In addition to diverting money for non-plan purposes, the company allegedly used funds from one employer to pay claims on behalf of another. (Photo: Shutterstock)

When Advance Benefits Management Systems (ABMS) ceased operations in Georgia in April 2019, it left its clients with the bill for more than $7 million in unpaid health care claims. Now, the Department of Labor has filed a lawsuit against the company to recoup that $7 million, as well as other costs and fees.

South Carolina-based ABMS acted as a plan administrator for some 118 self-funded health plans. According to the lawsuit, ABMS's founder and president misappropriated both employer and employee contributions, a violation of their fiduciary duty under ERISA. In addition to diverting money for non-plan purposes, the company allegedly used funds from one employer to pay claims on behalf of another and failed to track payments among its employer clients.

Related: Cancer tops list of high-cost insurance claims for self-insured employers

"Companies and individuals that serve as fiduciaries have a steadfast duty to manage all assets in strict adherence to federal laws," Employee Benefits Security Administration Regional Director Isabel Culver said. "Deviating from those laws negatively impacts the hard-working individuals that invest their hard-earned money and trust."

In another blow to its clients, ABMS is also accused of failing to file stop-loss insurance claims and keeping records of employer payments, leading stop-loss insurers to refuse to reimburse many claims.

The case should serve as a warning to other employers in self-funded insurance arrangements to do their due diligence when selecting third-party plan administrators and to ensure that there is an accurate record of all payment and claims data.

Read more: 

• 3 current challenges facing TPAs
• Education gaps present opportunity for brokers and TPAs
• Self-insured employers have more leverage than they think