This Federal Law Will Completely Overhaul Company Health Benefits. Nobody Is Ready.
Most employers have no idea whether they get value for the money they spend on health benefits. Employers rarely see data on the performance of health care providers, such as rates of infections or outcomes. Contracts with pharmacy benefits managers, health plans, and consultants often hide the real costs of services. Sometimes employers are even denied access to their own claims data (though they are never denied the obligation to pay those bills).
This drives employers crazy. So they lobbied for health care transparency, and succeeded three times this century. In 2005, the Bush Administration began requiring hospitals in the Medicare program to report on serious errors. In 2009, the Affordable Care Act, also known as Obamacare, required even more reporting on patient safety and quality.
Now comes the third major policy shift for transparency: the Consolidated Appropriations Act (CAA) of 2020. Unlike the earlier reforms that pivoted on the Medicare program, this one focuses on employers and other purchasers of health benefits, so-called “plan sponsors.” Surprisingly, many employers seem unaware of this major upheaval in the laws governing their health benefits programs.
The CAA has the rare distinction of support from both the Trump and Biden administrations, and both parties in Congress. The law puts employers more in the driver’s seat to enforce good value from providers and vendors, and forbids hidden contracting terms that disfavor employers and their employees. This sounds ideal, but in the short-term employers face daunting hurdles complying with the new regulations needed to put all this in place. “I feel a little like the dog that caught the car,” said one of the law’s leading employer champions, James Gelfand of the ERISA Industry Committee.
Compliance involves extensive new rules and responsibilities, including:
o Removal of gag clauses from service provider contracts, including health plans, third party administrators, consultants, brokers, pharmacy benefits managers, and any other entity involved in health benefits. No more withheld claims data other than privacy protected data.
o Reporting requirements for pharmacy and prescription drug prices.
o Disclosure of direct and indirect compensation from all service providers, so hidden incentive arrangements between brokers and plans or PBMs and drug companies must be fully accounted for.
o Parity between mental health and substance use disorder benefits and other health benefits. The CAA establishes a vastly more stringent requirement around parity than employers are accustomed to, including significantly enhanced documentation requirements.
Plan sponsors—and not third parties like health plans or consultants—must demonstrate to federal officials that the health benefits they offer are cost-effective, high-quality, and meet mental health parity and pharmacy benefit requirements. They must disclose it all to their employees.
In practice, employers and employees will become more aware of the full range of pricing and costs, including the hidden fees and incentive agreements among health care providers, vendors, service providers, and other middlemen. Employers should prepare themselves for a shock once they get a look at some of those numbers. They should also prepare for some tough vendor conversations.
Why do employers seem unaware of all this? Perhaps it’s this: vendors dreading tough vendor conversations are often the exact people employers depend on to alert them to compliance issues like the CAA. Those vendors may not be in a hurry to alert employers to overhaul their contracts. Indeed, vendors don’t have to rush, because employers, not their vendors, are the fiduciaries in the crosshairs of the regulators.
But employers do have to rush. The Department of Labor, charged with enforcing the law, has already begun demanding documentation from select employers, and to date none we know of have been deemed compliant with CAA.
It won’t be enough to look at current contracts with known vendors. When it comes to health care, the challenge of achieving value may involve digging deeper into the quality and safety of services delivered to employees and their families . This will uncover some glaring issues. For instance, over 500 people a day die in the U.S. from preventable medical errors, and patients are twice as likely to die of a preventable hazard in some hospitals than others. The wrong hospital is never a good value at any price, so fiduciaries are wise to give employees tools to make informed decisions.
Employers can put in place the steps necessary to document they are at least making the effort to comply. Several national employer-driven nonprofits including my organization, The Leapfrog Group, are offering free webinars, toolkits, legal opinions, and other guidance. Some firms like TILT that independently advise plan sponsors are offering free background information and step by step guidance.
Whatever the compliance headaches, the ultimate vision of the CAA is a good one: a more transparent health care system, weeding out hidden business arrangements that don’t serve the best interests of consumers, and giving employers and employees the tools they need to get better health care. For a long time, this level of transparency was the dream of employers. Now the dream has come true, the alarm is blaring, and it’s time to wake up.