Will self-funded plans get caught up in carrier and TPA legal battles?

On January 12, 2024, the Department of Labor (DOL) filed a complaint against Blue Cross and Blue Shield of Minnesota (BCBSM) alleging a series of violations pertaining to the Employee Retirement Income Security Act of 1974 (ERISA). This legal action hasn’t yet drawn much attention, but it is early days and I suspect that will change as the case plays out.  Certainly, the legal and employee benefits communities will be watching closely as the case raises fundamental questions about the boundaries of authority and fiduciary responsibilities in the context of third-party administrators (TPAs) of self-funded employee welfare benefit plans

Another reason this lawsuit is significant, is it was filed by the DOL itself, rather than by employers or plan participants, which carries significant implications for the industry. In addition to summarizing key points of DOL’s complaint against BCBSM, Inc., this article will also provide an overview of several recent lawsuits that have been filed against other TPAs, emphasizing the growing scrutiny of their claims payment and oversight practices by various stakeholders. 

Understanding the DOL’s complaint

At the core of the DOL’s complaint is the assertion that BCBSM exceeded its authorized scope of authority as a third-party administrator for self-funded employee welfare benefit plans governed by ERISA. ERISA, a federal law enacted in 1974, establishes guidelines and regulations to safeguard the interests of participants and beneficiaries in employee benefit plans, imposing specific standards of conduct and fiduciary responsibility on plan administrators and related entities. The DOL contends that BCBSM, Inc. failed to adhere to these standards, thus warranting legal action.

The core issue revolves around BCBSM’s handling of Minnesota’s provider tax, known as the MinnesotaCare Tax (MNCare Tax). BCBSM unilaterally decided to compensate its in-network health care providers for their MNCare Tax obligations, even though the tax was the responsibility of the providers themselves, not the plans or BCBSM. BCBSM sent invoices to the self-funded plans for reimbursement, but these invoices did not explicitly disclose the MNCare Tax payments, instead including these tax amounts in the overall claims paid by the plans.

This alleged mishandling of the MNCare Tax has prompted the DOL to assert that BCBSM, Inc. acted as a fiduciary of the plans by exercising discretionary authority over claims determinations and payments, a significant violation of ERISA’s fiduciary standards (ERISA section 404(a)(1)(A)). Furthermore, the DOL accuses BCBSM of engaging in prohibited transactions (ERISA section 406) by transferring plan assets to parties in interest, including BCBSM itself, without proper authorization, and of breaching its fiduciary duties (ERISA section 404(a)(1)(A)) by not acting solely in the best interests of plan participants and beneficiaries, as required by ERISA. These allegations highlight the DOL’s contention that BCBSM exceeded its prescribed role as a third-party administrator, assumed fiduciary responsibilities, engaged in prohibited transactions, and breached its fiduciary duties under ERISA. 

Other recent lawsuits against TPAs for breach of fiduciary duty

As many in the industry are aware, a series of recent lawsuits have been filed against other Blue Cross Blue Shield entities and other TPAs like Aetna, reflecting a growing trend of legal scrutiny surrounding self-funded employer health plans and the role of TPAs as fiduciaries.

In Massachusetts Laborers’ Health and Welfare Benefit Fund vs. Blue Cross Blue Shield of Massachusetts, the plaintiffs alleged that they were overcharged for health care and administrative services as the fund’s TPA. The fund, a self-funded health plan for union members, claimed that BCBSMA prioritized its financial interests over fiduciary responsibilities and consistently concealed its actions. The case was ultimately dismissed by the District Court for failure to state a claim, and that decision was upheld by the First Circuit Court of Appeals.   The District Court held, and the First Circuit affirmed, that the plaintiffs had  failed  to  plausibly  allege  that  BCBSMA  was  an  ERISA fiduciary  with  respect  to  the  actions  subject  to  the  Fund’s complaint.

Another case that made headlines was Kraft Heinz vs. Aetna.  Kraft Heinz lawsuit alleged that Aetna, acting as its TPA, enriched itself through undisclosed fees and processed medical and dental claims without human review. These allegations in the complaint certainly raise concerns about undisclosed fees and the need for TPAs to prioritize the best interests of the plans they administer.  The case was recently dismissed and sent to arbitration. 

Finally, in Bricklayer and Metal Worker Unions vs. Elevance Health, several unions filed a suit against Elevance Health, accusing the payer of not allowing self-insured plans to access their own claims data and charging higher rates than negotiated with hospitals. Elevance filed a motion to dismiss, arguing that they were not ERISA fiduciaries with respect to the actions alleged in the Complaint.  Notably, they also took the position in their papers that Section 724 of ERISA (i.e., “Gag Clause Prohibition” of CAA 2021), imposed no affirmative duty on TPAs and that any gag clauses that the unions agreed to were their problem, not Elevance’s.  We await a ruling on the Motion to Dismiss.

Implications and future developments

The DOL’s complaint against BCBSM, Inc., as well as the series of lawsuits against other TPAs and insurers, indicate a heightened focus on the conduct and responsibilities of entities involved in ERISA-covered employee benefit plans. The outcome of these cases may redefine the landscape of fiduciary responsibilities and the role of TPAs in plan administration. It is evident that both regulatory authorities and plan sponsors are increasingly scrutinizing the actions of TPAs and insurers, emphasizing the need for compliance with ERISA’s standards of conduct and fiduciary duties.

The significance of this case and those listed above extend far beyond the individual parties involved. With over 157 million Americans relying on employer-sponsored health care plans and the economy spending over $1.2 trillion annually in this sector, the proper administration and management of these plans are paramount for businesses and for people.  It is easy to get lost in policy and number crunching, but at the end of the day, what we’re talking about is helping people access affordable high quality care; a task which is made impossible when industry players engage in underhanded self-dealing to enrich themselves and their brethren. 

The DOL’s actions in pursuing accountability and transparency, at least in this case, serve as a reminder of the vital role regulatory bodies can and must play in safeguarding the interests of plan participants and beneficiaries.  It also speaks volumes about DOL’s position with respect to plan assets, fiduciary roles of TPAs and the conflicted nature of industry players. 

But is this case enough?  Employers still struggle to gain access to claims data, despite passage of the CAA 2021 and despite their rights and legal obligations as ERISA fiduciaries. TPAs continue to buy up providers, pharmacies and other vendors along the supply chain, increasing the frequency they are on “both sides of the bargain” when it comes to negotiating price for self-funded employers. 

As the case unfolds, it underscores the need to keep the pressure up and continue pushing for more transparency and accountability system-wide, ensuring that employer-sponsored healthcare plans truly serve the best interests of those they are designed to protect. I will continue to shine my small light where I can, for as long as its needed. 

Chris Deacon, J.D. is the principal/owner of VerSan Consulting, LLC. Prior to founding VerSan Consulting, LLC, she was involved in running one of the largest health plans in the country for the State of New Jersey, covering over 800,000 lives consisting of public sector employees, teachers and uniformed professionals.