Two law firms are publicly investigating class action lawsuits against employers for failing to properly steward money used for employer-supplied health benefits.
One law firm, Fairmark Partners, based in New York City, is running a campaign looking for Lockheed Martin employees who have questions about the way their benefits are purchased.
Another law firm, Schlichter Bogard, based in St. Louis, Mo., has been running similar ads — also for employees of Lockheed Martin, and of other companies, like Stryker, Boston Scientific, Oracle, Caterpillar and Alcoa (examples below).
“Are you a current or former Lockheed Martin employee who has participated in the company’s heathcare plan?” one ad reads. “You may have a legal claim — and we’d like to speak with you. Contact our office today for a no-obligation, confidential consultation. At Schlichter Bogard, we protect whistleblowers.”
For many years, employers have chosen their health plans from an array of complicated arrangements (often defaulting to what they did last year) and then relying on the existing payment paths and structures, inside our opaque system and in the face of information-blocking from insurers. When employers were pressed on whether their decisions were good, they could say “the insurers don’t tell us the important details.” This essentially delegates the nitty-gritty of payment levels, administrative fees and so on to insurers, brokers and/or third-party administrators, who may or may not be on the up and up.
But with the mandate that insurers must publicly disclose payment rates, and broker compensation must be made public, employers are theoretically empowered to look at payments and other details, and to make decisions accordingly — perhaps by telling insurers to stop paying exorbitant rates and charge lower premiums, or by paying lower brokerage fees. But so far that has not happened in any volume.
‘Reasonable and prudent’
“When you get your health benefits through your employer, your employer is what is called a fiduciary,” Chris Deacon, an expert in healthcare law and founder of VerSan, a healthcare consultancy, explained by phone. “That means that they are responsible for managing other people’s money in a reasonable, prudent and smart way — not overspending, not favoring their buddies.
“As an employee, when you get your paycheck, there is an amount that is taken out and handed over to your employer, for them to provide you with health benefits. You’re trusting that employer with your money to find health benefits for you and manage that.
“What these lawsuits are about is a group of employees trying to figure out whether or not their employer has been derelict in their duties, because the employer did not manage the spend appropriately. My health care costs go up year after year. Is it your fault, you who are buying these benefits on my behalf?
“I don’t get to go directly to BlueCross BlueShield and say, ‘I want a better rate’ — that’s on you, my employer. So the lawsuits will look to see whether or not the employer has done things to protect the assets of the employees. Are they checking for conflicts of interest? Have they been out to [request for proposal] in the last 10 years? Are they looking at their health claims data to make sure that they’re not paying the bill twice or getting ripped off?”
2021 law changes
Employers have always had this fiduciary responsibility, which is especially well known through the Employee Retirement Income Security Act (ERISA) of 1974, which requires retirement plan sponsors to act in the sole benefit of employees.
But the spotlight is on the topic now because of changes from the Consolidated Appropriations Act of 2021, Deacon said, for two reasons.
“Number one, health plan data and claims data,” she said. “Now it is not only the right for the employer to have access to it, but it’s their obligation to have access to that financial information. There’s no longer any excuse to say, ‘Well, I didn’t know I was spending too much, because my carrier wouldn’t let me see my claims.’ Now, the C.A.A. says you, the employer, can’t enter into an agreement that restricts your access to that information.
“Number two, the C.A.A. requires that brokers and consultants disclose all direct and indirect compensation that they’re getting as a result of this business of the employers.
“Before, a broker might have said to an employer, ‘You know, I can get you a 5% rate increase with this carrier.’ And the employer could say, ‘Well, is that the best deal you can get me?’ and in the broker would say, ‘It sure is. That’s where you should put your business.’
“And unbeknownst to the employer, the broker is getting a million dollars on the back end from the carrier for giving that conflicted advice. But the C.A.A. says that now, all the brokers and consultants and third-party service providers have to disclose all direct and indirect forms of compensation, i.e. financial conflicts of interest to the employer. If they don’t, the employer and the broker are in hot water. So now you’re much more aligned with like how the 401(k) world operates.
