Fiduciary responsibility has come under increased scrutiny by the Department of Labor with significant liability to Plan Sponsors. I couldn’t have expressed it any better so I thought it best to highlight paragraphs in a recent article by Dave Chase Contributor, Forbes, May 26, 2016 to inform you and make the point.
Dereliction of Fiduciary Duties Triggering Department of Labor Investigations
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. The most recent lawsuits name the HR leaders in the companies involved (GAP and CB&I) as defendants since they are listed as the plan administrator (sometimes CFOs are the plan administrators). It’s clear that there is going to be the increased scrutiny for health benefits that has been commonplace for retirement benefits. For example, you can Google “ERISA class action” to find the many cases surrounding retirement benefits going after plan administrators for failing in their fiduciary duties. Similar cases in healthcare could have as far-reaching implications as Obamacare in driving employers to health benefits that deliver value.
Basic ERISA Fiduciary Responsibilities
ERISA is designed to protect employee benefits plans, including retirement and health plans. Under ERISA laws, the people responsible for running the health plans are bound by fiduciary duties. Failure to uphold those duties can result in a lawsuit being filed against the people or organizations responsible for overseeing the benefits plans.
The individuals that are fiduciaries are in a position of trust with respect to the participants and beneficiaries in the plan. Examples of fiduciary’s responsibilities include the following, outlined in Fiduciary News:
- Acting solely in the interest of the participants and their beneficiaries
- Acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan
- Carrying out duties with the care, skill, prudence and diligence of a prudent person familiar with such matters
Cigna, United and GAP cases Highlight Risk for Companies and Executives
This bellwether lawsuit in ERISA healthcare claims disputes presents a cautionary tale for all self-insured plan administrators with “Head in the Sand” TPA monitoring practices. Cigna administered self-insured ERISA plan, CB&I and its Plan Administrator, were sued for alleged ERISA plan assets embezzlement, deceptively concealed through “fake PPO discounts” and Cigna’s “fee forgiveness protocol scam.”
On May 10, 2016, in the southern district of Texas Federal Court, United HealthCare administered self-insured ERISA plan, GAP Inc. and its Plan Administrators, were sued for alleged ERISA plan assets “self-dealing and embezzlement,” deceptively concealed through an “illegitimate recoupment scheme that financially rewards United for wrongfully recouping valid benefits.”
Chris Shoffner, a Chief Risk Officer comments:
“Since there is personal financial liability as a health plan or retirement plan fiduciary, I take it very seriously. ERISA covers both and the level of diligence, process and audit that takes place in running a typical 401k is extensive. Typically a health plan has twice as much money running through it and almost none of the same oversight or transparency. 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. Recent cases demonstrate how companies and their HR executives are putting themselves at serious legal risk. Nearly every employer I see has multiple breaches of their fiduciary duties. Fortunately, it’s very straightforward to remedy the breaches. To do otherwise is a clear dereliction of fiduciary duties.”
Think of it this way; if a 401k plan were to purchase shares of a company and the prices varied from $6 to $60 for the same shares on the same day, people would be alarmed. Yet this happens in healthcare everyday.
Brian Klepper was previously the CEO of the National Business Coalition on Health, an association of organizational health benefits purchasers. Klepper weighed in on the Cigna and United Health cases:
“I worry that benefits managers often fall short of their fiduciary duties and put themselves at risk by simply assuming that vendors are acting in patients’ and purchasers’ interests. These recent lawsuits against prominent mainstream health plans administrators clearly suggest that that’s often not the case. The same may be true when benefits managers go along with unnecessary care. US health care is defined by a culture of excess that drives up cost unnecessarily and undermine the stability, not only of health care, but of our national enterprise. The penalties for this type of fraud should be severe. All benefits leaders and their consultants should be overhauling how they manage care and cost, or risk the consequences. It’s particularly notable that the Department of Labor is now arguing that fiduciary dereliction in health benefits is rampant.”
There isn’t an HR or benefits consultant who wouldn’t like to report to their CEO that the best way to slash healthcare costs and to increase earnings is to improve health benefits. This is exactly what is being accomplished by deft employers who introduce value-based benefits that are positioned as a new benefit layered on top of existing benefits.
If you would like a copy of the entire article, simply email me and I will send it to you. This a very significant and relevant topic with serious consequences. As an Administrator and Fiduciary, you can’t simply rely on an Insurance Company, TPA, or PPO and think that they are taking care of you. You don’t know what you don’t know.