Suits Accuse Employers of Bad Math on Health Deductible Options
By Lauren Clason | Originally posted on Bloomberg
A spate of proposed class actions accuse employers of violating their fiduciary duties by offering low-deductible health plans that plaintiffs claim are a worse financial deal than the high-deductible options.
Current and former workers allege Abbott Laboratories, University of Rochester, and Northwestern University offered two medical plans with similar levels of coverage at different price points, subjecting participants in the traditional low-deductible plan to unjustified higher premiums and cost-sharing. The separate lawsuits argue employers should have warned participants the low-deductible plan was a worse option.
Employers and insurers frequently vary cost-sharing levels in plan options to give enrollees a choice. Higher-premium plans usually come with lower deductibles, and vice versa. But the class actions allege the math ultimately proves the companies’ low-deductible plans are a bad choice.
It’s the latest evolution in legal challenges surrounding health plan fiduciary responsibilities under the Employee Retirement Income Security Act, a field that grew out of plaintiffs’ success with similar lawsuits in the retirement space. A recent series of lawsuits target employers and consultants for what the plaintiffs say are high costs in supplemental benefits as well.
The cases raise a new set of legal questions, including what decisions fall under the fiduciary umbrella and what relief participants could be entitled to under ERISA.
“I imagine you’re going to have a lot of plans that go back and look at their options,” said Karen Handorf, a professor at Georgetown University’s Center on Health Insurance Reforms.
Legal Questions
Employers must ensure that fees paid to third-party insurers and others are reasonable under the Consolidated Appropriations Act of 2021. The Labor Department requires employers to vet workers’ plan options in fulfilling that obligation, the plaintiffs in all three cases argued, saying the poor plan options ultimately cost them in lost wages.
The US District Court for the Northern District of Illinois allowed the case against Northwestern University to proceed in June, saying that whether the plan options were “settlor” functions—or choices that fall outside of the fiduciary category—needed to be resolved through fact-finding.
Outlining cost-sharing levels looks like settlor decisions “at first blush,” Handorf said. But that might not be the case if the decision was delegated to fiduciaries.
“I don’t think that there’s any clear case law that really answers that question,” she said.
The judge pointed to an internal HR email saying Northwestern’s actuaries “concurred that it is unlikely that there is a scenario where one would be financially better off” with the low-deductible plan, given the small difference between the two plans’ out-of-pocket caps. A worker could pay as much as $4,700 more in premiums while only saving around $600 in out-of-pocket costs, according to the plaintiffs’ complaint.