“If you notice, some of these law firms, particularly the Schlichter firm, this is where they came from — from the class action 401(k) space, where they’ve been successful.”
Since these firms have a playbook from 401(k) class action suits, Deacon said, they can take that playbook and shift it toward health benefits.
Schlichter Bogard made a name for itself by suing retirement plan fiduciaries, accusing them of paying unreasonable and excessive fees for retirement plan investment advice. These lawsuits have brought $300 million in settlements.
“The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses,” the Department of Labor explains, referring to the Employee Retirement Income Security Act (ERISA) page.
What about the timeline?
But the timeline — it won’t be quick, right? I asked. And the employees who form a class must be willing to sue their employers?
“You have to find the class,” she said of the class action law firms. “To speak practically, you are asking an employee to essentially turncoat on their employer with respect to the health benefits they might currently be getting from their employer. That’s tough.
“So maybe you’re finding former employees — now, are they disgruntled? Why are they former employees? It’s going to be an interesting evolution to see who they are actually able to put together that were harmed.
“I actually think the perfect case would be like a bankruptcy estate. Because you can have employees who are really no longer beholden to an employer, and you have a trustee acting on their behalf, to see if anything was mismanaged. But it’s really difficult to think who are the employees that come together — maybe a labor union? If they think the management side of their employer has been mismanaging their funds.”
What the ads say
The Fairmark ad reads:
“Are you paying more than ever for health care and drugs through your Lockheed Martin benefits plan? Does it have to cost so much?
“Dramatic increases in healthcare and prescription drug costs are eating up much of the nation’s paychecks. Lockheed Martin and other large corporations pass those increases on to their employees, charging their workers about $1 trillion dollars a year nationally, according to numerous studies.
“Employees or retirees of Lockheed Martin may have serious questions about the money withheld for their health benefits and whether they have enough information about what they are buying. They may ask:
- Did I fully understand what the costs and increases in my Lockheed Martin healthcare would be when I signed up?
- Is Lockheed Martin correctly using the funds it collects for premiums?
- Am I getting what I paid for?
- Can I count on my savings to see me through medical emergencies?
- As a retiree covered by Lockheed Martin health benefits, can I face aging without worrying about how I will pay for increases in healthcare?
Are Fairmark and Schlichter Bogard the only law firms pursuing class action in this case? Deacon said she had heard that others are quietly contemplating such actions. She said all the cases she has seen under consideration affect self-insured employers, though fully insured employers are also fiduciaries.
Some of the ads seek “current employees” but most seek “current or former” employees.
Why is the employer the villain?
Why does this cast the employer as the villain? I asked. Isn’t the insurer or the third-party administrator the real villain, or the broker if they are charging high fees? Employers are frequently described as “bad purchasers of healthcare,” but are they maybe just being fleeced? And are they working inside of the existing system, which makes employer-based health insurance opaque and also a benefit that is tax-advantaged and therefore hard to root out?
“That’s in question, right,” Deacon said. “What’s not in question today, is that a group health plan sponsor is a plan fiduciary under ERISA. That means that the employer undoubtedly holds fiduciary obligations. The real question is, are they able to? And have they delegated some of that fiduciary responsibility to these third parties, to the consultant, to the broker to the carrier? Or are they simply counterparties to a contract?”
Another possibility: “My guess is the employer is going to turn around and say, if we’re liable, we have trusted our carrier or [pharmacy benefits manager], or our consultant. We put our trust in them that they would manage this prudently, and they have agreed to do this, and even if they weren’t a fiduciary named in the plan, they’re acting as a fiduciary because they have discretion over our funds.” At that point, she said, the employer might enjoin the carrier as a third-party defendant. “In that instance, the employees are going to say, ‘well, I don’t care whose fault it is. Somebody’s responsible for the mismanagement of our health plan spend.’ And then you’re kind of duking it out over who’s responsible. Is it the employer, or is it the carrier?”
