Group Health Plan Fiduciaries are the Subject of New ERISA Class Actions - Bim Group

Group Health Plan Fiduciaries are the Subject of New ERISA Class Actions

READ TIME: 5 MINUTES

Retirement plan fiduciaries are no stranger to ERISA class action lawsuits. These lawsuits typically allege that imprudent processes and lack of oversight led to excessive fees for investment options, recordkeeping services, and investment management services. Similar class actions are beginning to find their way to group health plan fiduciaries thanks to new disclosure requirements and transparency laws.

Lewandowski v. Johnson & Johnson et. al.

Lewandowski v. Johnson & Johnson (the “J & J class action”) was filed in the District Court of New Jersey on February 5, 2024. The J & J class action targets group health plan fiduciary obligations under ERISA and focuses on the “duty of prudence” when selecting and monitoring health plan vendors. The lawsuit alleges that the plan participants and beneficiaries were harmed by paying increased plan costs because of fiduciary breaches.

Specifically, the lawsuit alleges that the health plan fiduciaries mismanaged the plan’s prescription drug benefits. That mismanagement allegedly cost the plan and its employees “millions of dollars in the form of higher payments for prescription drugs, higher premiums, higher deductibles, higher coinsurance, higher copays, and lower wages or limited wage growth.”

The participants alleged the plan’s fiduciaries failed to:

  • Pay the lowest possible costs for the offered drugs
  • Obtain competitive bids from other prescription drug service providers
  • Monitor plan expenses
  • Negotiate the prescription drug contract with its pharmacy benefit manager (PBM), especially given its bargaining power as a Fortune 50 employer
  • Fully inform participants about the mail-order program, where drug prices were routinely higher than options at retail pharmacies
  • Protect the health plan’s assets

Fee Disclosures and Transparency Laws

The Consolidation Appropriations Act, 2021 (CAA-21) and the Transparency in Coverage (TiC) Rule are the most comprehensive health plan legislation and reforms since the passage of the Affordable Care Act. The CAA-21 and TiC place new obligations on group health plans and health insurance companies regarding plan fee disclosures and pricing transparency. Such obligations may contribute to a rise in class actions against health plan fiduciaries.

Service Provider Disclosure Requirements under CAA-21

In 2020, the CAA-21 broadened the definition of “covered plan” for Section 408(b)(2) under ERISA to include group health plans (it had previously only included retirement plans). This created new obligations for service providers, which includes health insurance brokers, to make certain disclosures to plan fiduciaries. Under ERISA Section 408(b)(2), any contract related to a group health plan is not reasonable (meaning it’s a prohibited transaction) unless the direct or indirect compensation received by a health plan service provider that equals $1,000 or more is disclosed in writing to the plan fiduciary before entering into the contract or extending the contract. Because disclosures prior to entering into a contract, they may include estimates or formulas that address anticipated compensation.

The required disclosures are designed to provide group health plan fiduciaries with sufficient information to help determine whether the fees are reasonable, as required by ERISA’s fiduciary rules. Additionally, this law has enhanced cost awareness among health plan participants.

It is likely that Plaintiffs’ attorneys are seeking information regarding these disclosures (or lack thereof) to support

participant claims against ERISA health plan fiduciaries and their service providers.

New Transparency Rules for Group Health Plan Fiduciaries

The federal government also issued the TiC final rule in 2020, with rolling effective dates from 2022 through 2024. This rule requires group health plans to disclose machine-readable data describing payment rates for in-network healthcare items and services, out-of-network allowable amounts, and prescription drug costs. These data files are intended to make healthcare pricing information accessible to participants, helping them know the cost of a covered item or service before receiving care.

The CAA-21 expanded upon the TiC rule by requiring group health plans to provide more expansive prescription drug and medical cost reporting. With many large, self-insured plans, these costs lie with third-party providers, like PBMs. Like the fee disclosures, this TiC data is also helpful in determining whether plan fees are reasonable under ERISA’s fiduciary rules, potentially supporting excessive fee litigation.

 

This information has been prepared for UBA by Fisher & Phillips LLP. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.

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