliant if still used, and plan sponsors would face business-crippling penalties. The third reason is the extensive press coverage of the Hospital Transparency Rule, which requires hospitals to publish a file highlighting the negotiated rates for all covered items and services and a patient-facing cost quotation tool. On top of the press, non-compliance monetary fines were handed down upon healthcare providers, with some exceeding $500,000, further increasing media coverage.

2024: The compliance wave comes crashing down

The initial crash of this compliance tidal wave is now being felt, as Johnson & Johnson is currently facing a class action lawsuit filed by an employee over the management of the company’s employee health plans. Notably, Johnson & Johnson allegedly did not use its bargaining power to negotiate better prices for medicines for workers on its health plan. The suit also alleges that the company agreed to pay more than what would be paid if someone just walked into a retail pharmacy and filled the same prescription without using insurance. This unequivocally highlights the failure of prudent fiduciary practices by the J&J benefits team and, by extension, their benefit advisors.

This class action lawsuit should serve as a paradigm shift for how benefit advisors engage with their employer group clients. The tidal wave of compliance is not receding, but instead, as evident by this class action lawsuit and likely others, is gaining momentum.

Benefits advisors must expand their scope beyond offering tools to acquire and retain talent. Their strategies must now include a financial lens, ensuring the group’s health plan is cost-effective and offers quality care driven by transparency and prudent financial practices. Alongside the employer’s benefits team, the advisor must establish a fiduciary committee and planning, including thorough communication and cost-containment plans. Educate employees regarding their high-quality care options and engage them with the appropriate tools and services available to incentivize employers and employees to navigate to value. Without these practical, fiduciary-driven practices in place, the employer group and their benefits advisor will be in the direct line of the breaking wave that will inevitably wash them out to sea.

Mark Galvin has been a thought leader and staunch advocate for price transparency and consumerism in health care for decades. He co-founded TALON in 2014 and in 2018, he was invited to speak with and present TALON to the White House Health Policy Team tasked with developing the Transparency in Coverage Rule. TALON was subsequently used as the model upon which the new Transparency in Coverage and No Surprises Act federal mandates are based. 

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