The wake-up call has to do with fiduciary duties arising under ERISA. These duties include:
- Acting solely in the interests of the participants and beneficiaries and avoiding conflicts of interest;
- Administering the plan in accordance with plan terms (subject to ERISA);
- Acting for the exclusive purpose of providing plan benefits or for defraying reasonable plan administration expenses; and
- Acting prudently.
Much attention has been placed on these duties in the retirement context, inspired in part by the DOL’s release of regulations regarding fee disclosures and recent revamping of the fiduciary rule. However, historically, very little attention has been extended to the application of fiduciary responsibilities to welfare benefits plans.
This is unfortunate because health plans in particular are a type of welfare benefit ripe for fiduciary liability, mainly arising from well-recognized waste in the system. The Economist has reported that fraudulent health care claims consume $272 billion each year and the Institute of Medicine estimated that 30% of all health care spending is unnecessary in its 2013 “Best Care at Lower Cost” report. It is a growing thought among litigators that fiduciaries of health plans have a duty to mitigate this waste.
In order to address this responsibility, plan sponsors of health plans should pursue a more proactive approach to this benefit. Key action-items can include:
- Incentivizing wise decisions about health care consumption through consumer-driven models such as the HDHP/HSA. While the popularity of such plans has grown over time, there is still considerable education to be done, as many participants confuse an HSA with an FSA. Likewise, plans can be structured through reimbursement tiers to incentivize the use of generic drugs, since drugs are one of the largest areas of cost and waste. Other areas of potential cost savings include narrow-network, bundled case rate benefit plans.
- Considering the pros and cons of a self-insured group health plan. Even smaller employers are moving to self-insurance through health insurance captives or even MEWAs. Given a sufficient number of participants, self-insurance can be a more cost-effective benefit that can provide comparable or even better coverage than traditional fully-insured options.
- Documenting the plan accurately and in accordance with ERISA. This should include cleaning up claims procedure language. Similarly, fiduciaries (especially of self-insured plans) should monitor any third party administering the plan to ensure that third party is following the plan’s terms correctly, administering claims efficiently and accurately, utilizing plan funds appropriately, and charging a reasonable fee. This means including performance-based metrics in the services agreement, periodically auditing the service provider, and conducting RFPs or other assessments of the fees charged.
- Instituting wellness programs and even establishing on-site clinics can lead to a healthier workforce, reduce claims, and even increase worker productivity. As on-site clinic administration services have matured, even groups of similar smaller employers can now assess the possibilities of a shared near-site clinic.
The possibilities are only limited by your imagination and, of course, applicable law. The point is to be proactive about your entire welfare benefit structure (but especially your group health plan) and engage appropriate counsel and service providers to guide you through compliant design, implementation, and maintenance. This is an untapped area of cost-containment for many employers. And no one wants to be on the hook for personal liability arising from a breach of fiduciary duties – especially when that liability could reach hundreds of billions of dollars in the aggregate.
___________________¹There is also a duty to diversify investments, but that duty generally has less practical applicability to welfare benefits plans.