In my last blog, Employers A Perfect Storm is Converging Around Your Benefits Program Costs, I discussed a number of health and financial issues that are contributing to rising employer-paid benefits costs. One of the factors I didn’t mention is the amount we waste on healthcare spending.
According to PWC, more than 50%, $1.2 trillion of the $2.2 trillion spent nationally, is wasteful. That is a shockingly horrific amount.
As an HR executive or benefits administrator, you’re first thought might be, “Wow, I’d be a rock star if I could recoup even 20% of that waste.” Your next thought might bring you back to earth: “I can’t control this waste. I just pay what we’re billed.”
Not so fast. As a plan fiduciary, you’re responsible for more than paying the tab for employee healthcare. Employers, including private-sector, for-profit and non-profit entities, providing group benefit plans are subject to the terms of the Employee Retirement Income Security Act (ERISA). This collection of regulations applies to both fully insured plans and those that are self-funded directly by the employer or union.
ERISA requires that at least one fiduciary (person or entity) be named for each plan offered. A fiduciary exercises discretion or control over how the plan is operated and its assets. Fiduciary status is based on the functions performed for the plan, not a person’s title.
ERISA identifies specific fiduciary responsibilities:
- Acting solely in the interest of plan participants and their beneficiaries, with the exclusive purpose of providing benefits to them
- Carrying out duties prudently
- Following the plan documents (unless inconsistent with ERISA)
- Holding plan assets (if applicable) in trust
- Paying only reasonable plan expenses.
If you’re a plan sponsor and are found not to have acted in the best interest of participants, you could be held personally liable to restore any losses to the plan or any profits made through improper use of the plan’s assets resulting from your actions or inactions. (Department of Labor). Both civil and criminal penalties may apply, depending on the nature and severity of the breach.
This is Becoming Increasingly Important as ERISA Healthcare Lawsuits are on the Rise
Most employers take great care to execute their fiduciary duties associated with retirement plans, forming internal oversight committees or outsourcing the responsibility to external service providers. But employers have typically been less diligent where healthcare benefits are concerned.
But why would you be when you spend 2 to 2-1/2 times more in healthcare benefits than on retirement benefits? It’s time to take your responsibilities to heart, as more and more fiduciary breach lawsuits are being filed on behalf of healthcare plan participants.
According to an article in Forbes, CFOs And HR Execs Facing Millions In Personal Liability Due To Unmanaged Health Benefits Plans, “The first shots across the bow have been fired, highlighting how benefits leaders need to pay as close attention to health benefits as they have been paying to retirement plans.”
|According to the Forbes article the Department of Labor became involved in a 2016 lawsuit filed against GAP, Inc. and United Health in 2016. The suit alleged that 2 plan administrators were guilty of “self-dealing and embezzlement,” deceptively concealed through an “illegitimate recoupment scheme that financially awarded United for wrongfully recouping valid benefits.”|
|According to a 2017 post by AVYM, a temporary restraining order was issued against Multiple Employer Welfare Arrangement (MEWA) for “allegedly failing to pay more than $26 million in member’s health bills, while keeping a substantial amount of money for themselves, then siphoning off those funds to offshore Bermuda accounts.”|
|In 2017, more than 30 suits were brought by employers that alleged Blue Cross of Michigan “skimmed unauthorized fees from their health plans.” In 2014, an appeals court held the insurer liable under ERISA for “charging hidden and unauthorized fees as a means of improving its financial position without alienating customers,” costing the Blues plan $6 million (AVYM).|
|MagnaCare negotiated a $14.5 million settlement with the Department of Labor in 2017. The third party administrator allegedly “breached its fiduciary duties and committed prohibited transactions, including dealing with plan assets in its own interest.”|
|In 2016, 113 of Cigna’s self-insured clients were hit with an alleged breach of fiduciary duties under ERISA for fraudulent use of health plan funds. The case is pending.
An EBN Views blog by Brenna A. Davenport called it right when she said, “This case should serve as a wake-up call for employers sponsoring health plans.”
Limiting Your Liability
Now that the Department of Labor is taking a long look and asserting that lack of fiduciary duties regarding healthcare plans is rampant, you need to take steps to show you’re acting in the best interest of your health plan participants. To limit your liability, document the processes you use to carry out your responsibilities. And you and everyone who handles plan funds or other plan property should be covered by a fidelity bond.
Hiring Service Providers
Another way to protect yourself is to hire or engage service providers knowledgeable in their fields to handle the operations of the plans or how assets are allocated. If you’re a self-insured plan and outsource administrative functions of your benefits to carriers, third party administrators, pharmacy benefits managers, etc., you must carefully review the contract language and confidentiality provisions to make sure that you “own” your data, i.e., that there are no restrictions on access to or use of your claims data.
Some vendors may try to claim that the data is proprietary because it has the potential to reveal negotiated provider discounts or proprietary claims processing methodologies. Others may charge you to share data with third party vendors, or may limit how you or other vendors may use your data.
They may claim you are not allowed to:
- Aggregate and/or de-identify your claims data.
- Share claims data with a third-party vendor.
- Combine provider and financial fields.
These prohibitions could put you at risk for penalties by limiting your ability to get a detailed view of your medical costs and spend. Remember, one of your responsibilities is to pay only reasonable plan expenses. Even if you hire an outside service provider, you still have a fiduciary responsibility for your plan and its participants to ensure that your plans are being operated as well as possible. So, it’s very important that you monitor your vendors to ensure they are acting in your participants’ best interest.
Chris Shoffner, a Chief Risk Officer for health plans and a broker/consultant for 401k plans, had this to say in the Forbes article, “I don’t see how it’s possible to serve as a fiduciary while not having access to claims data, the ability to hold providers accountable by auditing detailed bills or providing transparency in cost and outcomes to guide participants.”
Own Your Data
You need unrestricted access to your benefits data to limit your fiduciary risk, meaning you need to own your data.
Read contracts closely and insist that language limiting use of or charging for access to your data be removed. Cite compliance with ERISA as the reason such language puts you at personal risk. Talk to your advisor about adding the language to all requests for proposal issued to your vendors.
You also need to analyze your data so you know that you are paying only for reasonable expenses.