Fiduciary-minded benefits: the roles and responsibilities of advisors 

Over $1.3 trillion is spent on private health insurance, with per-enrollee spending by private insurers growing by 61.6% from 2008 to 2022. The primary reason for this increase in per enrollee spending is a result of the increase in health care prices, with the Consumer Price Index for medical services growing at an average rate of 3.1% per year compared to 2.6% per year for the Consumer Price Index for All Urban Consumers. Prior to 2022, employers and employees had very little access to understand expected health care costs for services and procedures, but that all changed with the Transparency in Coverage Rule and the Consolidated Appropriations Act.

The Transparency in Coverage Rule has five goals that meaningfully impact health care consumers, as listed below:

1. Establish a market-driven health care system
2. Enable comparison shopping
3. Expose real-time pricing information and out-of-pocket liability 
4. Stabilize and reduce the price of health care services
5. Empower, inform, and incentivize action from consumers

The pursuit of these goals upon plan sponsors began July 1st, 2022 when the first phase of the Rule became enforceable with the publication of two machine-readable files (In-Network Negotiated Rates and Out-of-Network Historical Billed Amount). The pursuit continued into 2023 and 2024, when the second and third phases of the Rule required that health care consumers be equipped with a cost-comparison shopping tool for 500 identified items and services (2023) and then all covered items and services (2024).

Concurrently, enforcement of the Consolidated Appropriations Act of 2021 had begun, which placed plan fiduciaries under the microscope regarding how they approached health plan costs as fiduciaries. These two combined efforts led to the expectation that plan fiduciaries may eventually be put into the legal spotlight if they fail to practice their fiduciary duty of “loyalty” and “prudence” in managing health care costs. 

The sentiment regarding these Rules was that sometime in the distant future, the ax was going to fall upon fiduciaries, as it had done in the retirement space with the passage of 408(b)(2) disclosure requirement. Surprisingly to many within the employer-sponsored health insurance industry, the catalyzing event took place on February 5th, 2024, when a groundbreaking lawsuit was filed by a class of Johnson & Johnson (JNJ) employees against JNJ and the Pension & Benefits Committee, as well as the committee members. It has been less than three years since these combined efforts took effect. Notably, the class action complaint lodged against JNJ alleges that the company paid over $10,000 for a medication readily available on the market for $50, nearly a 200% difference. The allegations point to the complete and utter failure of the group’s fiduciaries. Unfortunately, this type of price variation isn’t uncommon within health care, whether for procedures or prescriptions, as evidenced by the differences in negotiated discounted rates for the same procedure between in-network providers for a large payer in Massachusetts. 

How does the above table impact a fiduciary? A key element in determining whether a fiduciary has met their duty of prudence considers how they have exercised care, skill, prudence, and diligence in the management and administration of the plan. This is paramount when selecting plans and network arrangements. 

What should a benefits advisor consider when strategizing with their employer group client during renewal? The primary considerations include:

• Mitigating disruptions to employees’ provider network options;
• Ensuring in-network providers have met the health plan’s quality standards;
• Determining that the fees and expenses associated with the plan are reasonable, necessary for the plan’s operation, and not excessive for the services provided

The first factor, focused on the provider network options, can be evaluated by the benefits advisor and employer group, understanding where employees are seeking care currently and how the plan would be able to assure that there isn’t a disruption to that care being received. Benefit advisors and employers face challenges with the second and third factors, focused on quality and costs. Although fixed costs are associated with the plan’s administration, the variable costs, notably those associated with services and procedures received by employees, are less available for comparison. That is, until the passage of the Transparency in Coverage Rule and Consolidated Appropriations Act of 2021.

To reiterate, the Transparency in Coverage Rule requires employer groups to publish a machine-readable file that captures the in-network negotiated rates for all covered items and services. The Consolidated Appropriations Act removes the prohibition of gag clauses and, as a result, allows employers to access claims data for their group. These two sources of information provide unparalleled insight into health care costs and actionable insights into cost-containment. 

How do benefit advisors support employer groups in making the most prudent decisions concerning their plans and network arrangements? From a financial perspective, it would only be made possible if a benefits advisor could help an employer group compare the costs of services received by employees over the past year and have each of those claim lines “re-shopped” against the most cost-effective provider in the network. The difference between where care was received plus the associated costs and where care could have been sought at lower costs highlights hindsight bias but, more importantly, significant financial opportunity. For the average employer group, it’s estimated that upwards of 41% of health care spending is wasteful in that, with utilization remaining constant, the significant price variation between in-network providers for the same exact procedure leads to ineffective spending. 

Beyond a hindsight analysis of claims, benefits advisors should also understand the impact of the network proposed to employer groups and the contracted rates to which their employer group clients are exposed. Ideally, a benefits advisor supporting employer groups practicing their fiduciary duty should conduct an annual report highlighting what could have been spent upon applicable claims where an alternative insurance payer has a negotiated rate at an in-network provider. For instance, if Payer A and Payer B have contracts with Provider C, what is the impact of the difference between these negotiated rates of procedures? In practicing their fiduciary duty, employers should know if Payer A has a greater range of negotiated rates and, as a result, increases the likelihood of wasteful spending. Opacity and status quo can no longer be accepted, and as employees take greater ownership of their health care journey, these questions will continue to arise.

Regardless of the outcome of the Johnson & Johnson class action lawsuit, fiduciary practices concerning employee health plans will transform. Benefit advisors should hold their employer group client fiduciaries to standards of prudence and loyalty and act solely in the interest of plan participants and beneficiaries with the exclusive purpose of providing benefits to them. Forewarned is forearmed. How will benefit advisors help their clients exercise prudence and diligently audit their plans and networks? 

Here are four key questions that a benefit advisor should ask to ensure that their employer group clients are practicing 

1. Demand access to the group’s claims: The Consolidated Appropriations Act of 2021 prohibits gag clause mandates, so employers have a right to their claims data. Advisors must ask, “Are claims being reviewed annually to understand the group’s trendline compared to benchmarking standards?”
2. Help employers understand what they’re paying for: Advisors should review the tools being offered to employees to leverage and whether reasonable fees are associated with them. Advisors must ask, “Is there verification of an annual review process ensuring Plan fees and associated services were rendered to the Plan per outlined service agreements at a reasonable cost for the sole benefit of the plan and its participants?”
3. Personally test the tools made available to employees: If an advisor suggests a platform or tool, make sure to test it so that it works as promised. Advisors must ask, “Is there a defined process for evaluating provider services, i.e., direct primary care, direct contracting for specialty, on-site services or virtual telemedicine, etc.?”
4. Test yourself: This may be the hardest takeaway, but it will likely be the most appreciated by employer groups and will highlight the character of an ethical benefit advisor. It must be asked: “Within the past 3 to 5 years, has there been a formal RFP process performed regarding the fees and services of your benefit advisor?”

These four questions will distinguish the advisors who have embraced these changes from those who prefer the status quo. By taking decisive action and supporting employer groups in their pursuit of prudent fiduciary actions, benefits advisors can help reshape the health care ecosystem and ensure cost-effective, high-value care for all employers and employees.

Mark Galvin has been a thought leader and staunch advocate for price transparency and consumerism in healthcare for more than 17 years. He co-founded TALON in 2014 to create and supply a platform supporting a more competitive, efficient health care marketplace.