DOL sues BCBS of Minnesota for wrongly collecting $66.8M from self-funded plans

The U.S. Department of Labor late last week filed a lawsuit alleging that Blue Cross Blue Shield of Minnesota wrongly passed along a particular state tax to employer health plans. The outcome of the case could have ramifications for plan sponsors, experts said.

According to the complaint, Blue Cross required self-funded employer health plans to cover the cost of the state’s “provider tax” as an undisclosed piece of the negotiated service rates they pay to health-care providers. Hospitals and clinics in the state pay the tax to fund the MinnesotaCare health insurance program for lower-income residents.

Between 2016 and 2020, Blue Cross collected at least $66.8 million from 370 self-funded plans to pay the tax obligations for health-care providers in the health insurer’s network, the lawsuit said. It did this “without authority to do so under the plans’ governing documents.”

“By exercising discretionary authority over the plans in this way, [Blue Cross] acted as a fiduciary of the plans and violated fiduciary standards and prohibited transaction rules by serving its own interests over those of the plans,” according to the complaint filed in the U.S. District Court of Minnesota.

The company supplied each employer with a summary plan description, which functioned as the plan’s governing document, and benefit booklets that described the terms of the plan and governed its administration and management, according to the complaint.

“Without authority to do so under the [plan governing documents], and without obtaining approval from independent fiduciaries of the plans, BCBSM caused the plans to reimburse BCBSM the amounts it paid to the providers for the providers’ MinnesotaCare tax obligations, and in so doing exercised authority over the assets of the plans and discretionary authority over the management or administration of the plans,” the complaint said.

Blue Cross said it could not comment on specifics of active litigation but that it “strongly believes the underlying claims… are without merit and based on an unsupported interpretation of the MinnesotaCare Provider Tax law.”

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The lawsuit could have significant implications for other plan sponsors if the facts regarding the taxes at issue were not fully disclosed to the plan sponsors and/or plan fiduciaries, Douglas Neville, officer and practice group leader for the Greensfelder, Hemker & Gale law firm, told Plan Sponsor magazine.

“This action illustrates the DOL’s continued proactive, and sometimes aggressive, stance in identifying and pursuing any perceived fiduciary violations,” he said. “If the action is successful — if it results in a consent judgment in which BCBSM agrees to settle the matter — this could impact the industry by increasing transparency in what fees, taxes and expenses third-party administrators are passing through to plans, and the basis for doing so.”