A Court and the DOL Weigh In on Cross-Plan Offsetting for Health Benefits

A recent lawsuit highlighted the fact that plan sponsors have a duty to monitor health benefit service providers and fees.

Health benefit plans, whether self-funded or fully insured, are subject to rules of the Employee Retirement Income Security Act (ERISA).

A decision this year from the 8th U.S. Circuit Court of Appeals and an amicus brief filed in the case by the Department of Labor (DOL) further emphasize plan sponsors’ duty to monitor what health plan providers or third-party administrators (TPAs) are doing.

The lawsuit was brought by doctors on behalf of patients against UnitedHealth Group. According to the court opinion, in 2007, United implemented an aggregate payment and recovery procedure in which it began to offset overpayments made to “out-of-network” providers, even when the overpayment was made from one plan and the offset taken from a payment by a different plan. This is a practice known as cross-plan offsetting.

In its amicus brief, the DOL said cross-plan offsetting violates ERISA’s requirement that a plan fiduciary must act for the exclusive purpose of providing benefits to the plan’s participants and their beneficiaries and therefore constitutes a prohibited transaction. The DOL also mentioned that the practice exposes participants to potential liability since providers can bill patients for any amount not paid.

Technically, the 8th Circuit did not rule on whether the practice violates ERISA, but said it “is in some tension with the requirements of ERISA.” Citing a 1997 case in the 9th U.S. Circuit Court of Appeals, it said: “While administrators like United may happen to be fiduciaries of multiple plans, nevertheless ‘each plan is a separate entity’ and a fiduciary’s duties run separately to each plan.”  The 8th Circuit found cross-plan offsetting is in tension with ERISA’s exclusive benefit rule because it arguably amounts to failing to pay a benefit owed to a beneficiary under one plan in order to recover money for the benefit of another plan.

Aside from this discussion, the appellate court found that nothing in the plan documents even comes close to authorizing cross-plan offsetting. “To adopt United’s argument that the plan language granting it broad authority to administer the plan is sufficient to authorize cross-plan offsetting would be akin to adopting a rule that anything not forbidden by the plan is permissible. Such an approach would undermine plan participants’ and beneficiaries’ ability to rely on plan documents to know what authority administrators do and do not have. It would also conflict with ERISA’s requirement that ‘every employee benefit plan shall be established and maintained pursuant to a written instrument,’” the court wrote in its opinion.