Financial domination is an economic concept referring to an option that is less advantageous than any other available alternative.
The Price Is Wrong: Dominated PPOs and the Downfall of ERISA Settlor Discretion Barbich v. Northwestern University
SOURCE: Vorys
A recent decision from the Northern District of Illinois threatens to expose health and welfare plan fiduciaries to the same types of imprudent selection claims that have plagued defined contribution plans for more than two decades.
The plaintiffs in Barbich argue that the Premier PPO option is “financially dominated.” Financial domination is an economic concept referring to an option that is less advantageous than any other available alternative.
For instance, if two savings accounts at the same bank offer identical terms, protections, and withdrawal rights, but one pays 3% interest and the other pays 5%, the lower yielding account is financially dominated because no rational depositor would choose it regardless of how much or how little money is deposited.
Northwestern’s plan offered three PPO tiers (Premier, Select, and Value) covering the same services through the same provider network but differing in their financial terms.
The plaintiffs applied the financial domination framework to Northwestern’s Premier PPO, alleging that participants paid higher premiums for coverage that was no better (and in every scenario more expensive) than what the plan’s other PPO options already provided.
Northwestern moved to dismiss on two threshold grounds: Article III standing and the settlor doctrine. The court rejected both.
