An employer with a large number of employees usually offers health care coverage to its employees using what is called “self-insurance”. When an employer self-insures the cost of health care coverage for its employees, the employer usually engages a third-party administrator (like Aetna or United Healthcare) to negotiate acceptable fees with health providers, to manage the claims process, and to pay claims and, in exchange, the third-party administrator is paid for its services. Even though the employer relies on the third-party administrator to handle these matters, the employer has a fiduciary responsibility to ensure that the health care costs are reasonable not only for the employer but also for its employees who may bear premium, co-pay, deductible and other costs.
An employer is now expected to ensure that claims paid and fees charged are reasonable. The Consolidated Appropriations Act of 2021 and the transparency in coverage rule issued in 2020 require hospitals and insurers to provide this data to a requesting employer.
Some employers have found that insurers are unwilling to provide the information and that, when the information is made available, the claims and expenses charged to the employer and its employees are not reasonable. For example, Kraft Heinz Co.’s employee benefit plan filed a suit against Aetna in federal court accusing the insurer of mismanaging the employer’s health and dental plans by pocketing undisclosed fees and paying millions of dollars in claims that should not have been approved.
Each employer should consider what it should do to ensure that its self-insured health costs are reasonable not only for its own bottom line, but also to avoid breach of fiduciary claims from employees. For example, one plaintiff’s law firm appears to be scouting on LinkedIn for plaintiffs against Target, State Farm, and PetSmart.
The bottom line is that an employer has a fiduciary responsibility to protect its employees from excessive health plan costs by investigating the reasonableness of the amounts that are paid for health claims and fees.