Employer Lawsuits Heat Up Against Health Plan Administrators

“Is it not true your company has been stealing plan assets!”

July 6, 2023, 4:30 AM

Lawsuits by employers against insurers that administer employer health plans are beginning to mount, and workers could soon join the fray with litigation against employer-sponsored health plans.

By Sara Hansard – Senior Reporter

  • Administrators adding more fees; companies have fiduciary duty
  • Lawsuits by workers against employers may be looming

Kraft Heinz Co.‘s employee benefit plan filed a suit June 30 against Aetna Life Insurance Co. in the US District Court for the Eastern District of Texas, accusing the insurer of mismanaging the company’s health and dental plans by pocketing undisclosed fees and paying millions of dollars in claims that shouldn’t have been approved.

Employers that provide health benefits for employees are increasingly expected to ensure that claims paid and fees charged are reasonable, and they are becoming more aware of those fees as a result of data that hospitals and insurers are required to provide under the Consolidated Appropriations Act, 2021 (Public Law 116-260) and the transparency in coverage rule issued in 2020.

“These are the first of many cases to be filed by employers and employer plan sponsors,” Christin Deacon, founder of VerSan Consulting LLC in Haddonfield, N.J., said in an interview. VerSan focuses on policy related to employer-sponsored and union health benefits.

Lawsuits also have been filed against Elevance Inc. and against Blue Cross Blue Shield of Massachusetts. The suits allege breach of fiduciary duty by plan administrators in not providing adequate claims data to employers so that they can review whether the plans are being properly administered, she said.

Moreover, plaintiff’s law firm Schlichter Bogard LLP appears to be scouting on LinkedIn for employees to be plaintiffs against TargetState Farm, and PetSmart regarding the companies’ health plans—actions that could open the door to employees alleging company breach of fiduciary duty, Deacon said.

The firm has been heavily involved in lawsuits against employers over their retirement plans, and on its website it quotes an article describing managing partner Jerry Schlichter’s impact as “the Father of the 401(k) case.”

“It would be a mistake to conclude that these ads mean something in a global way,” Jerome Schlichter, managing partner of Schlichter Bogard said in an interview. “Nothing may come of it beyond these companies,” he said.

“There are factual situations involving these companies that are the basis for our investigation, and nothing more than that,” he said.

He declined to describe the factual situation Schlichter Bogard is investigating at the three companies. The companies didn’t immediately respond to a request for comment.

Similar Conduct

“If these large carriers, TPAs [third party administrators], are engaging in this kind of conduct with companies like Kraft Heinz, you can be sure that similar conduct is happening with other large employers around the country,” Deacon said.

“If these cases bear out, and employers don’t do something to correct this behavior, then the employer is at risk for being sued by their employees for breach of their fiduciary duty,” she said.

Amy Gordon, an employee benefits partner with Winston & Strawn LLP, said in an interview that contracts between health plan administrators and employers have added more fees in recent years. “It is very problematic that over the years, that they have essentially added more and more types of compensation into the agreement,” she said.

Employers are obligated to make sure “that there are no hidden fees and expenses and limitations” on audit rights in the contracts they enter into with service providers, Gordon said.

Providing Claims Data

In their lawsuits, a major point of contention is the alleged failure of plan administrators to provide employer plans with claims data.

In its lawsuit, Kraft alleged that Aetna approved false, fraudulent, and improper claims, including thousands of duplicative claims. Kraft asked Aetna to turn over its claims data in 2021 so it could investigate these matters, and the company responded by producing only “self-selected” and incomplete data, Kraft said in the suit.

An Aetna spokesperson said the company has no comment.

“The medical claims data Kraft Heinz seeks belongs to Kraft Heinz,” the suit said. “Aetna merely has the ‘right to use’ that information.”

“Without this data, Kraft Heinz is unable to assess Aetna’s handling of the Plans’ funds and associated payment integrity. Kraft Heinz owns this data and has an absolute right to it,” Kraft Heinz said.

Employers need to ensure that they have access to their claims data in the agreements they negotiate with plan administrators, Gordon said.

Self-insured employers “are paying for those claims. You should have full access to those claims,” she said.

The employers that have filed suit against their plan administrators so far are “willing to make the very difficult and uncomfortable decision to sue these large carrier entities that have, in many cases, been their vendors for years,” Deacon said.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editors responsible for this story: Brent Bierman at bbierman@bloomberglaw.com; Cheryl Saenz at csaenz@bloombergindustry.com