Federal Court Orders Health Plan to Distribute $12M in Assets to Participants, Providers

The U.S. District Court for the Northern District of Illinois is requiring a health plan in Madison, Tennessee, to distribute $12 million in assets to health plan participants and medical providers.

This distribution arises from an investigation conducted by the Department of Labor, which found that former fiduciaries of the AEU Holdings LLC Employee Benefit Plan—a multiple employer welfare arrangement, or MEWA—caused about $83 million in health claims to be wrongly billed to participants.

A MEWA is a health and welfare plan that allows multiple employers to pool resources to offer better health insurance options to their employees. Receivership Management Inc., a court-appointed independent fiduciary, currently operates the plan.

In 2017, the DOL’s Office of the Solicitor sued AEU Benefits LLC, AEU Holdings LLC and Black Wolf Consulting Inc. after investigators in the Employee Benefits Security Administration discovered the companies breached their fiduciary duties, leading to the mismanagement and severe underfunding of the MEWA.

According to the DOL, the breaches caused participants in 36 states to be billed approximately $83 million in health claims, with the plan responsible for paying $54 million. To date, more than $17 million has been recovered to fund the unpaid claims.

At its height, the AEU Holdings MEWA covered approximately 14,000 participants and beneficiaries. These participants worked for more than 560 employers across 36 states. Numerous participant complaints had alerted EBSA to the existence of systemic failure by the MEWA to pay medical claims. The EBSA investigation ultimately found that contributions from employers and employees—intended to pay for the health coverage—were pooled and transmitted to offshore Bermuda accounts, established in connection with a purported insurance arrangement.

In November 2017, the DOL obtained a temporary restraining order against the fiduciaries, removing and barring them from serving as fiduciaries or service providers to the individual employer plans that participate in the AEU Holdings LLC Benefit Plan. The Illinois court also ordered two banks to freeze 14 bank accounts that were alleged to have plan assets in them.

Since September 2021, Receivership Management has recovered some funds through separate litigation on behalf of the MEWA. The court previously barred the 16 defendants from serving as fiduciaries or service providers to ERISA-covered plans in the future.

“The final distribution plan approved by the court brings long-awaited financial relief to beneficiaries and medical providers and shows we will take all actions needed to prevent employers, participants and beneficiaries from being bilked out of their healthcare benefits,” said Solicitor of Labor Seema Nanda in a statement.

In March 2023, the court approved the independent fiduciary’s plan to distribute $6.3 million in interim payments to medical providers. The medical providers accepted $5.3 million in interim payments; those who accepted the interim payments have agreed not to pursue additional amounts from plan participants.

The independent fiduciary’s plan for final distribution, which the court officially approved on October 29, will be implemented after a 30-day period during which the court order may be appealed. The plan also requires the independent fiduciary to distribute an additional $9.4 million to medical providers who accepted an interim payment and distribute $2.7 million directly to plan participants whose medical providers refused to accept the interim payment.

According to the DOL, participants can use these amounts toward satisfying unpaid claims for medical providers who did not accept the interim payments. The court will continue to oversee the final distribution process until its completion.

“The egregious violations of the Employee Retirement Income Security Act by AEU Holdings, Black Wolf Consulting and Veritas PEO left plan participants with unpaid claims and jeopardized their access to healthcare, causing great harm,” said Assistant Secretary of Labor for Employee Benefits Security Lisa Gomez in a statement. “The Employee Benefits Security Administration is committed to ensuring plan participants and beneficiaries receive the benefits they have earned.”

Meanwhile, fiduciaries have faced increased scrutiny over the management of their health plans. Under the Consolidated Appropriations Act of 2021, employers are required to audit vendors and their partners and make sure their prices are reasonable, so plan participants are paying a fair market price. Wells Fargo & Co. and Johnson & Johnson are two examples of companies that were sued this year for alleged mismanagement of their health care plans.