Understanding employers’ fiduciary duty for health benefits

Employers who provide health coverage have a fiduciary duty to act in the interests of plan participants, and that requires more than relying on the assurances of brokers or administrators. That’s a lesson all employers can take from two recent class action lawsuits.

Class action lawsuits

Johnson & Johnson faces a class action lawsuit for allegedly overpaying for prescription drugs and mismanaging health benefits, and the Mayo Clinic and its plan administrator are being sued for underpaying claims and lacking transparency. Because employee wages finance health benefits, the Employee Retirement Income Security Act of 1974 (ERISA) requires employers to administer their plans “solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses,” creating a fiduciary duty for employers who provide health coverage to ensure their employees are not being taken advantage of.

These two lawsuits could portend greater legal liability for employers who do not take an active role in plan management, choosing instead to rely on third-party administrators who may have incentives that run counter to the best interests of plan participants. But there are clear steps employers can take to protect your employees – and your business. 

How to protect your business

Providing health benefits is increasingly important for employee recruitment and retention. In a recent survey, nearly 60 percent of employees said they were “willing to give up some salary to gain access to better health care.” Faced with rising health care expenses and heightened legal liability from the fiduciary duties that come with providing health coverage, employers must act now to protect themselves and their businesses. The good news is that many of the same actions can lower both expenses and legal liabilities.

1. Remove any “gag clauses” from contracts before renewal
   So-called “gag clauses” are now banned by both state and federal law. Make sure any of these clauses are removed from contracts before renewal and provide access to provider-specific cost or quality information.
   
2. Disclose compensation
   Disclosure requirements in ERISA section 408(b)(2)(B) apply to persons who provide “brokerage services” or “consulting” to ERISA-covered group health plans who reasonably expect to receive $1,000 or more in direct or indirect compensation in connection with providing those services. The information required to be disclosed under ERISA section 408(b)(2)(B), which includes both direct and indirect compensation that is expected to be received in connection with a contract or arrangement between a covered service provider and a covered plan, generally must be disclosed reasonably in advance of the parties entering into such contract or arrangement.
3. Report information on drug prices
   The Consolidated Appropriations Act of 2021 requires group health plans (plans) and health insurance issuers (issuers) offering group or individual health insurance coverage to submit information about prescription drugs and health care spending to the Department of Health and Human Services (HHS), the Department of Labor (DOL), and the Department of the Treasury (collectively, the Departments).
4. Analyze mental health benefits
   Group health plans and health insurance issuers offering group or individual health insurance coverage must ensure that the financial requirements and treatment limitations on Mental Health or Substance Use Disorder (MH/SUD) benefits they provide are no more restrictive than those on medical or surgical (med/surg) benefits.

Request and review your health plan data
Price transparency laws were the first step in reining in out-of-control health care expenses. Now it’s up to employers and other plan providers and administrators to act on price transparency by requesting their data from health plan administrators, analyzing that data, and properly reporting it. By doing so, employers will take concrete steps to protect their businesses by lowering their health care-related expenses and their exposure to fiduciary liability.