Recent Lawsuits Are a Wake-Up Call for Employers Who Self-Fund Their Insurance
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Mitigate your legal exposure with a 10-point checklist for healthcare fiduciary responsibilities.
The recent surge of legal action involving self-funded employers is a red flag that cannot be ignored. These lawsuits, involving industry giants like Johnson & Johnson and Ford Motor Co, are not isolated incidents; they indicate a broader trend. Employers must review their fiduciary responsibilities and take immediate and concrete actions to mitigate their liability exposure if they want to avoid becoming the next target of litigation.
Understanding the risks
Do you know who counts as a health plan fiduciary in your company? It's important to understand this to keep your business safe. They don't need a special title to be a fiduciary. A fiduciary is anyone who makes important decisions related to employer sponsored health plans that impact how healthcare dollars are spent. This can be people managing the plan, making investments, or choosing who's on the plan's committee. Even if their job title doesn't say it, if they make important choices about the company's health benefits, they're a fiduciary.
The next step is to make sure your fiduciaries know their role and the risks involved. Are they asking the right questions to keep your company safe from potential legal action and protect its financial stability and reputation? If not, now is the time to act.
The healthcare industry is undergoing a significant shift, with employees suing employers and companies suing health plan administrators for breaching fiduciary duties. This trend is expected to escalate. In recent years, there’s been a notable increase in scrutiny of Employee Retirement Income Security Act (ERISA) governance due to new transparency laws and regulations. The Consolidated Appropriations Act (CAA), alongside regulations such as the Transparency in Coverage Rule, placed a new emphasis on assessing the fairness of drug and health plan costs. This shift is expected to lead to a wave of new legal disputes, many of which are aimed at companies who entrust outsourced personnel to make key employee benefits decisions on their behalf.
A closer look at recent lawsuits
Johnson & Johnson
Johnson & Johnson is facing allegations of mismanaging employee health benefits. The lawsuit claims that the company overspent through its pharmacy benefit manager (PBM), Express Scripts Inc., by paying inflated prices for generic specialty drugs readily available at lower costs elsewhere. For instance, a 90-day prescription of teriflunomide for multiple sclerosis treatment incurred a charge exceeding $10,000, compared to just $28 at an online pharmacy. The lawsuit also accuses Johnson & Johnson of neglecting fiduciary duties by failing to ensure reasonable plan costs, lacking prudence in its PBM selection, and accepting unfavorable contract terms.
Ford Motor Co
Ford Motor Co is suing Blue Cross Blue Shield of Michigan Mutual Insurance Company and Blue Cross Blue Shield Association (BCBS) for $1.5 billion for allegedly price-fixing and artificially inflating the costs of employee health insurance. The lawsuit was filed in the U.S. District Court for the Eastern District of Michigan after Ford opted out of a $2.7 billion settlement in 2020. Ford's legal action claims that BCBS's market manipulation resulted in substantial financial losses and highlights the impact of price-fixing practices on employers and insurance premiums.
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Introducing the 10-point checklist
At Nomi Health, we understand that self-funded employers face complex challenges when navigating the healthcare system. We believe it is crucial for organizations to discuss this issue as an executive team and take decisive steps to mitigate their liability exposure. To assist with fulfilling fiduciary responsibilities, we have developed a 10-point checklist available for download.
1. Awareness of fiduciary responsibilities: Are you fully aware of your specific fiduciary responsibilities as an employer? This includes the duty of prudence, loyalty, and adherence to plan documents. Are your employees involved in decisions related to health benefits aware of their fiduciary role? Are they trained in the meaning and risk associated with that duty?
2. Formal plan documentation: Do you have a formal plan document that clearly outlines how the plan is to be operated and administered?
3. Prudent selection of experts: Are you selecting experts who are both skilled and knowledgeable? Are your service providers transparent in their practices and do they disclose all relevant information? For example, you don’t want brokers who have signed a non-disclosure agreement (NDA) to not disclose rates to you, the employer, unless you directly ask to reprice the plan.
4. Know your employee spend and trends: To manage your spend, you need real-time insights into your organization’s cost drivers. Progressive employers are investing in their own analytics foundation so they understand the impact of their benefits plan at any point throughout the plan year and can work with partners to drive their employees to the right care.
5. Network validation: Is your network validated by an actuary? Do you have access to your settled claims data from your third-party administrator (TPA)? Understanding the difference between your contracted rates and settled amounts is critical in ensuring your employees are getting the right care at the right prices. A simplified rate structure is easiest for managing price transparency. When coupled with a tiered plan design that drives employees to the lowest-cost care using co-pays and deductibles, employers can ensure employees are receiving proper care.
6. Employee education: Have you educated your employees on the plan? Can you provide transparent rates to your employees? Providing comprehensive information about the benefits, how the plan works, and their rights under the plan can reduce misunderstandings and grievances.
7. Fiduciary insurance: Do you maintain fiduciary insurance to protect you in the case of a lawsuit? Maintaining fiduciary insurance is crucial to protect your organization in case of a lawsuit alleging a breach of fiduciary duties. Given the rise of opportunistic law firms actively seeking disgruntled employees or former employees who could potentially have a case against their (former) employer, having this insurance coverage serves as a prudent safeguard against class action lawsuits.
8. Control your pharmacy costs: Are you aware of what your pharmacy benefit manager (PBM) is charging and for what? Do you know why certain drugs are on (or not on) your formulary? Are those decisions made with your members’ healthcare needs in mind? Pharmacy spend continues to creep up and now accounts for up to 52% of total medical spend. Managing pharmacy spend requires working with a partner who is willing to provide transparency and creativity in providing your employees the right sourcing options. Employers are increasingly saving upwards of 40% on their PBM spend by working with transparent PBMs who pass rebates onto employers and members at the point of sale and work with employers to deploy a variety of specialty sourcing programs for their employees.
9. Regular audits and compliance checks: Do you conduct regular audits and compliance checks?
10. Understanding your plan: Do you understand the plan you have chosen? Do you know where your healthcare spend is going and whether it is driving the intended outcomes? Are you aware of how your advisors and service providers are being compensated? Does their compensation structure incentivize the right behavior that is aligned with your organization's goals?
“I understand the frustration of seeing your hard-earned dollars wasted by middlemen in the healthcare insurance industry. You placed your trust in them, and now inefficiencies and hidden costs are putting you at legal risk,” said Mark Newman, CEO and Founder of Nomi Health. “It’s time to take control. It’s the reason we built this company – to eliminate the middlemen and provide employers with transparent solutions at half the cost. Right now, every employer needs to stay informed, stay proactive, and stay protected."
Moving forward
By following the 10-point checklist and engaging in a prudent process, organizations can protect themselves from legal challenges and ensure the quality of benefits they provide to their employees. We encourage you to review the checklist with your executive team and start implementing the necessary changes to mitigate your legal exposure.
To learn more about your fiduciary responsibilities under a group health plan, click here to view a compliance guide created by the U.S. Department of Labor, Employee Benefits Security Administration.
Disclaimer: This blog post is intended for informational purposes only and should not be construed as legal advice. Employers are encouraged to consult with qualified legal counsel to address specific legal issues and concerns.