What is the CAA & What are the new responsibilities assigned to employers?

The Consolidated Appropriations Act (CAA) of 2021 expanded the Employee Retirement Income Security Act of 1974 (ERISA), which assigns fiduciary responsibility to self-insured employers for the healthcare services they purchase. Although the assignment of fiduciary responsibility is not new, the CAA recently expanded the scope of employer responsibility by requiring employers show the healthcare services they purchase are cost-effective, high quality, and align with mental health parity and pharmacy benefit requirements. Employers are also now required to evaluate broker and consultant compensation for “reasonableness.”

Self-funded employers will have greater impetus to negotiate quality and costs because they could be at risk of serious fines and penalties. While it’s still too early to tell what the full effect of ERISA’s expansion will be, we’ve outlined some of the potential outcomes below.

Potential outcome 1: There is a very real possibility nothing big is going to change.

The CAA’s language is vague – especially on quality and “reasonableness.” Employers are still learning about their fiduciary responsibilities and obligations. When Cheryl Larson, President and CEO of Midwest Business Group on Health, asked individuals at an MBGH conference about the legislative changes, she observed the following: “There were about 400 people in the room, and I asked, ‘How many of you have complied with the CAA?’ And about half the room raised their hands. "We had some people from larger employers there, and I could see them on the phone with their HR benefits people. Then, they would say, ‘OK. We complied.’”

Many employers are waiting to see what their peers are doing, whether they are served with legal action, and what consequences stem from legal action. Making major benefit strategy changes takes time — and it’s costly for employers and frustrating for employees. Employers do not want to jump through hurdles and risk annoying employees when there are no clearly defined consequences.

Beyond understanding their fiduciary responsibility, employers need to gather the necessary data and information from their partners to ensure compliance. This can be especially challenging for employers who work with many different partners including brokers/consultants, health plans, vendors, PBMs, and more. Furthermore, gathering the necessary data is one thing — using it to inform strategy and make meaningful change is another.

Potential outcome 2: CAA requirements on mental health parity and pharmacy spending disclosures will drive employers to increase their focus on behavioral health and pharmacy benefits.

The CAA requires plan sponsors to document their health plan or insurance policy complies with the non-quantitative treatment limitations (NQTL) of the Mental Health Parity and Addiction Equity Act of 2008. This requirement demands plan sponsors conduct and disclose a comparative analysis of NQTLs; mental health and substance use disorder benefits must be covered similarly to other medical and surgical benefits. Employers were already focused on behavioral health following the onset of the COVID-19 pandemic. However, the new NQTL requirements in the CAA will demand employers truly evaluate the quality and cost-efficiency of behavioral health benefits. We expect this will reignite employers’ focus on behavioral health and push for continued expansion of behavioral health access.

We expect the CAA will also encourage employers to increase their focus on pharmacy spending — a topic already on the top of employer minds. The CAA requires group health plans and insurers submit information including the following to the government each year:

• The prescription drugs the plan most often paid claims for and the total number of those claims
• The prescription drugs the plan had the greatest expenditures for and the total amount paid for those drugs
• The total amount spent on prescription drugs by the plan and enrollees, and information around drug manufacturer rebates

To fulfill these requirements, most employers will have to lean on their consultants, plans, PBMs, and vendors for data — data these parties may not have given employers access to in the past. With increased access to data, we anticipate a surge in employer scrutiny of pharmacy partners, particularly PBMs. Employers will be better equipped to track the flow of money to their PBM and identify any waste.

Potential outcome 3: The CAA may drive an increase in disruptive benefit strategies like reference-based pricing (RBP), centers of excellence (COE), or even individual coverage health reimbursement arrangements (ICHRA).

The CAA’s dual focus on quality and cost control could lead to growing employer interest in gathering data. New tools and partners like Sage Transparency and Health Rosetta can help employers make sense of market rates and quality data. If employers get their employee claims data and compare it to market rates data, they can better understand high-cost areas and pursue strategies like RBP and COEs to lower those costs. The CEO of a purchaser coalition shared this optimistic perspective with us: “RBP has been around healthcare for years, and we’ve seen more change that could boost RBP in the past 18 months than in 30 years.” Another employer coalition leader noted seeing increased interest from employers in COEs to promote high-quality care while controlling costs.

Employers are also discussing individual coverage health reimbursement arrangements (ICHRAs), “a type of health reimbursement arrangement in which employers of any size can reimburse employees for some or all of the premiums that the employees pay for health insurance that they purchase on their own.” Small employers especially are considering going this route to mitigate some of the impacts of both ERISA fiduciary responsibility and rising costs.

Employers considering new benefit strategies will have to be prepared to take on the added administrative burden of launching and managing these strategies.

What to watch for: The impact of the CAA on healthcare and the likelihood of the scenarios discussed above will depend on lawsuit outcomes.

The CAA requires employers to act as fiduciaries, tracking their healthcare expenses through claims data and ensuring that service providers like brokers and consultants are receiving “reasonable” compensation. Therefore, the impact of the CAA will hinge on the outcomes of lawsuits — particularly how “reasonableness” is defined. The parties involved and the severity of fines and punishment will also dictate outcomes. Two lawsuits have already shown a model for possible future litigation.

• In Connecticut, labor unions are suing Elevance Health (formerly Anthem) claiming Elevance breached its fiduciary responsibilities by denying the unions access to their claims data and by charging self-funded plans higher rates than it had negotiated with hospitals. This case will likely set a precedent for future litigation hinting at the potential ramifications of future cases.
• In Florida, the Osceola School District and Gallagher (a large benefits brokerage) settled a lawsuit in January 2023. The Osceola School District sued Gallagher, claiming it breached its contract by not disclosing some “secret commissions.” Though the lawsuit is now settled, it may be too early to determine its role in future litigation and change stemming from the CAA.

These lawsuits could open the door for more lawsuits. These early lawsuits show the potential to sue brokers, consultants, and health plans. Employers could face litigation if their employees claim the employer has failed to fulfill their fiduciary responsibility, and other parties — including PBMs and vendors — could be accused of failing to share data required for employers to meet their fiduciary responsibility. Lawyers and other healthcare stakeholders will watch the outcome of the Elevance case as a litmus test to see how great the repercussions of a lawsuit could become. Though the Gallagher case is already settled, it set a precedent for employers suing brokers and consultants. We expect future cases may have more dramatic endings. 

Advisory Board's Sara Zargham contributed to this post.