Alert / Employee Benefits
DOL Chases Health Plan’s Missing $26 Million; Lessons for Employers Everywhere

Earlier this month, the U.S. Department of Labor convinced a court to remove administrators of a health insurance arrangement that has left more than $26 million in medical claims unpaid. The claims were incurred by employees of more than 500 employers across 36 states. The move by the DOL is a dramatic reminder to employers of the fiduciary risks of not knowing how their health plans operate.

The arrangement’s administrators allegedly collected premium payments from employers and their employees and moved the cash to offshore accounts in Bermuda. Some employees’ claims had gone unpaid for more than a year.

The court appointed an independent fiduciary to try to gather what cash it can locate and beginning paying unpaid claims until the cash runs out. Read the DOL’s press release here.

“How Could You Have Let This Happen?”

Although my former colleagues at the DOL have not yet alleged lack of prudence on the part of the employers that were part of the arrangement, those employers are sure to receive the $26 million question from their employees or their employees’ attorneys: “How could you have let this happen?” 

It’s a legitimate question. ERISA imposes a fiduciary duty on plan sponsors to act prudently and in the best interests of the plan’s participants. To act prudently means the sponsor – that is, its employees who oversee the plan – must understand how the plan operates, how claims are administered, and how reliable the insurer or third-party claim payer is. Ignorance and good intentions are no defense when things go sideways and it becomes apparent the plan sponsor hadn’t asked the right questions or any questions at all.

How Much Do You Really Know About How Your Health Plan Operates?

With respect to their group healthcare plans, many employers work with long-established and relatively sophisticated insurers and third-party claim payers. But, just because a vendor has experience doesn’t mean it can’t make mistakes, and sponsors shouldn’t assume anything. How much do you really know about how the vendor does what it does?

Contrast an employer’s oversight of its healthcare plan with its oversight of its retirement plan. Employers almost always have formal policies, procedures and oversight bodies in place to operate 401(k) or similar retirement plans.

They establish committees, the committees meet regularly, the meetings are documented with written minutes, and the minutes reflect issues raised and discussed – issues that plan fiduciaries are supposed to discuss:

  • Where does the participants’ money go?
  • How does the administrator process claims for benefits?
  • What rules does the administrator apply in paying claims?
  • What role do we play when a denied claim is appealed?
  • What kind of information do we receive from the administrator?
  • How and when do we act upon information received?
  • How can we make our approach proactive rather than reactive?

Why Your Health Plan Should Have a Governance Framework

Health plans often receive less than an appropriate level of attention from the plan sponsor. As a former DOL investigator, I encountered time and again employers that were diligent about understanding and overseeing their retirement plans but had no governance process in place for their healthcare plans. They had no idea how their insurers or claim payers handled claims processing, determined out-of-network benefits, handled overpayments to and refunds from providers, chased subrogation claims, shared in prescription drug rebates, or compensated sub-vendors.

Health plan sponsors can be lulled into a sense of complacency, a potentially false sense of security, because it’s not every day that a provocative, glaring omission or mistake arises under a health plan; the stakes don’t seem as compelling as with a retirement plan holding millions of dollars in assets.

But health-plan-governance mistakes do arise, and often they go undiscovered until a plan participant, a dependent, an out-of-network provider or a DOL investigator takes the plan and its fiduciaries to task. 

The best protection against making a mistake is a solid plan-governance roadmap to keep things on track. By formally adopting written governance procedures and paying them heed, the guesswork is eliminated and the plan sponsor is left with a concise and comprehensive plan to meet its fiduciary obligations.

For more information about health plan governance procedures and recommended governance policy documents, contact your Lockton account service team, who can connect you with Ethan McWilliams, Lockton’s Senior Compliance Analyst, or Rory Kane Akers, ERISA Compliance Attorney, both of whom are former Department of Labor investigators.

Not Legal Advice: Nothing in this Alert should be construed as legal advice. Lockton may not be considered your legal counsel and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.

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