Insurers still withholding information
This idea that the employer is liable in class action instead of the insurer is one point of contention, she said.
“it’s a really messy situation because employers today, they know they have a fiduciary obligation, but they’ve by and large been completely blockaded from getting the information that would allow them to actually fulfill that. And the carriers, despite the law, continue to say you don’t get access to your data. Despite the C.A.A., they continue to tell employers that they can’t audit all of their claims.”
She said employers are learning now that the carriers will not give them what they need to fulfill that fiduciary role. And then, she predicted, other things will happen.
“Your hands are tied behind your back,” she said of the employer. “This is where the obligation now is on the employer to say, ‘if you’re not going to meet me at my fiduciary role, I’ve got to go to somebody else — an independent third party administrator or some some other carrier that’s willing to actually enable me to fulfill my legal obligation as an employer plan sponsor. But that’s one or two years down the road.”
Filling out the picture, she said is the Kraft Heinz company’s suit against Aetna in federal court in Texas. Kraft Heinz Company is alleging that Aetna, administering medical and dental plans for Kraft Heinz employees, retirees, and their family members, “leveraged its role as the third party administrator or ‘TPA’ to enrich itself to Kraft Heinz’s detriment. Aetna breached its fiduciary duties and engaged in prohibited transactions.”
“Since the beginning of 2012, Aetna has taken more than $1 billion from Kraft Heinz
to pay providers for medical services provided to Plan Participants,” the court documents say. “Included in that more than $1 billion, Aetna (a) paid millions of dollars in provider claims that never should have been paid, (b) wrongfully retained millions of dollars in undisclosed fees, and (c) engaged in claims processing related misconduct to the detriment of Kraft Heinz.”
In April 2023, in a related case, the First Circuit Court of Appeals, in Massachusetts Laborers’ Health & Welfare Fund v. Blue Cross Blue Shield of Massachusetts, the appeals court affirmed a district court ruling that Blue Cross Blue Shield of Massachusetts does not have ERISA fiduciary status. (Article continues below document.)
The union had alleged that Blue Cross Blue Shield of Massachusetts, as a third-party administrator (TPA) for an ERISA health benefit plan, “engaged in fiduciary breaches and other fiduciary-oriented ERISA violations by paying unauthorized fees to itself, paying medical provider claims at inflated prices, and insufficiently crediting recovered overpayments to the plan,” the Miller Chevalier law firm wrote in describing the case. “The district court held that BCBSMA was not a fiduciary with respect to the actions at issue in the complaint and dismissed the case on that basis.”
Third leg of the stool
As Kraft Heinz winds its way through the court, she said, a “third leg of the stool” could be envisioned: What if an employee files legal action directly against the insurer, accusing them of breach of fiduciary duty or contractual violation? She used an example from her own experience: When she was going to get an X-ray, her insurance information couldn’t be found, so she paid $299 in cash. Later, her insurance information turned up, and the claim was processed — and she was notified that Blue Cross had paid $2,000 for the X-ray. So — Blue Cross seriously overpaid.
“Is that harm directly caused by my carrier?” she asked. “Or is that a harm caused by my employer for doing business with that carrier? I think it’s an open question. But I think that individuals might be more motivated to not sue their employer and just say the insurance company is actually doing some of these really conflicted things — without my knowledge, and sometimes even without my employer’s knowledge.”
Had she been on a high-deductible plan without her deductible satisfied, she would have been on the hook for the $2,000, she said. An employee who notices something like this might bring action against an insurer for making such arrangements, preferring this to the potentially more risky course of being a named plaintiff in a class action suit against an employer for failing in its fiduciary duty.
“Imagine if I’m in a court and I’m defending Lockheed, I’m gonna say, ‘Look, Judge, these employees have all been fired in the last three years or laid off because of reductions in force, and they’re disgruntled employees. That’s why they’re coming after the employer.’
‘It’s a very messy class to put together for all those reasons,” she said.
