Phia Group


Phia Group Media

The Power Dynamics of Gag Clauses

By: Jon Jablon, Esq.

In the already-intricate world of health benefits, Congress passed the Consolidated Appropriations Act, 2021, which is notable to the self-funded industry for three main reasons: it expanded the Mental Health Parity and Addiction Equity Act to require health plans to proactively document their compliance via the nonquantitative treatment limitation (NQTL) analysis; it introduced the No Surprises Act, which fundamentally changed how claims disputes are handled; and it prohibited health plans from entering into contracts containing gag clauses. This particular blog post focuses on gag clauses. The implications of this prohibition on transparency and patient rights are immense, and it’s worth looking into the power dynamics at play since it’s not quite as simple as saying that plans can no longer have these gag clauses.

A Brief History: The Emergence of Gag Clauses

Per the Consolidated Appropriations Act 2021, the now-impermissible “gag clauses” are contractual terms that tend to prohibit health plans from receiving or disclosing specific information about providers, particularly relating to the cost or quality of care. Historically, health plans and their vendors could, and often did, freely enter into agreements that included gag clauses. This secrecy has been an unfortunate staple of the self-funded industry, and has played a part in preventing many health plans and plan participants from truly understanding (and, sometimes, presented a barrier to compliance with) their contractual obligations.

While the intention of the gag clause prohibition is to foster transparency and consumer protection, the introduction and enforcement of the prohibition has raised some eyebrows, particularly concerning the balance of power in the self-funded health insurance industry. In particular, many are less than thrilled that the onus is placed on the health plan to avoid agreeing to gag clauses rather than, for instance, the onus being placed on a vendor with far greater bargaining power to avoid attempting to impose gag clauses to begin with.

Bargaining Power and The Shadows of Big Players

Larger entities, most predominantly vast national PPO networks that so many health plans and TPAs ally with, possess inequitably-high bargaining power, given their relative ubiquity. Leaving aside the talking point that these national networks provide relatively little cost-containment value for health plans, instead offering prohibition on balance billing (which is certainly valuable, but not in the cost-containment context) alongside discounts so small as to be virtually meaningless in many cases, their geographic and market dominance allows them to set terms that are favorable to them and their contracted providers, often sidelining transparency, and often intentionally. What we’ve seen is that the larger the entity, the more likely it is to use gag clauses as strategic tools to maintain their market stronghold.

Inequity in the Requirement: Why Health Plans?

The statutory prohibition on gag clauses is placed squarely on health plans, which presents an inherent and undeniable bias. Surely Congress knows that it’s not health plans, but their vendors, that impose these clauses; these vendors push for such clauses to safeguard their interests, keeping cost structures and quality metrics under wraps specifically to quash transparency. Health plans are the unfortunate victims of this power imbalance and therefore gag clauses, not the perpetrators.

In light of that, putting the onus solely on health plans seems a bit unjust, effectively holding a health plan accountable for a provision that a given health plan very likely didn't want, but had no choice but to accept due to the power dynamics at play. Lest we forget, too, that even given this gag clause prohibition, vendors are certainly not prohibited from attempting to demand the continued existence of gag clauses; vendors remain free to make demands, and the prohibition on gag clauses does not extend to a vendor – but health plans prohibited from accepting those gag clauses. Placing this limitation on health plans sidesteps the real culprits that do actually promote gag clauses, and we continue to see vendors trying to put a wolf in sheep’s clothing by trying to promote not-quite-so-obvious gag clauses, but gag clauses nonetheless.

Crossroads for TPAs

As they so often are, TPAs are caught in the whirlwind of all this. As with so many other aspects of their business, TPAs must walk a tightrope between providing comprehensive assistance to health plans and increasing their workload and responsibility. To pile on more confusion, many employer groups simply expect their TPAs to handle the discovery of gag clauses, attestation of whether there are gag clauses, and future avoidance of gag clauses as part of their normal business, which can lead to some awkward conversations.

A Call for a More Balanced Approach & Support

Though the gag clause prohibition (and the resultant requirement to attest to whether or not there are currently any gag clauses in place) is a tangible issue that TPAs, health plans, and other players in the industry need to proactively deal with, the prohibition itself offers a window into the larger power imbalances in the self-funded marketplace, and the perhaps somewhat misguided . As regulations evolve, we sincerely hope that the powers that be recognize the urgent need to more evenly balance this power, ensuring that health plans are not unduly burdened, nor vendors given a free pass.

The American healthcare system is as much about patient well-being as it is about business dynamics (though some might say that business dynamics are more prominent in many ways). As the various stakeholders navigate these murky waters, a holistic approach that considers the roles and influences of all entities, big or small, is crucial, and we hope that Congress eventually agrees. For now, though, health plans have a tough road ahead.

Please don’t forget that The Phia Group is here to help! ICE clients, don’t hesitate to use your dedicated ICE inbox for gag clause-related support at no additional cost. Others needing support can reach out to for assistance.